Glossary of Accounting, Financial & Investing Information - P

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Par value

The par value is the stated face value of a stock or bond.

Partnership

A partnership is a business entity which is created when two or more individuals and/or entities join together to conduct a business, with the goal of making a profit.  The business can be a partnership of individuals, corporations, trusts, other partnerships, or a combination of these.  

In order to form a partnership, an agreement is drawn up which outlines the terms of the partnership.  The terms would include required contributions of capital by each partner, rules governing the management of the partnership, and the method of allocating profits or losses among partners.

A partnership has unlimited liability.  The partners are jointly liable for all debts and other liabilities of the business.  If the business is sued, all the business and personal assets of the partners are at risk.  An exception to this is a Limited Partnership.

Pay yourself first

Use

The reason for using 15% for making IRA contributions is to include your tax savings in your contributions.  If you earn $60,000 per year and contribute $6,000 (10% of your earnings), if your marginal tax rate is 30% you will get $1,800 in tax savings.  When you contribute the $1,800 to your IRA it will generate another $540 of tax savings.  When you contribute the $540, it will generate another $162 of tax savings, etc., etc......

In order to have the same after-tax money as when you are using 10% of your gross income to pay down your debt or save outside of an IRA, you will have to contribute about 15% of your earnings to your IRA.  You can then do what you want with any tax refund.

See our Free in 30! page.

Penny stock

A stock which sells for less than a dollar, and is considered to be speculative.

Pension Plans

Portfolio

Preferred shares

Preferred shares are a class of corporate capital stock which normally holds priority over common shares in dividend payments, and in distribution of the corporate assets in a liquidation.

See also capital stock.

Prepaid expenses

A prepaid expense occurs when services or supplies are purchased but not used by the end of the accounting period, such as property taxes (if your fiscal year-end is not the same as the year-end for property taxes) and insurance.

For example, the term for insurance is normally one year or longer.  Thus, if the term is one year, but the insurance payment date is not at the end of the fiscal year, then a portion of the insurance cost applies to the next fiscal year.  At the end of the year this portion will show on the balance sheet as a prepaid expense.

Present value

The value today of a payment or series of payments to be made (or received) in the future.  To determine the present value, an interest rate (discount rate) is used.  For example, the present value of a payment of $1,000 to be made in one year, using a 5% discount rate would be $952.38 ($1,000 / 1.05).  In other words, the present value is the amount you need to invest today, at the specified interest rate, to make the specified payment or series of payments in the future.

See our Present Value/Future Value calculator.

Price/book ratio  (P/B)

Market value per share divided by book value per share

Price/cashflow  ratio (P/CF)

Price/earnings ratio  (P/E)

Market value per share divided by annual net income per share

Price/free cashflow  (P/FCF)

Market value per share divided by annual free cashflow per share

Price/sales ratio  (P/S)

Market value per share divided by annual sales per share, or total market cap divided by total annual sales.

Prime rate

The prime rate is the interest rate charged by financial institutions to their best customers.  See also overnight rate.

Principal protected notes (PPNs)

Private corporation

Shares of a private corporation are not publicly traded on a stock exchange.  See also  public corporation.

Pro rata

In proportion to.  A pro rata refund for a partially fulfilled contract would be for the proportion of the contract which is unfulfilled.

Promissory note

Proprietorship

An unincorporated business owned by one person.  For tax purposes, the net income of the proprietorship is reported as self employment income on the owner's personal income tax return.

Prospectus

Legal document prepared for potential investors which describes all facets of the securities or property being offered for investment.  This should always be scrutinized carefully by potential investors.  If there is no prospectus provided for a potential investment, you should seek professional advice.

Public corporation

Shares of a public corporation are listed on a stock exchange and can be purchased by the general public.  See also private corporation.

Put option

See option.

Revised: October 12, 2021