The accumulation of additional debt to enter a position that has the potential for large returns. From the perspective of portfolio management, leverage build up involves partaking in excessive leveraged positions for the opportunity to magnify returns. Leverage build up also occurs in corporate takeovers where a highly leveraged company purchases another leveraged company. Thus, the total debt of the parent increases. Leverage build up, whether referring to portfolio management or corporate finance, increases the risk exposure of the investment. If the position does not come to fruition, the debt must still be repaid in a timely manner in order to avoid bankruptcy.
A document published by the Internal Revenue Service (IRS) that provides information on how taxpayers are to treat income from the sale, exchange or disposal of property. IRS Publication 544 outlines how gains and losses on the property are calculated, whether they are considered ordinary or capital, and how to report them to the IRS. The document also indicates whether a gain is taxable or loss deductible. Taxpayers typically must file Schedule D of Form 1040, Form 4797 (Sales of Business Property), or Form 8824 (Like-Kind Exchanges). Individuals, businesses and estates that purchase real property from foreign persons may have to withhold income tax if the property acquired is in the United States. IRS Publication 519 has more information on how aliens are to treat U.S. tax law. Investments, such as stocks, bonds and options, the sale of a primary (main) home, installment sales, and property transfers are not discussed in IRS Publication 544.
When a company's securities are listed on more than one exchange for the purpose of adding liquidity to the shares and allowing investors greater choice in where they can trade their shares. Taobiz explains Dual Listing Dual listing is not a widely used technique, although it is thought to improve the spread between the bid and ask prices, which helps investors obtain a better price for their securities. Hewlett-Packard (HP), for example, is listed on both the NYSE and Nasdaq.
A document published by the Internal Revenue Service (IRS) that provides information on the general tax rules domestic corporations must follow. IRS Publication 542 outlines the type of organizations that are taxed as corporations, the accounting methods typically used, the deductions allowed and the tax tables to be used. Corporations are treated differently than partnerships, in which gains and losses are passed through to partners, and S Corporations, where gains and losses are passed through to shareholders. Shareholders in a corporation can receive income from the business itself in the form of dividends, which can be taxed both on the corporate level (prior to distribution) and on the individual level (when sent to shareholders). Corporations are still subject to the alternative minimum tax (AMT).
1. Term describing an order entry technique used by brokers. A leg occurs when a broker executes contingent orders in separate phases, thus increasing the risk for price swings through time delays. 2. A description of different aspects in a combination option. 1. An example is when a broker attempts to execute an option straddle order as two separate transactions. The possibility for profit and loss occurs though the fluctuating price of the options. Sometimes referred to as a leg plant. 2. A straddle has two legs, one put and one call.
The possible upside of the earnings that could be generated for each share outstanding of a particular stock. Earning potential reflects the largest possible profit that a corporation can make. It is often passed on to investors in the form of dividends. Greater earning potential drives up the price of a stock. Taobiz explains Earning Potential Although earning potential can cause a stock's price to rise, it will not necessarily translate into higher current dividends. A company that comes out with an innovative new product may have higher earning potential in the future, but the projected revenue may not translate into actual profit for some time.
A document published by the Internal Revenue Service (IRS) that provides tax information for partners and partnerships. IRS Publication 541 is a supplement to Form 1065, used to report a partnership's income, and Schedule K-1. Income earned by a partnership is not typically taxed by the IRS; rather, the partnership's income is passed on to the individual partners and taxed as regular income. Partnerships organized before 1996 fall under a different set of guidelines than today, but the IRS still treats them as partnerships provided that the partnership still has two or more members. IRS Publication 541 indicates which organizational types with at least two members are not considered partnerships, including insurance companies, real estate investment trusts and tax-exempt organizations.
An index created by Morgan Stanley Capital International (MSCI) that serves as a benchmark of the performance in major international equity markets as represented by 21 major MSCI indexes from Europe, Australia and Southeast Asia. This international index has been in existence for more than 30 years. Taobiz explains EAFE Index As of February 2007, equities from the Japanese stock markets made up around 25% of the index, of which Japan is the largest index component. Many investors use the S&P 500 as a benchmark to assess the performance of an investment portfolio. This is an appropriate benchmark for American stocks. The EAFE index is often used as a benchmark for the performance of an investor's international equity investments.
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