finance and accounting terms and their explanations

8/3/2019 Finance and Accounting Terms and Their Explanations

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ACTIVITY BASED COSTING

ACTIVITY BASED COSTING (ABC) is a costing system that identifies the variousactivities performed in a firm and uses multiple cost drivers (non-volume as well as thevolume based cost drivers) to assign overhead costs (or indirect costs) to products. ABC

recognizes the causal relationship of cost drivers with activities.

ABSORB

ABSORB is to assimilate, transfer or incorporate amounts in an account or a group ofaccounts in a manner in which the first entity loses its identity and is "absorbed" withinthe second entity.

ABSORPTION COSTING

ABSORPTION COSTING is the method under which all manufacturing costs, bothvariable and fixed, are treated as product costs with non-manufacturing costs, e.g. sellingand administrative expenses, being treated as period costs.

ACCOUNTING CYCLE

ACCOUNTING CYCLE is the sequence of steps in preparing the financial statements fora given period. It refers to the fact that because financial reports are given each period(usually a year) there are a set of steps (cycle) taken each period that result in the reportsand preparation for the next period or cycle. The term cycle is used because every periodthere is a start and an end. The cycle usually starts with the budget, goes through thejournal entries, adjusting entries, posting to the accounts, financial reports, and closings.

ACCRUAL BASIS OF ACCOUNTING

ACCRUAL BASIS OF ACCOUNTING is wherein revenue and expenses are recorded inthe period in which they are earned or incurred regardless of whether cash is received ordisbursed in that period. This is the accounting basis that generally is required to be usedin order to conform to generally accepted accounting principles (GAAP) in preparingfinancial statements for external users.

ACCRETION

ACCRETION is the adjustment of the difference between the price of a bond purchasedat an original discount and the par value of the bond; or, asset growth through internalgrowth, expansion or natural causes, e.g. the aging of wine or growth of timber/trees.


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ADVANCED ACCOUNTING

ADVANCED ACCOUNTING covers accounting operations, patterns, merger of publicholding companies, foreign currency operations, changing financial statement prepared inforeign and local currencies. Advanced accounting also includes a variety of advanced

financial accounting issues such as lease contracts, pension funds, end of serviceseverance payments, etc.

ACCOUNT AGING

ACCOUNT AGING usually refers to the methods of tracking past due accounts inaccounts receivable based on the dates the charges were incurred. Account aging can alsobe used in accounts payable, to a lesser degree, to monitor payment history to suppliers.

AMALGAMATION

AMALGAMATION is a consolidation or merger, as of several corporations. In business,the distinction being that the surviving entity incorporates the asset base of others into itsbase.

AMORTIZATION

AMORTIZATION 1. is the gradual reduction of a debt by means of equal periodicpayments sufficient to meet current interest and liquidate the debt at maturity. When thedebt involves real property, often the periodic payments include a sum sufficient to paytaxes and hazard insurance on the property. 2. is the process of spreading the cost of anintangible asset over the expected useful life of the asset. For example: a company pays

$100,000 for a patent, they amortize the cost over the 16 year useful life of the patent. 3.the deduction of capital expenses over a specific period of time. Similar to depreciation, itis a method of measuring the "consumption" of the value of long-term assets likeequipment or buildings.

APPORTION

APPORTION is to divide and share out according to a plan.

ARBITRAGE

ARBITRAGE is the movements of funds to take advantage of differences in exchange orinterest rates; such movements quickly eliminate any such differences.


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ASSET TURNOVER RATIO

ASSET TURNOVER RATIO is a general measure of a firms ability to generate sales in

relation to total assets. It should be used only to compare firms within specific industrygroups and in conjunction with other operating ratios to determine the effective

employment of assets. Formula: REVENUE/ASSETS.

ATTRITION

ATTRITION a reduction in numbers usually as a result of resignation, retirement, ordeath.

BALLOON PAYMENT

BALLOON PAYMENT is a final loan payment that is considerably higher than priorregular payments, in order to pay off the loan.

BASIS POINTS

BASIS POINTS is 0.01% in yield. For example, in increasing from 5.00% to 5.05%, theyield increases by five basis points.

BUSINESS PROCESS REENGINEERING

BUSINESS PROCESS REENGINEERING (BPR) is the analysis and radical redesign ofbusiness processes using objective, quantitative methods and tools and managementsystems to accomplish change or performance improvement. Also called: Re-Engineering, Reengineering, Process Reengineering, Process Quality Management, BPR,Process Innovation, Process Improvement, and Business Process Engineering.

