Glossary of Terms

Profit and Loss account.

Price to earnings ratio.

A weighted index using quantities entirely from the current year's data.

(PE-ACH). A facilitator for low-value electronic payments across Europe.
The Euro Banking Association’s (EBA) STEP2 was the first PE-ACH to be introduced.
The development of the pan-European direct debit will be the next phase.

Credit transfers that do not involve the exchange of paper documents between banks.
Other credit transfers are referred to as being paper-based.

1. The face value of an interest bearing instrument.
A bond whose market yield is equal to its coupon rate trades in the market at a value of par (= the face value).

2. The value of an ordinary share (or a unit of common stock) for legal purposes.

A bond redeemable at par which is currently trading at a market price equal to its par value.
The current market yield on the par bond is therefore equal to its coupon rate.

Also known as Par yield.

Par.

Today’s market yield on a coupon bond trading at par and redeemable at par
= the fixed coupon rate payable on such a ‘par bond’.

Also known as Par rate, Swap rate or Swap yield.

A parent company (investing company) controls a subsidiary.

The currency of the parent company of a multinational group.

An undertaking is a parent undertaking in relation to another undertaking if it controls that undertaking in one or more ways defined in companies legislation.

Latin term meaning ‘equal in all respects’ and would indicate, for example, that one class of obligation will have the same rights and privileges as another class of obligation.

A clause in a loan agreement, normally for an unsecured borrowing, that the lender will rank equally with all other unsecured creditors.

The official rate of exchange between two currencies.

The matrix of bilateral par values for the currencies of Members of the European Monetary System.

The grid establishes the intervention prices between which member governments are obliged to maintain the exchange value of their currency in terms of every other group currency.

VAT.
A situation where a trader makes both taxable and exempt supplies and consequently may not be able to recover all the input VAT.

Tax.
A situation where the entire proceeds on the sale of the original asset are not re-invested.

A party which participates in a transfer system.

This generic term refers to an institution which is identified by a transfer system (for example by a bank identification number) and is allowed to send payment orders directly to the system or which is directly bound by the rules governing that transfer system.

Accounting.
In connection with the definition of 'parent' and 'subsidiary undertakings', an interest held by an undertaking in the shares of another undertaking which it holds on a long-term basis for the purpose of securing a contribution to its activities by the exercise of control on influence arising from that interest.

UK Tax.
A shareholder or director of a company.

Law.
A partnership exists where two or more individuals enter into business together.

Governed in the UK by the Partnership Act 1890 and the Limited Liability Partnerships Act 2000.

Law.
A common law tort which can be used to enforce unregistered trademark rights.
In essence, the action is designed to prevent others from trading on the reputation or goodwill of an existing trademark or brand.

Tax.
Income derived from real estate and business investments in which the taxpayer is not actively involved.

Pensions accounting.
The increase in the present value of pension scheme liabilities - related to employee service in prior periods - arising in the current period and resulting from the introduction of, or improvement to, retirement benefits.

Pension scheme liabilities relating to service completed up to the Valuation date.

Profit After Tax.

Government grant of the exclusive privilege of making or selling a new invention, design or process for a predetermined number of years.

1. To discharge a debt by giving or doing something.

2. More specifically to give money in return for goods or services.

(PAYE). The system used in the UK to collect income tax and national insurance contributions from employees.

(PAYG). A pension arrangement under which benefits are paid out of revenues and no funding is set aside to meet future liabilities.

(PTD). A draft that is only payable via a nominated bank.

Depending on the conditions attached to the draft, the nominated bank may be the paying bank or only act as the collecting bank that presents the draft for payment.

Accounting.
Amounts which are due to be paid by a reporting entity.

A policy of paying suppliers late reduces the amount of financing required from other sources, but this could increase the risk of penalty charges for late payment and will also inconvenience suppliers with whom a good relationship is important.

Effective payables management involves - among other things - finding an appropriately balanced level of payables.

Also known as creditor management.

Payback analysis is a method of investment appraisal in which the cumulative net total of investment (one or more outflows - negative amounts) and return (inflows - positive amounts) is projected in order to determine when that net total is zero.
This is the time when the initial investment has been fully recovered.

For example a proposal requires an initial investment of $100m at Time 0 years, and will then pay out annual amounts of $10m, $20m, $30m, $40m, $50m and $60m at Times 1 to 6 years hence respectively.

The cumulative net cash flow and payback period are calculated as follows:
Time 0: $(100)m.
Time 1: $(100)m + $10m = $(90)m.
Time 2: $(90)m + $20m = $(70)m.
Time 3: $(70)m + $30m = $(40)m.
Time 4: $(40)m + $40m = $0.

