Glossary of Terms

Generally Accepted Accounting Principles.

Pronounced 'gap' when abbreviated.

Options analysis. The rate of change of an option’s delta, with respect to changes in the market price of the underlying asset. This is the second derivative of the option’s value, with respect to changes in the market price of the underlying asset.

A mismatch in the timing at which assets and liabilities are repriced. A positive gap (assets repricing more quickly than liabilities) means an exposure to falling interest rates and vice versa.

See Garnishee order.

An order from a court forbidding a bank to release money that it holds in the account of one party for as long as that party owes money to a second party. The second party obtains the garnishee order and the bank is the garnishee.

Abbreviation for London Gazette.

Gross Domestic Product.

See Gearing.

The same as Equity beta.

The recalculated cash flow from a firm or from a project, assuming a particular level of debt finance. This level of debt finance might be the current or proposed level of debt finance, but it need not necessarily be.

1. Financial gearing measures the relative amount of debt in a firm's capital structure.

Gearing ratios can be calculated in several different ways, so consistency of approach is important.
Two essential bases to define are:
i. The use of book or market values.
ii. The use of Debt divided by Equity (D/E) or of Debt divided by Debt plus Equity = D/[D+E].

Historically, use of the D/E version of the measure was more common in the UK.
With respect to the Debt figure, practice varies in including or excluding certain items such as cash, short term borrowings, leases, pensions and other provisions.
Practitioners may also adjust the Equity figure, for example to exclude intangible assets.

2. Operational gearing relates to the operating costs of a business, and measures the relative proportions of fixed and variable operating costs.

Tax. The UK capital allowances pool where qualifying capital expenditure is recorded which does not qualify for special rules.

(GAAP). The common set of accounting principles, standards and procedures. They are a combination of published authoritative standards (set by policy boards such as the FASB in the US and the ASB in the UK) and the accepted ways of doing accounting.

Geometric mean returns are calculated by taking account of compounding (contrasted with the arithmetic mean, which ignores compounding).
For example, the geometric mean return calculated from sample returns of 4%, 5% and 6% is given by: (1.04 x 1.05 x 1.06)^1/3 -1 = 4.9968%.

Also known as Gilt-edged Securities.
UK central Government debt. It may be dated (redeemable) or undated.
Undated gilts are perpetual debt, paying a fixed periodic coupon but having no final redemption date. Gilt yields are conventionally quoted in the UK markets on a semi-annual basis.

A credit transfer order.

A type of Credit Transfer System.

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Abbreviation for Guaranteed Minimum Pension.

Abbreviation for Guidance Note.

Abbreviation for Gross National Product.

1. A going concern is an entity which is commercially viable, able to pay its obligations as they fall due, and whose owners (or other controllers) intend it to continue in operation for the foreseeable future.

2. The going concern basis of accounting requires that the accounts are prepared using the assumption that the business will continue in operation for the foreseeable future (more than 12 months) and that there is neither the aim nor need to liquidate or limit significantly the nature of the operations.

3. More generally, a basis of valuing a business on the assumption that it will continue in operation. Such a valuation may be made for accounting purposes or for other purposes.

4. Pensions. The assumption that a pension scheme continues without being discontinued. Going concern valuations are made on such a basis.

Pensions. A report on the security of occupational pension arrangements sponsored by the UK Government and produced in 1993, following the Maxwell case.

An intangible asset representing the additional premium paid to acquire control of a company. Also known as positive goodwill.

An asset reported in a consolidated group balance sheet, based on the excess - if any - of the purchase price paid for the investment in a subsidiary, over the holding company's share of the subsidiary's net assets.

Same as Dividend Growth Model.

A framework that provides guidance on strategy including assessing risk, ensures effective monitoring of management and makes certain that managers are accountable to stakeholders.

In the commercial context, this framework is known as corporate governance.

A UK government department operating on commercial lines giving independent actuarial consultancy advice within the public service.

1. A time period allowed in a loan agreement in which a borrower is allowed to correct a potentially default situation.

2. A similar arrangement in other types of contracts or non-contractual agreements.

Free or voluntary.

In options analysis, same as Greeks.

In options analysis, delta, gamma, vega, rho and theta are known collectively as the Greek letters or the Greeks. They all relate to changes in the value of options, with respect to changes in other relevant variables.

A situation that can arise in a funds or securities transfer system in which the failure of some transfer instructions to be executed (because the necessary funds or securities balances are unavailable) prevents a substantial number of other instructions from other participants from being executed.

An amount stated before the deduction of tax or of other related offsetting items.

(GDP). A measure of total output produced by firms using factors of production located in the UK.

1. Interest stated before offsetting tax effects, if any.
In this sense, gross interest receivable means interest receivable stated before deducting any tax payable thereon.
In this context, gross interest payable means interest payable stated before offsetting any tax relief enjoyed on the interest expense.

2. Interest (usually) payable, stated before deducting other interest (usually) receivable in the same period.

(GNP). Total income earned by UK households regardless of where they provided the factors of production.

A measure of profit taking account of some - but not all - related costs. For example, Revenue LESS Direct costs of sales (but ignoring indirect costs such as administrative overheads).

(GRY). A measure of the return on a fixed income security. It is the interest rate which, when used to discount all remaining payments of interest and principal, without any allowance for taxes, gives a present value equal to the price. Also known as gross yield to redemption.

A transfer system in which the settlement of funds or securities transfers occurs individually on an order-by-order basis according to the rules and procedures of the system, in other words without netting debits against credits.

In general terms, a group of companies is a parent company together with all its subsidiaries.

In practice the exact membership of the group may differ for financial reporting purposes and for tax purposes. It may also differ in its details for different tax purposes.

For financial reporting purposes, the membership of the financial reporting group is usually mandatory/automatic.
For tax purposes, companies which are eligible to be grouped may usually elect to be grouped for tax purposes, but group treatment is not usually mandatory.

Financial reporting. Consolidated group accounts involve treating the net assets and activities of subsidiaries controlled by the holding (or parent) company as if they were part of the holding company’s own net assets and activities.

The preparation of consolidated group accounts involves two stages:
1. Aggregation to add up the individual assets and liabilities of all of the companies in the group.
2. Consolidation adjustments to remove, for example, intercompany trading and indebtedness from the consolidated figures for the group.

Tax. An arrangement in a group of companies whereby one nominated company pays the corporation tax liability for the entire group.

A system of UK tax whereby a member of a group of companies may, in defined circumstances, pass a trading loss to another group company, enabling it to set the loss against its own trading profit, thereby reducing the amount of corporation tax payable by the group as a whole.

Statistics. Certain outcomes in a distribution are grouped together and the frequencies recorded for the group rather than individual items.

See Perpetuity.

Abbreviation for Gross Redemption Yield.

1. To assume the liability for debts of another in the event of his default.

2. The undertaking so given.

A party which undertakes an obligation under a Guarantee.

A document issued by the UK Pensions Regulator in addition to a Code of Practice, but of less weight, where there is a need to explain: what the law requires; the responsibilities of particular groups and how they can meet those responsibilities; changes to the law; and the Pension Regulator’s approach on a particular matter. It is not a statement of law and, unlike Codes of Practice, courts and tribunals will not take it into account.

(GN). A document issued to practising actuaries by the actuarial profession in respect of certain activities.