CONTRIBUTION/SALES RATIO

CONTRIBUTION/SALES RATIO (C/S RATIO) is a tool used in profit management. Itis important to establish the C/S RATIO: C/S ratio = (Sales revenue - Variable cost of

sales)/Sales revenue x 100. If a company achieves a high average marginal profit ratio ofsay, 40%, it does not mean that it will achieve high profits. The eventual profit will bedependent on the level of fixed costs within the organization.

CAPITAL EXPENDITURE

CAPITAL EXPENDITURE (CAPEX) is the amount used during a particular period toacquire or improve long-term assets such as property, plant or equipment.


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CAPITAL EMPLOYED

CAPITAL EMPLOYED is the value of the assets that contribute to a companys ability togenerate revenue, i.e., fixed assets plus current assets minus current liabilities.

CAPITAL EXPENDITURE RATIO

CAPITAL EXPENDITURE RATIO is the ratio of capital expenditure and otherinvestments to total assets. It is used as a proxy for growth opportunities in a financialanalysis.

CAPITAL MARKET

CAPITAL MARKET is a market where equity or debt securities are traded.

CASH FLOW

CASH FLOW is earnings before depreciation and amortization. Cash flow is calculatedas the difference between cash inflows and outflows. Cash flow can be derived fromOperating Profit by adjusting for items which do not affect payments (e.g. depreciation)and items (e.g. changes in working capital) which affect payments but are not recorded inOperating Profit.

CONTRA ENTRY

CONTRA ENTRY, in accounting, is a ledger entry which is offset by an opposite entry,either a debit or credit.

COST OF CAPITAL/FUNDS

COST OF CAPITAL/FUNDS is the rate of return that a business could earn if it so choseother investments with the equivalent risks. Also can be stated as opportunity cost of thefunds used due to the investment decision.

COST OF GOODS SOLD

COST OF GOODS SOLD (COGS) is a figure representing the cost of buying rawmaterial and producing finished goods. Included are precise factors, i.e. material and

factory labor; as well as others that are variable, such as factory overhead.

CREDIT NOTES

CREDIT NOTES are issued to indicate a positive action within an account. Credit notesare issued for reasons such as overpayment, duplicate payment, damaged goods, returnedmerchandise, etc.


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DEBENTURE

DEBENTURE is a corporate IOU that is not backed by the companys assets (unsecured)and is therefore somewhat riskier than a bond.

DEBT INSTRUMENT

DEBT INSTRUMENT is a written promise to repay a debt. Examples: notes, bills,bonds, CDs, GICs, commercial paper, and bankers acceptances.

DEBT RATIO

DEBT RATIO measures the percent of total funds provided by creditors. Debt includesboth current liabilities and long-term debt. Creditors prefer low debt ratios because thelower the ratio, the greater the cushion against creditors losses in liquidation. Ownersmay seek high debt ratios, either to magnify earnings or because selling new stock would

mean giving up control. Owners want control while "using someone elses money." DebtRatio is best compared to industry data to determine if a company is possibly over orunder leveraged. The right level of debt for a business depends on many factors. Someadvantages of higher debt levels are:

The deductibility of interest from business expenses can provide tax advantages. Returns on equity can be higher. Debt can provide a suitable source of capital to start or expand a business.

Some disadvantages can be:

Sufficient cash flow is required to service a higher debt load.

The need for this cash flow can place pressure on a business if income streams areerratic.

Susceptibility to interest rate increases. Directing cash flow to service debt may starve expenditure in other areas such as

development which can be detrimental to overall survival of the business.

Formula: Total Liabilities / (Total Liabilities + Stockholders Equity)

DEFERRED INCOME

DEFERRED INCOME is that income for which the cash has been collected by thecompany, but have yet to be "earned". For example, a customer pays their annualsoftware license upfront on the 1st Jan. As the company financial year-end is 31st May,the company would only be able to record five months of the income as turnover in theprofit and loss account. The rest would be accrued in the balance sheet as a "deferred"creditor.


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DEFERRED EXPENDITURE

DEFERRED EXPENDITURE is an expenditure for which payment has been made or aliability incurred but which is carried forward on the presumption that it will be of benefitover a subsequent period or periods. This is also referred to as deferred revenue

expenditure.