The initial investment has paid back after 4 years, so the payback period is 4 years.

Normally there is no attempt to adjust for money received in different time periods. The underlying assumption is that the sooner you can 'get your money back' the better the project. This is, of course, very simplistic, and it may lead to suboptimal decisions.

A slightly more sophisticated version of payback analysis is Discounted payback.

The total period before the cumulative net cash inflows from an investment are sufficient to have fully paid back the initial investment.

1. Pay As You Earn.

2. The total liability payable to HM Revenue & Customs in respect of Pay As You Earn.

The party to which a cheque is made payable.

Pay As You Go.

An institution, a company or a bank which, on behalf of the issuing company, makes interest payments and repayment of the principal upon presentation of coupon and/or bond certificates.

1. Defined broadly, payment refers to the payor’s transfer of a monetary claim on a party acceptable to the payee. Typically, claims take the form of banknotes or deposit balances held at a financial institution or at a central bank.

2. The term is also defined more strictly for certain accounting and tax purposes, where the exact timing of payments - for example either within or outside of a given tax calculation period - is important for the determination of tax liabilities and reliefs.

A group of banks working together to provide collectively co-ordinated and/or cross-border cash management services.

The time interval between the receipt of an invoice by the payor, including the credit period, and the time the payor’s bank account is charged for funds in payment of the invoice. May also be quantified and expressed in cash amounts.

1. Any non-cash form of payment.

2. (PIK). Non-cash payment of interest coupons on a security. For example by an increase in the amount of principal owed by the borrower.

A form of netting, involving payment instructions in the same currency and with the same due date, where the party with the largest aggregate balance settles the difference resulting from the netting operation.

Also called settlement netting.

An order or message requesting the transfer of funds (in the form of a monetary claim on a party) to the order of the payee. The order may relate either to a credit transfer or to a debit transfer.

A set of instruments, banking procedures and, typically, interbank funds transfer systems that facilitate the circulation of money.

(PVP). A mechanism in a foreign exchange settlement system which ensures that a final transfer of one currency occurs if and only if a final transfer of the other currency or currencies takes place.

1. In relation to an option, the terminal cashflow.

2. The gain or loss resulting from a strategy, excluding sunk costs.

3. The net gain or loss from a strategy, including any front-end payment or receipt.

The party that issues a cheque.

1.
The proportion of an available profit or surplus paid out to investors (or to other stakeholders).

2.
Dividend payout ratio.

US. Pension Benefit Guaranty Corporation.

Profit Before Interest and Tax.

Pensions.
Projected Benefit Obligation.

People's Bank of China.

Profit Before Tax.

Public Company Accounting Oversight Board.

Profits Chargeable to Corporation Tax.

Price to Earnings ratio.

Pan-European Automated Clearing House.

Statistics.
Three times the mean less the median all divided by the standard deviation.

When the mean is greater than the median, the distribution is positively skewed.
When the mean is less than the median, the distribution is negatively skewed.

An enquiry commissioned by the UK government in 2001 into the circumstances leading to the financial difficulties encountered by the Equitable Life Assurance Company. Lord Penrose undertook the enquiry and his report was published in 2004.

A periodic payment made to a Pensioner under a pension scheme.

In some countries, such as Australia, the term can alternatively be applied to a lump sum payment on retirement.

1. The stock of assets held by a funded pension scheme, from which to pay the related pension liabilities.

2. The entitlement enjoyed by an individual to receive a pension or other related benefit.

3. Any other asset relating to a pension scheme. For example, a right to a proportionate share of a pension fund surplus, or a related benefit of enjoying a pension contributions holiday.

(PBGC). US Pensions.
An organisation set up by the US government to take over the assets and liabilities of insolvent pension funds and to provide limited guarantees as to the payment of pensions by those funds.

The PBGC has wide powers to investigate US pension schemes and their sponsoring companies.

The equivalent in the UK is the Pension Protection Fund.

The accounting cost to a company of providing pension benefits in a given time period as shown in the financial statements, which may be more or less than actual payments made into the scheme or schemes involved over the same period.

The fraction of pensionable salary for each year of pensionable service which forms the basis for a pension in a Defined Benefit pension scheme.

1. In strict terms, the stock of assets held by a funded pension scheme.

2. An equivalent term for the funded pension scheme itself.

1. In relation to a defined benefit pension scheme, the expected future amounts of pensions, other benefits and related costs payable by the scheme.

2. The total present value of these expected future cash outflows from the pension scheme.

Pension scheme.

(PPF). An organisation set up by the UK government under pensions legislation to fulfil a similar purpose in the UK to that undertaken by the Pension Benefit Guaranty Corporation (PBGC) in the US.

