Capital Adequacy Ratio (CAR)
What is the Capital Adequacy Ratio (CAR)? The Capital Adequacy Ratio sets standards for banks by looking at a bank’s ability to pay liabilities and respond to credit risks and operational risks. A bank with a good CAR has sufficient capital to absorb potential losses. Thus, it has less risk of becoming insolvent and losing depositors’…
Automatic Conversion Clause
What is an Automatic Conversion Clause? An automatic conversion clause is a provision that allows for the automatic exchange of preferred stock or convertible debt for common stock in a company. The conversion is considered automatic or mandatory because it does not require a vote of the board of directors for the conversion to take…
Budgetary Slack
What is Budgetary Slack? Budgetary slack is the practice of overestimating the expenses and/or underestimating the projected revenues when preparing a budget statement for the next financial period. It is a cushion created by management or lower-level managers to prepare budget estimates that will not be hard to achieve. In other instances, budgetary slack may…
Bottom-up Budgeting
What is Bottom-up Budgeting? Bottom-up budgeting is a budgeting method that starts at the department level, moving up to the top level. Each department within the organization is required to compile a list of the things it needs, the projects it plans to carry out in the next financial period, and cost estimates. The estimates…
Cash Consideration
What is Cash Consideration? Cash consideration is the purchase of the outstanding stock shares of a company using cash as the form of payment. An all-cash offer is one way that an acquirer may use to acquire a stake in another company during a merger or acquisition transaction. Cash consideration is usually preferred by shareholders,…
Celler-Kefauver Act
What is the Celler-Kefauver Act? The United States Congress passed the Celler-Kefauver Act in 1950 with the goal of strengthening the provisions of the Clayton Antitrust Act of 1914. Specifically, the act was enacted to seal a loophole in the Clayton Act regarding certain forms of mergers and acquisitions. While the Clayton Act outlawed horizontal…
Trust Bank
What is a Trust Bank? A trust bank is an organization that allows its customers to transact with each other through contracts known as trusts. The bank acts as a trustee in such transactions and transfers assets from one customer/client (known as the settlor) to another (known as the beneficiary) according to the terms of…
Asset-Based Loans
What are Asset-Based Loans? Asset-based loans involve something physical (an asset) that is used as collateral for a loan. For most companies, it is inventory or accounts receivable that act as the collateral. However, any asset whose value can be accurately quantified may potentially be used as collateral. Lenders who offer asset-based loans meet with…
Negotiated Budgeting
What is Negotiated Budgeting? Negotiated budgeting is a budgeting process that combines both top-down budgeting and bottom-up budgeting. The negotiated budgeting process does not impose the budget preparation process on a single level but rather allows shared responsibility between superiors and subordinates. Unlike top-down budgeting, negotiated budgeting increases the involvement of lower-level managers, which makes…