DEFERRED TAX LIABILITIES

DEFERRED TAX LIABILITIES have an effect of increasing future years income taxpayments, which indicates that they are accrued income taxes and meet definition ofliabilities. Whereas deferred tax assets have an effect of decreasing future income taxpayments, which indicates that they are prepaid income taxes and meet definition ofassets.

DEFLATION

DEFLATION is a contraction of economic activity resulting in a decline of prices.

DISBURSE/DISBURSEMENT

DISBURSE/DISBURSEMENT is the paying out of money to satisfy a debt or anexpense.

DISCOUNTED PAYBACK

DISCOUNTED PAYBACK is the period of time required to recover initial cash outflow

when the cash inflows are discounted at the opportunity cost of capital.

EARNINGS PER SHARE

EARNINGS PER SHARE (EPS) is either: a. Basic EPS is earnings before extraordinarygains and losses, less preferred-share dividends, divided by all common sharesoutstanding at the most recent fiscal year end. Net income, or earnings, refers to thecompanys after-tax profits before extraordinary gains or extraordinary losses for the mostrecent annual period; or, b. Diluted EPS is where the number of shares used in thecalculation is increased to account for outstanding dilution such as options, warrants, in-the-money convertibles, etc.

ECONOMIC ORDER QUANTITY

ECONOMIC ORDER QUANTITY is the order quantity that minimizes total inventorycosts. A total inventory cost is the sum of ordering, carrying and stock-out costs.


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EMBEZZLEMENT

EMBEZZLEMENT is the fraudulent appropriation and personal use of funds or propertyentrusted to that persons care but actually owned by someone else, e.g. an employee canembezzle money from his or her employer, a civil servant can embezzle funds from the

treasury, or a pastor can embezzle funds from a church. See alsoTHEFTandWHITECOLLAR CRIME.

ENCUMBRANCE

ENCUMBRANCE is a) a right or interest in land owned by someone other than theowner of the land itself; examples include easements, leases, mortgages, and restrictivecovenants; or, b) in accounting, an encumbrance is an anticipated expenditure, or fundsrestricted for anticipated expenditures, such as for outstanding purchase orders.

ENDOWMENT

ENDOWMENT is a permanent fund where gifts to the fund are held in perpetuity and

where earnings are used in accordance with the donors specified wishes

EQUITY SHARE CAPITAL

EQUITY SHARE CAPITAL is capital raised by an entity through the sale of commonshares.

FACTORING

FACTORING is the practice of buying debt at a discount, e.g., if somebody owes you$10,000 payable within a year, a factoring lender may pay you $9,000 for the debt. Youreceive $9,000 cash quickly, but at the cost of the $1,000 discount.

FAIR VALUE

FAIR VALUE, under GAAP, is the amount at which an asset could be bought or sold ina current transaction between willing parties, other than in liquidation. On the other sideof the balance sheet, the fair value of a liability is the amount at which that liability couldbe incurred or settled in a current transaction between willing parties, other than inliquidation.

FIDUCIARY

FIDUCIARY is a person or business (for example, a bank or stock brokerage) who hasthe power and obligation to act for another (often called the beneficiary) undercircumstances which require total trust, good faith and honesty.
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FINANCIAL BUDGET

FINANCIAL BUDGET is focused on capital expenditures and on a businesss budgetedcash position:

FIXED ASSET

FIXED ASSET is a long-term tangible asset that is not expected to be converted into cashin the current or upcoming fiscal year, e.g., buildings, real estate, production equipment,and furniture. Sometimes called PLANT.

FLOWER BOND

FLOWER BOND is a U.S. Treasury bond, issued in the 1950s and 1960s, that may betendered at par value for payment of federal estate taxes, even though its market pricemay be substantially less.

FOREX

FOREX is Foreign Exchange Market. FOREX is a market in which brokers located invarious parts of the world trade currencies for many nations. FOREX transactions are nottraded in futures markets.

FORWARD

FORWARD, in securities, is an agreement between two parties to exchange specificitems, for example, two currencies, at a specified future date and a specified price.

FRANCHISE

FRANCHISE is a legal arrangement giving rights to sell a product or service.