(PPFO). An individual appointed under UK pensions legislation to investigate any matters considered by the Board of the Pension Protection Fund (PPF), including complaints of maladministration and matters of law.

Same as pensions risk.

Any type of arrangement whereby members of the scheme become entitled to receive a Pension.

Also known as a pension plan.

The salary to which the pay related formula in a Defined Benefit pension scheme is applied.

Pensionable salary will often be lower than total salary as a result of certain deductions (to exclude for example any overtime or bonus payments).

The period of service in years that is taken into account when calculating the benefits payable under a Defined Benefit pension scheme.

Someone who receives a pension under a pension scheme.

Key UK legislation relating to pensions includes the Pensions Acts of 2011, 2008, 2004 and 1995.

Formerly a fund set up under UK pensions legislation providing assistance in the payment of benefits cases where an employer is insolvent, assets are less than 90% of liabilities and there has been a loss of scheme assets as a result of dishonesty.

Replaced by the Fraud Compensation Fund in 2005.

(PMI). A body set up in the UK to promote professionalism among those involved with pensions, including the provision of qualifications for practitioners.

An individual appointed under UK social security legislation empowered to investigate disputes between individual members of occupational pension schemes and the trustees or administrators of those schemes.

An educational charity providing non-political, independent comment and analysis on pension policy in the UK.

A body appointed under UK pensions legislation with the objectives of working proactively to protect pension benefits, reducing the risk of claims on the Pension Protection Fund and promoting the good administration of pension schemes.

The Pensions Regulator took on all of the duties of Occupational Pensions Regulatory Authority (OPRA) in 2005.

(PRAG). An independent research and discussion group for the development and exchange of ideas in the pensions field mainly in the areas of reporting and accounting by pensions schemes.

The risk of adverse effects on an organisation (usually an employer) resulting from its obligations to provide (or contribute towards) retirement benefits.

Price to Earnings Ratio or Price-Earnings Ratio.

Law.
Latin phrase meaning, 'through the want of care'. A decision per incuriam is one which a subsequent court finds to be a mistake, and therefore not of binding precedent.

Division of a frequency distribution into 100 equal parts.

A market form, characterised by many sellers, selling a homogeneous product.

Near enough the same as Efficient markets.

A bond is an instrument issued by a bank or an insurance company, in favour of a buyer, on behalf of a supplier, as additional assurance to the buyer that the supplier will perform its obligations under the supply contract.

Such a bank bond or insurance company bond will be supported by an indemnity issued by the supplier in favour of the bank or insurance company.

A performance bond can be called by the buyer in the event of any contract delays or defects in the supplier's performance of the contract.

The difference between the actual rate of return on invested capital and the required market rate of return.

Financial reporting.
A period for which a company prepares a set of statutory accounts.

Also known as accounting period.

1. The interest - in money terms - for any given period under review.
For example £140 per day.

2. The periodic rate of interest.

1. Periodic rate of interest.

2. Any amount, usually expressed in percentage or decimal terms, applied as a proportionate amount per period and in relation to an actual or notional principal value. For example, a periodic rate of discount.

The total interest for any given period - for example 0.014% per day.
The given period may be less than one year, equal to one year, or more than one year.
Another example of a periodic rate of interest would be 12.36% per two years.

Not to be confused with the effective annual rate and the nominal annual rate, which are different.

The informal, shortened version of perquisite which is a benefit arising as a result of employment in addition to regular remuneration.

Perks are seen by some as privileges often expected historically by certain senior employees such as a company car, private health insurance, executive dining room.

Tax.
A permanent place of trade for an organisation. Important for determining which country taxes its income.

A bond which pays periodic coupons in perpetuity, but never repays the principal.

Also known as an Irredeemable bond.

1.
A perpetuity is similar to an annuity except that the fixed periodic cash flow which starts at the future Time 1 then carries on for ever (‘in perpetuity’) rather than stopping after Time n.

The present value of a fixed perpetuity is calculated - assuming a constant periodic cost of capital (r) for all periods from now to infinity - as:

Present Value = A₁ x 1/r

2.
For a growing perpetuity the present value formula is modified to take account of the constant periodic growth rate from Time 1 to infinity as:

Present Value = A₁ x 1/[r-g]

where g = the periodic rate of growth of the cash flow.

The growing perpetuity concept is applied by the Dividend growth model for share valuation.

An unusual perpetuity in which each of the cash flows is paid in advance (at the start of each period).

The fraction 1/r used when evaluating a fixed perpetuity.
Using this simple formula assumes a constant periodic cost of capital (r) for all periods from now to infinity.

Sometimes known as the Perpetuity formula.

Same as Perpetuity factor.

