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What is a Merger?
A merger is the voluntary melding of two companies into one, when the owners believe the change is mutually beneficial. A merger could happen between two companies that were competitors, called a horizontal merger, or between companies who are part of the same supply chain, called a vertical merger. A merger between two companies who are based in the same industry but serve different markets could also be called a market extension. Continue reading...
What are Mergers and Acquisitions (M&A)?
Companies often hold minority interest positions in other companies, but sometimes they decide to merge into one company, maybe by selling-out to a bigger company, or acquiring a smaller one. Very often, small companies are very agile and develop new technologies quickly, but do not have sufficient funds to bring them to the market. Large companies need the technologies and it is cheaper for them to buy smaller companies rather than spending money to develop them on their own. Continue reading...
What is a Hostile Takeover?
A hostile takeover may not be as intense as it sounds, but it may not be pleasant for all those involved. It is an acquisition in which the controlling interest of shares in one company has come under the direction of another company, and the newly controlling company has decided to integrate the target company into their operations, which often results in cutting redundant jobs and making other decisions that the target company would probably not have made on its own. Continue reading...
What is Capital Accumulation?
Capital Accumulation is the act of acquiring more assets which will generate more profits or other benefits to the company or economy. Capital accumulation is sometimes discussed in relation to rumors that a company is preparing to acquire another company. This could be the case for one or two reasons. One would be that the company has actually been buying up shares in the target company for some time. Continue reading...
What is the FCC?
The Federal Communications Commission is a bipartisan regulatory body that oversees interstate communications media, grants licenses to entities which plan to use the bands available, and to some extent regulates the content of these communications in the public interest. Communications media, including radio, satellite, cable, telephone, and others, are overseen and regulated by the FCC. They help to standardize measures and regulate the commercial activity of the entities which seek to use these media, including licensing and content regulation. Continue reading...
What Does M&A Mean?
M&A stands for Mergers and Acquisitions, and refers to the consolidation of companies or assets for strategic purposes. It does not necessarily have to imply that one company wholly takes over another — there are a number of different transactions that can fall under the M&A umbrella, which can include purchase of key assets or management acquisitions. In nearly all cases, however, there are two companies involved - the buyer of capital and the seller. Continue reading...
Why Do You Want to Own the Shares of a Publicly Traded Corporation?
The idea is that a shareholder’s interest in a growing publicly traded company will become more valuable over time. The simplest answer is: to make money! Owning shares of a company’s stock is known as taking a long position, and this is done in the belief that the company is going to increase its earnings and profit margin into the future, or will at least remain steady. There are three ways to make money on stocks: Continue reading...
Who is an activist investor?
Activist investors buy enough voting shares to influence the decisions of a company, sometimes for political or moral reasons, sometimes for purely financial reasons. Activist investors can act alone or in groups, but their goal is to acquire enough shares of a company’s equity to influence the company’s decisions. Activist shareholders may need as little as 10% of shares to sway corporate governance. Continue reading...
What is an Abandonment Option?
An Abandonment Option can be worked into a contract for a capital project at a business, for example, or between an investment advisor and his or her clients. An abandonment option outlines the terms by which either party in an agreement can choose to cease their involvement in the project or a working relationship without penalty. This may be worked into the contract on a business partnership agreement, a capital project, or even something as simple as the relationship between a financial planner and his or her clients. Continue reading...
What is market research?
Market research is the process of evaluating a possible opportunity for entering into a market with a new product or company, or for evaluating the effectiveness of a product or company in a market that they are already invested in. Market research can also be important for decisions regarding mergers and acquisitions. It may involve surveys and market study groups. Sometimes a company will conduct its own market research, but often third-party companies are hired for the task. These companies may specialize in sampling and surveying methods for consumer groups, and/or statistical analysis of a business model or product’s chance of success in a given market. Companies may look to such analysts if they are considering a merger or acquisition, or of launching a new product. Continue reading...
What is an Accounts Payable Subsidiary Ledger?
Accounts payable may have enough items within it to require its own department in the company, or just a subsidiary ledger to supplement the General Ledger of the company. A subsidiary ledger gives full details of a line-item in the general ledger, especially when it is too detailed to include in the general ledger. The Accounts Payable Subsidiary Ledger will contain all of the transaction details for each credit and debit in the Payables history from a specific period. Continue reading...
