Financial Terms related to Net

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NET
Annualized net present value anpv approach

• An approach to evaluating unequal-lived projects that converts the net present

value of unequal-lived, mutually exclusive projects into an equivalent (in NPV terms)
annual amount.

Change in net working capital

• The difference between the change in current assets and current liabilities
associated with an investment project.

European monetary system

• EMS. An exchange arrangement formed in 1979 that involves the currencies of

European Union member countries.

Exposure netting

• Offsetting exposures in one currency with exposures in the same or another

currency, where exchange rates are expected to move in such a way that losses or
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gains on the first exposed position should be offset by gains or losses on the second
currency exposure.

Firm's net value of debt

• Total firm value minus total firm debt.

International monetary fund

• An organization founded in 1944 to oversee exchange arrangements of member

countries and to lend foreign currency reserves to members with short-term balance

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of payment problems.

International monetary market

• Abbreviated IMM. A division of the CME established in 1972 for trading financial
futures. Related: Chicago Mercantile Exchange (CME).

Intracompany netting technique

• A technique used by multinational firms to minimize their cash requirements by

transferring across national boundaries only the net amount of payments owed
between them. Sometimes bookkeeping entries are substituted for international
payment.

Monetary / non monetary method

• Under this translation method, monetary items (e.g. cash, accounts payable and
receivable, and long-term debt) are translated at the current rate while non-monetary
items (e.g. inventory, fixed assets, and long-term investments) are translated at
historical rates.

Monetary gold

• Gold held by governmental authorities as a financial asset.

Monetary policy

• Actions taken by the Board of Governors of the Federal Reserve System to

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influence the money supply or interest rates.

• The actions of the Federal Reserve Board that determine the size and rate of
growth of the Money Supply, which in turn affect Interest Rates. See also: Fiscal
Policy.

Monetary union

• The official melding of the national currencies of the EU nations into one currency,
the euro, on January 1, 2002.

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Monetize

• Simply means put your money where your mouth is. Take positions based on your
views.

Net

• Is the difference between long and short positions or the bottom line impact of a
transaction.

Net adjusted present value

• The adjusted present value minus the initial cost of an investment.

Net advantage of refunding

• The net present value of the savings from a refunding.

Net advantage to leasing

• The net present value of entering into a lease financing arrangement rather than
borrowing the necessary funds and buying the asset.

Net advantage to merging

• The difference in total post- and pre-merger market value minus the cost of the
merger.

Net asset value

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• NAV is the price of a share in a mutual fund or investment company. This price is
calculated once or twice daily. Net asset value is the amount by which the assets'
value exceeds the company's liabilities. It is calculated by adding up the market
value of all securities owned by the company, subtracting the company's liabilities,
and dividing this value by the number of shares of the company outstanding. Thus,
the NAV indicates the current buying or selling price of a share in an investment
company.

• Abbreviated NAV. The value of a fund's investments. For a mutual fund, the net

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asset value per share usually represents the fund's market price, subject to a
possible sales or redemption charge. For a closed end fund, the market price may
vary significantly from the net asset value.

• Abbreviated NAV. The value of a Mutual Fund share calculated once a day, based
on the closing market price for each security in the fund's portfolio. It is computed by
deducting the fund's liabilities from the total assets of the portfolio and dividing this
amount by the number of shares outstanding.

• Refers to the value of a share or unit of investment. It is computed by adjusting the

market value of all investments by the liabilities. Then this net dollar amount is
divided by the number of shares or units outstanding. Unless there are additional
charges to be imposed upon redemption, the Net Asset Value becomes the bid and
transaction market price. Most open end funds only calculate transactional net asset
values once a day based on the closing and settlement prices.

Net assets

• The difference between total assets on the one hand and current liabilities and
noncapitalized long- term liabilities on the other hand.

Net benefit to leverage factor

• A linear approximation of a factor, T*, that enables one to operationalize the total
impact of leverage on firm value in the capital market imperfections view of capital
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structure.

Net book value

• The current book value of an asset or liability; that is, its original book value net of
any accounting adjustments such as depreciation.

Net cash balance

• Beginning cash balance plus cash receipts minus cash disbursements.

Net cash flow

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• The mathematical difference between the firm's cash receipts and its cash
disbursements in each period.

Net change

• This is the difference between a day's last trade and the previous day's last trade.

• The difference between the closing price of a security on the trading day reported
and the previous day's closing price. In over-the-counter transactions, the term
refers to the difference between the closing bids.

Net coupon

• Is the coupon or interest payment made to the investor of a mortgage backed

security. It is lower than the gross coupon of the collateral by an amount equal to the
servicing, guarantee, and other applicable fees.

Net domestic product

• A measure of the annual economic output of a nation adjusted to account for

depreciation. It is calculated by subtracting the amount of depreciation from the
Gross Domestic Product.

Net earnings

• See Net Profit.

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Net errors and omissions

• In balance of payments accounting, net errors and omissions record the statistical
discrepancies that arise in gathering balance of payments data.

Net financing cost

• Also called the cost of carry or, simply, carry, the difference between the cost of
financing the purchase of an asset and the asset's cash yield. Positive carry means
that the yield earned is greater than the financing cost; negative carry means that
the financing cost exceeds the yield earned.

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Net float

• Sum of disbursement float and collection float.

Net income

• The company's total earnings, reflecting revenues adjusted for costs of doing
business, depreciation, interest, taxes and other expenses.