Usually shortened to perk, which is the more common usage.

UK Tax.
The amount of income that an indvidual can receive each year without having to pay income tax on it.

(PIN). A sequence of alphanumeric/numeric characters that identifies someone accessing an electronic information system.

Political, Economic, Social and Technological analysis.

The same as PESTLE analysis.

Political, Economic, Social, Technological, Legal and Environmental analysis.

Written application to a court requesting a remedy available under law.

The amount of cash that an organisation keeps in notes or coins on its premises to pay small items of expense.
This is to be distinguished from cash which normally refers to amounts held in banks.

Petty cash transactions are normally recorded in a petty cash book, the balance of which should agree with the amounts of petty cash held at any given time.

Germany. Mortgage bond issued by German mortgage banks.
The strict regulatory regime governing Pfandbrief-issuing and their relatively high credit ratings have enabled issuers to sell them widely to international investors.

1. A diagram illustrating the inverse relationship between (general) inflation and unemployment, or the inverse relationship itself.

2. A diagram illustrating the inverse relationship between wages (or wage inflation) and unemployment, or the inverse relationship itself.

Where a firm is put into administration to avoid losses and get out of contracts before the profitable portion is subsequently bought back.

1. In relation to derivative financial instruments, the physical is the underlying asset to which an option (or other derivative instrument) relates.

2. Having a tangible existence, such as machinery. (Contrasted with intangible rights or other assets, such as goodwill.)

Profitability Index.

Credit rating.
Abbreviation for Public Information.

A suffix added to a credit rating as a health warning to indicate that it is based on public information only.

A visual representation using a number of symbols to indicate a particular quantity.

A circle which represents the whole amount and containing wedge-shaped sectors which indicate the fraction in each category. (Resembling a pie.)

Payment In Kind.
Commonly pronounced "pick".

Personal Identification Number.

1. The most junior digit in a foreign currency quotation.

2. More generally, a minimum price movement for any quoted instrument or asset.

Public Key Infrastructure.

Profit and Loss account.

The issue of securities to an institutional buyer - or buyers - for cash.

A description meaning that there are no additional non-standard features in a financial contract.
For example, a plain vanilla interest rate swap is a standardised agreement to exchange fixed for floating interest flows, calculated on a fixed notional principal amount over the life of the swap.

The term derives from ice cream, where 'plain vanilla' ice cream was historically the commonest and cheapest variety.

Also known as Vanilla.

Pensions Management Institute.

Product Market Matrix.

Tax and pensions.
Practice Note.

Professional Oversight Board.

Professional Oversight Board for Accountancy.

1.
A minimum price movement for a quoted instrument or asset.
Also known as a 'pip'.

2.
US.
1% of a loan principal amount, especially in the context of residential mortgage loans.

A chart in the form of series of 'x's and 'o's, representing rising and falling market prices, independent of time.

(POS). The use of payment cards at a retail location (point of sale).

The relevant payment information is captured either by paper vouchers or by electronic terminals. Increasingly, electronic terminals can also transmit the information - this process is called, Electronic funds transfer at the point of sale (EFTPOS).

1. Basis points, 0.01% per point for interest rates.

2. Forward foreign exchange rate points.

3. Foreign exchange swap rate points.

4. US. 1% of a loan principal amount.

A discrete probability distribution that gives the expected frequency of occurrence of certain types of random events.

The risk of adverse consequences arising from the actions of governments or of governmental agencies.

1. A procedure in which excess funds in the bank accounts of a company or its subsidiaries are used to offset deficits in other company accounts for the purpose of determining interest earned or owed.

2. The core principle of fund management, where individual investors with the same investment objective bring their moneys together in a single investment vehicle portfolio. In exchange for the moneys brought in, the investor receives a proportional share in the mutual fund’s underlying assets.

The set of all possible items.

Porter's Five Forces of Competition, a strategic analysis model developed by Professor Michael E Porter.

The competitive forces identified by the model are:

1. The threat of new Competitors entering the market.

2. The threat from Substitute products or services.

3. The bargaining power of Customers.

4. The bargaining power of Suppliers.

5. The intensity of the Rivalry between the current competitors in the market.

A number of different assets, liabilities, or assets and liabilities together, considered as a whole.

For example, a diversified investment portfolio.
An investor in such a portfolio would hold a number of different investment assets within the portfolio, with the objectives of growing the total value of the portfolio and limiting the risk of losses.

Portfolio analysis is the analysis of combinations of assets and liabilities.

Portfolio analysis takes into account the expected correlations of the values of - and returns on - the different components of the portfolio.

1.
In relation to market interest rates, a portfolio is said to be immunised if its value at the end of the holding period is the value predicted at the start, regardless of the movement of interest rates in between.

