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Management Buyout – a type of leveraged buyout (LBO) in which the acquiring group is led by the firm’s management.
Margin – Has two different meanings. In referring to a brokerage account, “buying on margin” refers to the use of funds borrowed from the broker to buy stock. This is a procedure allowing investors to borrow against their existing holdings to buy more securities. Usually the loan value is 100% of the account value. Thus the margin requirement, the amount needed in the account to keep it open is 50% of the value. In other words one can buy $20,000 worth of stock for $10,000. In referring to the analysis of a company’s income statement, margin refers to one of several income measures divided by sales. The operating margin is operating income divided by sales. The pretax margin is pretax income divided by sales. The gross margin is gross income divided by sales.
Margin Account (Stocks) – a leverageable account in which stocks can be purchased for a combination of cash and a loan. The loan in the margin account is collateralized by the stock and, if the value of the stock drops sufficiently, the owner will be asked to either put in more cash, or sell a portion of the stock. Margin rules are federally regulated, but margin requirements and interest may vary among brokers.
Margin Call – the demand by a broker to an investor to put up money because his security(s) have declined in value. There are minimum amounts of capital required by the exchanges or the broker.
Margin Requirement (Options) – the amount of cash an uncovered (naked) option writer is required to deposit and maintain to cover his daily position valuation and reasonably foreseeable intra- day price changes.
Market Capitalization – market cap or capitalization is the value of the company’s equity implied by the current stock price. In the case of a company with a simple capital structure consisting of 10 million common shares, and a current stock price of $30 per share, the market cap would be $300 million ($30 x 10 million). When there are other securities in the capital structure, such as preferred stock or convertible securities, the treatment would depend on the terms of these securities. If the securities are publicly traded, their market price should be used. If not, then an estimate should be made of where they would trade.
Market Maker – a market maker is an individual or firm who offers to buy stock at the bid price, and to sell stock at the ask price. The market maker holds an inventory of stock, buying stock for that inventory and selling stock from that inventory. The NASDAQ market is an example of a market made up of many market makers, connected electronically. The market makers compete with each other to buy at the highest bid price or sell at the lowest ask price.
Market Order – A type of order that directs the broker to execute the order as quickly as possible at the best price available. During market hours, this usually means a sell order will be executed at or close to the bid price, and a buy order will be executed at or close to the ask price. If the order is entered after market hours, then the trade will usually execute at or close to the opening price.
Market Timing – frequent trading of securities in order to take advantage of short-term price movements.
Maturity – the date on which a financial obligation is to be paid. See also Original Maturity.
Merger – the combination of two or more companies into one entity.
Momentum – in technical analysis: the strength behind an upward or downward movement in price. Graphically, momentum is represented as a horizontal line, which fluctuates above and below an equilibrium line.
Money Market – a part of the capital market in which short-term financial obligations are bought and sold. These include treasury bills, commercial papers, guaranteed investment certificates, and other investments.
Moving Average – in technical analysis: the average of security or commodity prices constructed in a period as short as a few days or as long as several years and showing trends for the latest interval. As each new variable is included in calculating the average, the last variable of the series is deleted.
Municipal Bond (Muni) – a bond backed by the credit of a state, county, or city. These bonds offer interest free from Federal tax and often free from state and city tax (when purchased by residents of that city and state). Municipalities issue bonds to obtain funds for various public purposes, including the construction of airports, bridges, highways, housing, hospitals, mass transportation, schools, streets and water and sewer projects. There are general obligation bonds that are secured by the issuer’s pledge of good faith, credit, and taxing power for the payment of principal and interest. There are also revenue bonds that are payable only from the revenues derived from a particular facility or from the proceeds of a special excise tax.
Mutual Fund – an investment company that continually stands ready to sell new shares of its own stock and to redeem existing shares of its own stock. Mutual funds are regulated by the Investment Company Act of 1940.