• Equals sales revenue less all costs and expenses for the period

• See Net Profit.

Net income before taxes

• See Pre-tax Income.

Net interest margin

• A ratio used for evaluating management for bank stocks. Measures the difference
between interest paid and interest collected.

• Is the difference between the interest revenue and the interest expense.
Sometimes, it is referred to as the spread.

Net investment

• Gross, or total, investment minus depreciation.

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Net lease

• A lease arrangement under which the lessee is responsible for all property taxes,
maintenance expenses, insurance, and other costs associated with keeping the
asset in good working condition.

Net operating losses

• Losses that a firm can take advantage of to reduce taxes.

Net operating margin

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• The ratio of net operating income to net sales.

Net period

• The period of time between the end of the discount period and the date payment is
due.

Net position

• Is the difference between longs and comparable shorts. It can also refer to the
dollar difference for the combined market values of all long and short positions.
Often it refers to the net trading exposure on a market directional basis. However,
some firms use different definitions depending on whether the analysis is originating
from accounting or trading.

Net present value

• Abbreviated NPV. The present value of the expected future cash flows minus the
cost.

• Abbreviated NPV. A sophisticated capital budgeting technique; found by

subtracting a project's initial investment from the sum of the present value of its cash
inflows discounted at a rate equal to the firm's cost of capital.

• NPV shows the change in wealth as a result of taking a project. NPV is computed
as the discounted cash flows. To maximize wealth, take all projects with positive
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NPV and reject all projects with negative NPV.

• Is one of the building block processes for finance. It provides a methodology for
evaluating and pricing securities and projects. In a simple case it is the discount
mechanism for a zero coupon security. Here, there is one payment predicated either
on interest or principal. By knowing the time left to maturity, assuming no option
features, and knowing the discount rate, one can price or evaluate the zero coupon.
Pricing bonds is an extension of this process. Now, instead of evaluating, one
payment, there is an entire interest and principal payment stream. For equities, the

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process evaluates expected cash or dividend flows and the residual value of the
enterprise. Complexity arises when there are multiple discount rates (bids and
offers), yield curve shapes, and credit differences. Even the selection of discrete,
compounding or accretion modeling can make a substantial impact on the value of a
simple zero coupon bond.

Net present value approach

• An approach to capital rationing that is based on the use of present values to

determine the group of projects that will maximize owners' wealth.

Net present value of future investments

• The present value of the total sum of NPVs expected to result from all of the firm's
future investments.

Net present value of growth opportunities

• A model valuing a firm in which net present value of new investment opportunities
is explicitly examined.

Net present value profiles

• A table and/or graph that shows the net present value for a project at various
discount rates.

Net present value rule

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• An investment is worth making if it has a positive NPV. Projects with negative

NPVs should be rejected.

Net proceeds

• Funds actually received by the issuing firm from the sale of a security. This is equal
to the selling price to the public less the costs of underwriting and distribution of the
securities.

Net profit

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• Also known as Net Earnings or Net Income. Profits remaining after all expenses
and taxes are applied and out of which dividends are payable.

Net profit margin

• Net income divided by sales; the amount of each sales dollar left over after all
expenses have been paid.

• Measures the percentage of each sales dollar remaining after all expenses,
including taxes, have been deducted.

• A measurement defined as the net income before non-recurring gains and losses,
as a percentage of sales or revenues.

Net profits rule

• The legal rule governing Canadian companies that dividends can only be paid from
current and past earnings.

Net sales

• Total Sales minus customer Returns and Allowances

Net salvage value

• The after-tax net cash flow for terminating the project.

Net working capital

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• Current assets minus current liabilities. Often simply referred to as working capital.

• A measure of liquidity calculated as the difference between the firm's current

assets and its current liabilities, or, alternatively, the portion of current assets
financed with long-term funds; can be positive or negative.

• Net Working Capital refers to the net non-interest bearing short term assets:
Hence, net working capital equals cash plus inventories plus accounts receivables
minus accounts payables.

Net working capital recapture

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• A positive cashflow benefit in a capital budgeting analysis that arises with the
termination of a project. At termination, sales associated with the project cease, and
the company will recover the originally invested net working capital.

Net worth

• Common stockholders' equity which consists of common stock, surplus, and

retained earnings.

• See Shareholders' Equity.

• Assets possessed by an individual or company in excess of liabilities.

Netting

• Reducing transfers of funds between subsidiaries or separate companies to a net

amount.

• Is a process used by institutions and clearinghouses to determine the marginal

risks and demands for funds.

Netting out

• To get or bring in as a net; to clear as profit.

Payments netting

• Reducing fund transfers between affiliates to only a netted amount. Netting can be
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done on a bilateral basis (between pairs of affiliates), or on a multi-lateral basis

(taking all affiliates together).

Safety net return

• The minimum available return that will trigger an immunization strategy in a

contingent immunization strategy.

Simex singapore international monetary exchange

• A leading futures and options exchange in Singapore.

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Uniform net capital rule

• Securities and Exchange Commission requirement that member firms as well as

nonmember broker-dealers in securities maintain a maximum ratio of indebtedness
to liquid capital of 15 to 1; also called net capital rule and net capital ratio.
Indebtedness covers all money owed to a firm, including margin loans and
commitments to purchase securities, one reason new public issues are spread
among members of underwriting syndicates. Liquid capital includes cash and assets
easily converted into cash.