Immunisation can be achieved by holding a portfolio whose duration is equal to the intended holding period. For example, a zero coupon bond of maturity = holding period.

Also an existing portfolio can be immunised by adding other appropriate instruments to it to achieve the required portfolio duration = intended holding period.

2.
Similar risk management techniques relating to other market prices (or market rates).

The purchase of a foreign financial asset with the purpose of deriving returns from the security without intervening in the management of the foreign operation.

1. In dealing, the net holding or exposure in a given market instrument, or to a particular market rate.

2. In statistics, a measure of the central location of a frequency distribution.

3. More generally, any relevant aspect of a location or situation.

The netting of instructions relating to obligations between two or more parties, as a result of which neither satisfies nor discharges those original individual obligations.

Also known as Advisory netting.

This is also referred to as payment netting in the case of payment orders.

Risk management.
A type of options hedging structure in which the net premium payable by the hedger is positive.

A straight line relationship; the forecast or other dependent variable increases as the independent variable increases.

Banking.
A service used to combat cheque fraud. The bank pays only those cheques with serial numbers and cash amounts that match those in an issue file supplied by the company.

Also known as match pay.

Statements of fact, which are capable of proof or disproof.

A yield curve demonstrating short-term rates which are lower than long-term rates.

Accounting.
A significant event which occurs between a company's balance sheet date and the date on which the company's financial statements are approved by the directors.

Such events are classified for accounting purposes as being either adjusting events or non-adjusting events.

1. One unit of the UK pound sterling.

2. One unit of a number of other currencies including those of Egypt, Lebanon, Sudan and Syria.

The currency of the United Kingdom (UK).

Often abbreviated to 'sterling' or 'the pound'.

Type II Error.

Pension Protection Fund.

Producer Price Index.

(PN). Tax and pensions.
A document issued by Her Majesty's Revenue & Customs, for example in connection with the granting of Exempt Approved Status, not having the force of law.

A portion of the management fee retained by the arranging or lead managing bank as compensation for its coordinating role in a syndicated credit or bond issue.

Pensions Research Accountants Group.

The rights of a shareholder to have the first refusal on any new shares in the company as they become available.
In the UK these rights are enshrined in company law.

Outside the UK pre-emption rights may or may not be recognised in law.

Pre-settlement risk is the risk that one party to a contract becomes insolvent before delivering its side of the contract.

For treasurers it is vital that hedging counterparties remain solvent for the duration of the hedging contract – otherwise the hedge evaporates.

A similar risk occurs in commercial contracts. Customers may become insolvent before paying for goods, and supplier insolvency may threaten production schedules.

The same as Contingent risk as applied to currency management.

The same as pre-transaction risk.

A desire to hold money in case of unforeseen emergencies.

The process whereby a decision is taken in a certain way because a previous decision was taken that way.

In relation to law, a previously decided case which, it is argued, should cause another case to be decided the same way.

A form of capital with preferred rights over ordinary shares or common stock. These rights may be a preferred right to a dividend or to repayment in the event of winding up of the business.

This form of capital can have some characteristics of debt and of equity. As such they could be a form of hybrid instrument.

Preference shares are frequently used by venture capital investors as a medium for their investment.

A creditor who is entitled to receive certain payments in priority to other unsecured creditors.

Stock that is issued with a stated dividend that must be paid before dividends to common stock holders.
Preferred stock does not usually have voting rights.

The process whereby a national court with a case including a question of the validity or interpretation of community law can (or if it is a final court of appeal, must) refer that specific question to the European Court of Justice for a binding determination.

1. The amount payable by the buyer of an option to the option writer for the right to deal on the terms contained in the option.

2. The amount payable by an insured to the insurer in return for the protection set out in the terms of the insurance policy.

3. A bond trading in the market at a premium has a market value greater than its par value.

4. A foreign currency trading at a premium in the forward foreign exchange market is stronger in the forward market, than in the spot market.

A card which contains real purchasing power, for which the customer pays the issuer of the card in advance.

Accounting.
Amounts owing to the business as a result of paying in advance for services.

A prepayment is a form of asset, because it represents benefits (in the form of valuable services) that the business is entitled to receive in the future, in consideration for cash that the business has already paid out.

(PV). Today’s fair value of a future cash flow, calculated by discounting the future cash flow at the appropriately risk adjusted current market cost of capital.

For example if $110m is receivable one year from now, and the cost of capital (r) is 10% per year, the Present value is:
PV = $110m x 1.1^-1 = $100m

And more generally:
PV = Future value x Discount Factor (DF)
Where:
DF = (1+r)^-n
r = cost of capital per period; and
n = number of periods

The act of presenting a negotiable instrument to the person on whom it is drawn for acceptance or payment.