What is Accounts Receivable Subsidiary Ledger?
The Accounts Receivable Subsidiary Ledger will be a separate ledger from a company’s General Ledger, where all of the information pertaining to all Accounts Receivable will be reported. Receivables may have only a line-item on the General Ledger of a company, but may have an entire department dedicated to servicing the receivable accounts. Because there may be a large amount of information in just the Receivables sub-account, there is often a Subsidiary Ledger dedicated to the minutia of all the Accounts Receivable business. Continue reading...
What is Acquisition Accounting?
Also known as Business Combination Accounting, there are specific guidelines and bits of information that must be documented on the books during an acquisition. Acquisition Accounting is a standardized way to account for the assets and liabilities of companies who are part of a merger or acquisition. International Financial Reporting Standards (IFRS) stipulate that even in a merger where a new company is formed, one company must play the role of acquirer and the other of acquiree, but that rule really only applies outside of the US. Continue reading...
What are Accounting Policies?
Accounting policies are the internal controls of a company which stipulate the methods by which the books will be kept. Accounting policies are the agreed-upon accounting methods, conventions, and practices of an accounting cycle. A business must establish guidelines and training to ensure that accounts are kept in ways that satisfy their needs for documentation, security, liquidity, management, and the observation of applicable laws. Continue reading...
What is 'Pro Forma'?
Pro Forma is a term used frequently in the context of a company’s financial statement, and refers to the manner in which figures are presented. In Latin the term “Pro Forma” means “as a matter of form,” and in the case of a financial statement refers to how figures are presented either in present form or as projections. For publicly traded corporations, statements prepared with the pro forma method are generally made ready ahead of a planned transaction such as an acquisition, merger, or some change in corporate structure based on new investment or capital changes. Continue reading...
What is Adjusted Cost Basis?
Adjusted Cost Basis (ABC) is the value of an item for tax purposes, adjusted for depreciation and expenditures. Sometimes abbreviated ABC, adjusted cost basis is the valuation of an item for tax purposes; that is, if it is to be bought or sold, what gains or losses would be assigned to it? Some business assets are depreciated on a set schedule, such as equipment. For equipment sold or taken as part of an acquisition a few years after it was purchased, the depreciation factor would reduce the value of the item for tax purposes by perhaps as much as 20% per year. If a company spent significant amounts of money improving a facility, the cost basis of the facility would go up by that amount. Continue reading...
What is an Account Balance?
An account balance is the amount either credited to or owed on a ledger assigned to a particular entity or line-item. The balance of an account is the net debit or credit assigned to it after all transactions have been documented for a current period. Transactions might be deposits, withdrawals, interest credited, fees, or other activity. The account in question could be a personal savings or checking account, or a ledger account at a business or institution, or another form of account, such as the macroeconomic concept of current national account. Accounts are said to be “in the red” when there is a net debit (negative) amount, and “in the black” when there is a net positive balance (net credit). Continue reading...
What is a Reverse Stock Split?
A reverse stock split consolidates stocks at a certain ratio and reduces the number of shares outstanding while increasing the value of each share, as opposed to a regular stock split, which divides existing stocks into more shares which are worth less apiece. A normal stock split, which increases the number of shares an investor owns without increasing the total value of his or her interest in the company, has the benefit of increasing liquidity with the shares and possibly narrowing the bid/ask spread. A reverse stock split reduces the number of shares in circulation by effectively combining the existing shares at a certain ratio (such as, 2 shares now equals 1 share). Continue reading...
What is Account Reconcilement?
Account reconcilement is the act of comparing and affirming multiple records of the same financial information. To “reconcile the books” is to compare different records of the same accounts to ensure that they match up. One might reconcile all the different record-keeping for the same account, such as copies of checks and receipts, to be sure that they add up to the balance and ledger shown on a bank account statement. It could be that the recipient of a check has not yet cashed it, and it is important to keep all records “synced” with one another. Continue reading...
What does 'Poison Pill' Mean?
A ‘poison pill’ is a maneuver by a company to make itself less attractive to a hostile takeover. It can be used in an effort to avoid the takeover altogether, or at least to make the takeover more painful for the bidder. One type of poison pill is a “flip-in,” which allows shareholders to buy shares of the company being targeted at a discount, which makes the takeover more expensive and more difficult. Continue reading...