A debenture is a type of debt issued by a corporation.
It is not secured by any specific assets, as is a bond.
A debenture is backed by assets of the corporation that have not been
pledged as security for other debt.
Debt/Equity ratio (D/E)
This measure of financial
strength is calculated as a company's total debt divided by its total
shareholders' equity. The lower the number, the better.
When referring to the
government deficit, this is the excess of expenditures over revenues
for a one year period. The National Debt is the total
debt of the Federal government, and when there is a deficit the debt
is increased.
When referring to the financial statements of a
corporation, a deficit
occurs when a corporation has accumulated more losses than profits
over the years. This shows up as a negative
amount of Retained Earnings on the balance sheet.
Defined
Benefit Pension Plan (DBPP)
Retirement plans can be classified as either Defined Benefit Pension Plans or Defined Contribution Pension
Plans. With a defined
benefit plan, the employees know in advance what their pension will be
when they retire. The company makes contributions to the plan
based on actuarial calculations of what contributions are necessary to
fund current and future pensions. The plan funds are invested,
and the company must make higher contributions if the investments
perform poorly.
With defined benefit pension plans there is some risk to the
employee, because these plans are never funded enough that 100% of
current and future pension obligations can be covered. If the
company becomes insolvent, employees may not get their full
pension.
Defined
Contribution Pension Plan (DCPP)
Retirement plans can be classified as either Defined Benefit Pension Plans or Defined Contribution Pension
Plans. With a defined
contribution plan, the employees do not know in advance what their
pension will be when they retire, but they do have some control over
how their pension funds are invested. The company makes
contributions to the plan usually based on a percentage of the
employee's wages. Often the employee can also contribute, which
may result in a higher contribution by the employer. The plan
funds are invested in individual accounts for each employee. The
employee usually has a choice of types of securities in which to
invest their funds.
With defined contribution pension plans the risk to the employee is
that the investments may perform poorly. However, the upside is
that if the investments perform well, all profit increases go to the
employee. If the company becomes insolvent the employee will not
lose any of the pension, because the funds are in the employee's name.
Depreciation
Depreciation is the expensing,
over a period of years, of the cost of property such as machinery,
equipment, buildings, vehicles and furniture, usually based on
the estimated useful life of the asset. Land is not
depreciated. There are various
methods of depreciation used for accounting purposes, with two of the most common being straight line and
declining balance (usually double declining balance).
Straight line depreciation - the original
cost of the asset is written off in equal amounts over the estimated
useful life.
Example: machinery with an estimated useful life of 5 years,
original cost $50,000.
Straight line depreciation amount = $50,000/5 (or $50,000 x 20%) =
$10,000 each year
Declining balance depreciation - a fixed
percentage is applied to the remaining book value (undepreciated
balance) each year to determine the depreciation amount. With
double declining balance, a percentage of twice the straight line rate
is used.
Example showing the first 5 years of
declining balance depreciation:
machinery with an estimated useful life of 5 years,
original cost $50,000
double declining balance depreciation amount, using 40% depreciation rate:
Year
Depreciation
Expense
Accumulated
Depreciation
Book
Value
0
$50,000
1
50,000 x 40% = 20,000
20,000
30,000
2
30,000 x 40% = 12,000
32,000
18,000
3
18,000 x 40% = 7,200
39,200
10,800
4
10,800 x 40% = 4,320
43,520
6,480
5
6,480 x 40% = 2,592
46,112
3,888
When income-producing property is depreciated for tax
purposes, the method and rate of depreciation for
each asset are determined by the Internal Revenue Code, and the
Treasury (Tax) Regulations, also known as the Federal tax regulations.
Depreciation can be claimed if all of the following conditions are met
- the property
is owned by you
is used in a business or other income-producing
activity
has a determinable useful life
is expected to last more than one year, and
is not "excepted property".
Excepted property includes certain intangible property, certain
term interests, and property that is disposed of in the same year
it is placed in service.
See the following Internal Revenue Service (IRS)
information:
A financial product whose value is
derived from fluctuations in the value of an
asset, such as options and
futures. See also hedging
and speculator.
Director
Directors are the people elected by
shareholders to oversee the management of the
company.
Discount rate
The discount rate is the interest rate charged to
commercial banks and other financial institutions on loans from their
regional Federal Reserve Bank's lending facility, the discount window.
There are three discount window programs - primary credit, secondary
credit, and seasonal credit. Each of these has its own interest
rate, but the term "discount rate" is often used to describe
the primary credit rate.
The discount rates are higher than the Federal Open
Market Committee (FOMC) federal
funds rate (target rate for federal funds). The primary
credit rate is currently 25 basis points (0.25%) higher than the FOMC
target rate for federal funds.
A discretionary account is a
brokerage account where the client has authorized
the broker to buy and sell stocks without
contacting the client.
Diversification
Diversification is a method of
reducing risk by buying assets in different
industries, different countries, and different
types of securities such as bonds, stocks, etc.
(Don't put all your eggs in one basket.)
Dividend
An amount distributed out of a corporation's retained earnings (accumulated profits) to
shareholders. Dividends on preferred shares will usually be for
a fixed amount. Dividends on common shares may fluctuate
depending on the profits of the company. Some companies pay dividends on common shares, and some do not.
Dividend
reinvestment plan (DRIP)
A DRIP is a dividend
reinvestment plan, whereby when a dividend is issued to the
shareholder, it is used to purchase further shares of the company
instead of paying out a cash dividend. These purchases are
usually done with no brokerage fees. Shareholders can only participate
in a DRIP if they have shares registered in their own name, instead of
in street name. The dividends that are
reinvested in more shares are still considered taxable dividend
income.
Dividend yield
This is the % obtained by dividing
the dividend per share by the current market price per share, x 100.
Example: market value per share $37, annual dividend $1.85, yield
= 1.85/37 x 100 = 5%
Dollar
cost averaging
Instead of purchasing a large
number of shares at one time, a smaller number of shares
are purchased at regular intervals over a period of time.
This reduces volatility, because stocks usually go
up slowly, but can go down quickly.
Due diligence
Performing an investigation to
verify information, often regarding a business which is
being considered for purchase.
The information on this site is not intended to be a
substitute for professional advice. Each person's situation differs, and
a professional advisor can assist you in using the information on this web
site to your best advantage.
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disclaimer.