Price to earnings ratio.

Economics.
The percentage change in quantity demanded divided by the percentage change in price.

Economics.
The percentage change in quantity supplied divided by the percentage change in price.

Pensions.
The linking of pensions in payment to a price index, such as Retail Price Inflation (RPI) in the UK.

Price risk is the risk that the value of an investment that you own will fall.
This risk illustrates how risks interact, as price risk could be caused by some or all of:

• Interest rate risk – interest rate fluctuations affect the value of instruments which pay fixed interest.
• Credit risk – the asset is worth less because the issuer’s credit standing has weakened.
• Market liquidity risk – the market is only willing to buy the asset at a lower price (if at all).

Price risk shows how risks can be bundled up into a single term in some applications, and how important it is that the treasurer understands how risks originate.

Although a single term can be useful when considering an asset or liability class, it can also confuse. The terminology tends to be driven by symptoms rather than causes, and a risk management strategy should really be driven by the causes.

A firm or other market participant which is unable to influence price.

(PER). The ratio of the equity value of a company to its accounting earnings (profit after tax).
The PER can be calculated either on a per-share basis or on the total equity value and total earnings, giving identical results.

Per share: PER = Current share price ÷ Earnings per share.
On total values: PER = Total equity value ÷ Total earnings.

For example if Company A's total equity value is $630m and its relevant earnings are $63m, the PER = $630m/$63m = 10.
In another case if comparable PERs for an unlisted Company B are 12, and its relevant earnings are $10m, the total value of Company B's equity can be estimated on this basis as 12 x $10m = $120m.

Sometimes written as P/E ratio or PE ratio.

Also known as price earnings ratio.

(PVBP/PV01). The expected or the actual money amount of the change in price of an instrument or portfolio, following a one basis point (0.01%) change in nominal annual yield (= 0.0001 as a decimal).

Calculated on an estimated basis from the modified duration as:
PVBP = Modified duration x Price x 0.0001

PVBP can also be calculated via a full recalculation of the market value of the instrument or portfolio at each of the two yields (differing by 0.01%). The PVBP calculated on this basis is then the difference between the two related market values.

The calculated PVBP will differ slightly, depending on the method of calculation.
PVBP also varies with the current yield for the instrument or portfolio under review.

Commonly shortened to PVBP or PV01.

Also known as the Dollar value of a basis point (DVBP or DV01).

A clause in a loan document which links the pricing of the borrowing to the credit rating of the borrower.

UK National Insurance contributions paid by employees.

A market for financial assets when those assets are first offered for sale.
For example, on the flotation of a company or the issue of a bond.

Financial reporting.
Under International Accounting Standards (IAS) the main accounting statements required to be presented. These are:

• Statement of financial position.
• Income statement (which can be included in the statement of comprehensive income).
• Statement of comprehensive income.
• Statement of changes in equity.
• Statement of cash flows.

The primary statements are supported by Notes providing additional and more detailed financial information.

A bank which is considered to be very highly creditworthy, so that it presents a very low credit risk.

The interest rate banks charge their most creditworthy customers.

1. An individual or other legal person represented by an agent.

2. The amount of an investment or a loan, excluding any interest.

3. The reference amount of a traded financial instrument, used to determine its future cashflows.

Pensions.
For pension schemes where there is more than one employer (for example a holding company and certain of its subsidiaries), that employer in which is vested special powers or duties, such as the appointment of trustees.

The risk of losing the entire principal amount of a contract or investment.

The amount stated on the face of a security, exclusive of interest or premium. The amount is that used in the computation of interest due on the security.

Accounting.
Adjustments to previous year's accounts caused by changes in accounting policies or where fundamental errors do not allow the accounts to give a true and fair view.

The term used for legislation that originates from a particular member of Parliament or from a member of the public.
It affects a particular person, organisation, or locality - as distinguished from affecting the public generally.

Private companies are not allowed to offer their shares for sale to the public. For this reason, private companies are subject to lighter regulation and reporting requirements, compared with public companies.

The part of the national law of a country that establishes rules for dealing with cases involving a foreign element.

This is a form of securities issuance that has no exact definition. It usually refers to an issue that has been designed for a specific set of investor needs at a particular time. As such it is not expected to be traded in the secondary market and is not a 'public' issue.

It is not normally expected to be listed on an exchange.

Credit rating.
A credit rating intended for the private information and use of the issuer of an obligation (rather than for general publication into the capital markets).

A legal concept relevant to contracts, particularly to contracts for the sale of goods or services, which provides that only the parties to the contract have rights and obligations under it.

The study of chance providing an objective measure of uncertainty.

Probabilities range between 1 (=100%) and 0 (=0%).
A probability of 100% means that an event is considered certain to occur. A probability of 0% means that an event is considered certain not to occur.
Tossing an unbiased coin, the probability of getting a head is 50%.

In the Boston Consulting Group (BCG) analysis matrix, a business with a small share of a market with rapid growth.

People's Republic of China.

Process costing (rather than job costing) is used when production is of homogenous items and is organised on a continuous or flow-line basis.

Under process costing, costs are accumulated for each separate process or operation for a period of time, and then averaged by dividing the total cumulative costs for the period by a measure of the output (for the same period).

Business process re-engineering.

The delay between the time a payee or processing site receives a cheque and the time the cheque is deposited.

Also known as a Purchasing card.

(PPI). A measure of the change in prices of goods bought and sold by UK manufacturers.

(PMM). An analysis model which identifies business growth opportunities and proposals according to product type (New or Existing) and also according to market type (New or Existing).
Thus producing a 2 x 2 matrix.

A refinement of the model additionally identifies Related products and markets - intermediate between New and Existing. Thus producing a more detailed 3 x 3 matrix.

Also known as the Product Market Growth Matrix or the Ansoff Matrix, after its originator Dr Igor Ansoff.

A graphical representation of the amount of two products which can be made by an economy, assuming all resources are fully utilised.

(POB). A UK regulatory body specialising in the accounting, auditing and actuarial professions.
It is a part of the Financial Reporting Council (FRC).

Formerly known as the Professional Oversight Board for Accountancy.

(POBA). Former name of the Professional Oversight Board.

1. Accounting.
A surplus arising from the appropriate matching of revenues with expenditure.

2. More generally any surplus, gain or net benefit arising.

Sometimes used as an alternative name for Net profit.

1.
(P&L or PL).
A primary financial statement – showing the revenues earned in a period matched with the expenditures incurred in the same period to arrive at a figure of net profit or loss.

Under the 'double entry' accounting convention, income items in the Profit and loss account are Credits (CR) and expenses are Debits (DR).
A net profit is a Credit in the Profit and loss account.
A net loss is a Debit in the Profit and loss account.

2.
Another name for the Profit and Loss reserve in the balance sheet.

Net profits or losses for the period in the Profit and loss account feed through in turn to the Shareholders' funds (cumulative retained profits or losses) in the 'bottom half' - reserves section - of the Balance sheet (as at the end of the period).

Cumulative profits (for all periods to date) which have been retained by the company and not distributed to the shareholders as dividends.

(PBIT). A measure of the operating profitability of a business, before taking account of the effects of either:

i. The chosen capital structure; or
ii. Taxation.

The purpose of the measure being to facilitate comparability of underlying businesses.

Accounting.
A measure of the surplus of revenues over relevant costs, often expressed as a percentage of revenues.

So for example if Revenues = 100, and Costs = 70.
Then the surplus (profit) = 100 LESS 70 = 30.
And the profit margin = 30/100 = 30%.

The output level at which marginal cost equals marginal revenue.

A relative measure of profit, designed to facilitate comparisons between different businesses and between different time periods.
Often expressed in percentage terms, for example, Return on capital employed.

(PI). The profitability index is represented by the following formula:

Profitability index = PV/Co

Where:
PV = the present value of all the cashflows except the initial investment.
Co = the absolute value of the initial investment.

Projects with a PI > 1 are acceptable.

1. (PCTCT). UK Tax.
Tax adjusted profits of a company excluding franked investment income and after deducting charges and loss relief.

2. Similarly tax-adjusted profits of a business under other taxation systems.

Law.
A negative form of injunction.

The evaluation and selection of projects which are most likely to maximise shareholders' wealth.

Also known as Project appraisal.

1.
The evaluation and selection of projects which are most likely to maximise shareholders' wealth, by the comparative analysis of their expected cashflows.

2.
Similar evaluation techniques taking account of additional factors and considerations - as well as the expected project cashflows - including for example the existence of real options.

Also known as Project analysis.

A term financing arrangement, usually on a limited recourse basis, under which funds are provided for a specified project by banks against the security of the project cash flows.

(PBO). Pensions.
The present value of pension benefits owed to employees under a pension scheme’s benefit formula including any projected salary increases and discounted at a nominal rate of interest.

Pensions.
The earnings of active pension scheme members projected in line with assumed salary growth to the point of the member’s expected date of retirement or leaving service.

Pensions funding.
An accrued benefits funding method in which the actuarial liability makes allowance for projected earnings.

An undertaking given by one person (the promisor) to another (the promisee) to do or refrain from doing something. Under most legal systems promises are legally binding only if they are contained in a contract or made by deed.

A person to whom a promise is made.

A person who makes a promise.

An unsecured note which unconditionally promises in writing to pay a certain sum of money to a person either on demand or at a future time.

Sometime referred to as note.

Of a contract, the system of law that is applied in private international law to a contract with foreign elements.

The law concerning the ownership and transfer of ownership of property.

Accounting.
The process of consolidation for a joint venture.

Measures based on forecast data, rather than actual past data.

Pensions funding.
A funding method in which the actuarial valuation at the valuation date is the present value of the actual benefits for pensioners and deferred pensioners and their dependants and the benefits that active members will receive in respect of both past and future Pensionable Service, allowing for future increases to salaries and benefits and net of the present value of future contributions payable in respect of active members at the standard contribution rate.

A document giving details relating to an issue of securities.

Accounting.
A form of liability where there is uncertainty as to the amount and timing of final settlement.

Credit given on a recourse basis when a cheque is deposited.

A conditional transfer in which one or more parties retain the right by law or agreement to revoke the transfer.

A person authorised to act for another. In relation to a company, a person empowered by a shareholder to vote on his behalf at company meetings.

Accounting.
The accounting principle that income and assets should only be recognised when they are reasonably certain, whilst expenses and liabilities should always be recognised whenever they are probable.

Pension Schemes Registry.

Payable Through Draft.

Draft legislation dealing with public general interests. Most legislation passed by Parliament starts as a public bill.

1. Public companies may - subject to complying with certain conditions - be allowed to offer their shares for sale to the public. To protect the public, public companies are therefore subject to greater regulation and requirements to report fuller financial information within shorter timeframes, compared with private companies.

2. The term 'public company' is also used in a looser sense to refer to a company whose shares are already listed on an exchange and held by members of the public. More strictly however, such a company is a listed company.

(PCAOB). US. A non profit corporation established under the terms of the Sarbanes-Oxley Act to oversee the audits of public companies and broker-dealers.

Credit rating.
A rating based on analysis of an issuer's published financial information, as well as other published information.
But excluding - for example - in depth meetings with the issuer's management.

The system of law regulating the interrelationship of sovereign states and their rights and duties with regard to one another. In addition, certain international organisations, companies and sometimes individuals (e.g. in the sphere of human rights) may have rights or duties under international law.

Public key encryption, uses a pair of keys, one public, one private, to send encrypted messages.
The keys work in a complementary manner so that information encrypted by one key can be decrypted by the other. Public key encryption is used when there are multiple senders and receivers of messages to provide authentication and confidentiality of the message and to prevent repudiation.

Also known as Asymmetric encryption.

(PKI). Public-key infrastructure uses one or more third parties, known as certificate authorities, to certify ownership of key pairs to prove that a public key is authentic, and has not been tampered with or replaced by a malicious third party.

Credit rating.
A credit rating intended for general publication into the capital markets.

Contract law.
The law distinguishes between a reliable claim that induces a person to enter into a contract and 'mere puff', which does not. It is regarded as being no more than the salesperson's harmless praise of their product.

Accounting.
The purchase day book records all invoices and credit notes received.

In its simplest form, a contract purchased from an insurance company that pays a periodic income (for example monthly, quarterly, semi-annually, or annually) for the life of a person, or for the lives of two (or sometimes more) persons.
Many variations on this basic theme are available.
Generally that part of an annuity representing a return of capital is not taxable.

A card issued by non-bank organisations to allow the holder to pay for general procurement.

Also known as a procurement card.

Purchasing power parity theory predicts that differences in periodic inflation rates will be offset and exactly matched by the change in the spot foreign exchange rate between the two related currencies over time.

1. Put option.

2. To place. (As in put aside, put in place and the like.)

Put-call parity theory.

An option which gives the holder the right to sell a specified quantity of an asset at the strike price specified by the option.

Put-call parity theory links put and call option values via ‘no arbitrage’ assumptions and the related underlying asset price, strike price, time to maturity, and risk-free rate of return.

So for example if the put option value, underlying asset price, strike price, time to maturity, and risk-free rate of return are known, then the call option value can be calculated using the put-call parity relationship:

Underlying asset price + Put value less Call value = Present Value of strike price.

In the special case where the strike price of the options is equal to the forward price of the underlying asset, the Put value and the Call value are exactly equal.

1. A security where there is a provision to require the borrower to redeem prior to maturity at the discretion of the lender.

2. A security where there is a provision for automatic early redemption on the occurrence of specified uncertain future events.

Present Value.

Price Value of a Basis Point.

Price Value of a Basis Point.

Funds transfer.
Payment Versus Payment.