FUNDAMENTAL ANALYSIS

FUNDAMENTAL ANALYSIS is a method used to evaluate the worth of a security bystudying the financial data of the issuer. Performing fundamental analysis will teach youa lot about a company, but virtually nothing about how it will perform in the stockmarket. Apply this analysis on two competing companies or in comparison to its industry

and it becomes clearer which the best investment choice is.

FUNDS FLOW

FUNDS FLOW is the funds generated from operations; normally expressed as cash flowfrom operations or working capital from operations.


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FUTURE VALUE

FUTURE VALUE is the amount of money that an investment made today (the presentvalue) will grow to by some future date. Since money has time value, we naturally expectthe future value to be greater than the present value. The difference between the two

depends on the number of compounding periods involved and the going interest rate.

GAAP

GAAP is Generally Accepted Accounting Principles or Generally Accepted AccountingProcedures (less common).

GROSS DOMESTIC PRODUCT

GROSS DOMESTIC PRODUCT (GDP) is the value of all the goods and servicesproduced by workers and capital located within a country (or region), such as the United

States, regardless of nationality of workers or ownership. Domestic measures relate to thephysical location of the factors of production; they refer to production attributable to alllabor and property located in a country. The national measures differ from the domesticmeasures by the net inflow -- that is, inflow less outflow -- of labor and property incomesfrom abroad. Gross Domestic Product includes production within national bordersregardless of whether the labor and property inputs are domestically or foreign owned.

GEARING RATIO

GEARING RATIO measures the percentage of capital employed that is financed by debtand long term financing. The higher the gearing, the higher the dependence on borrowing

and long term financing. Whereas, the lower the gearing ratio, the higher the dependenceon equity financing. Traditionally, the higher the level of gearing, the higher the level offinancial risk due to the increased volatility of profits. Financial manager face a difficultdilemma. Most businesses require long term debt in order to finance growth, as equityfinancing is rarely sufficient, on the other hand, the introduction of debt and gearingincreases financial risk. A high gearing ratio is positive; a large amount of debt will givehigher return on capital employed but the company dependent on equity financing aloneis unable to sustain growth. Gearing can be quite high for small businesses trying tobecome established, but in general they should not be higher than 50%. Shareholdersbenefit from gearing to the extent that return on the borrowed money exceeds the interestcost so that the market values of their shares rise. Formula: Long Term Debt /Shareholders Equity.

GOING CONCERN

GOING CONCERN refers to the liquidity of a concern. If the concern is illiquid, theviability of that concern being able to continue to operate is in doubt.


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HEDGE FUND

HEDGE FUND is a special type of investment fund with fewer restrictions on the typesof investments it can make. Of note is a hedge funds ability to sell short. In exchange for

the ability to use more aggressive strategies, hedge funds are more exclusive, i.e., fewerpeople, usually only the wealthy, are allowed to invest in hedge funds.

INCREMENTAL COST

INCREMENTAL COST is the increase or decrease in costs as a result of one more orone less unit of output

INFLATION

INFLATION is an increase in the general price level of goods and services; alternatively,

a decrease in the purchasing power of the dollar or other currency.

INVENTORY

INVENTORY for companies: includes raw materials, items available for sale or in theprocess of being made ready for sale (work in process) for securities: it is securitiesbought and held by a broker or dealer for resale.

JUST-IN-TIME

JUST-IN-TIME (JIT) is a management philosophy that strives to eliminate sources of

manufacturing waste and cost by producing the right part in the right place at the righttime.

KAIZEN BUDGETING

KAIZEN BUDGETING is a budgeting approach that projects costs on the basis of futureimprovements, rather than current practices and methods. The key point is that the budgetcannot be achieved unless improvements are made.

LEVERAGE

LEVERAGE is property rising or falling at a proportionally greater amount thancomparable investments. For example, an option is said to have high leverage relative tothe underlying stock because a price change in the stock may result in a relatively largeincrease or decrease in the value of the option. In general, in finance, leverage is the useof debt financing. Leverage, within a corporation, is the use of borrowed money toincrease the return on investment. For leverage to be positive, the rate of return on theinvestment must be higher than the cost of the money borrowed.


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LONDON INTERBANK OFFERED RATE

LONDON INTERBANK OFFERED RATE (LIBOR) is the rate that the mostcreditworthy international banks that deal in Eurodollars charge each other for largeloans. It is equivalent to the federal funds rate in the U.S.

LETTER OF CREDIT

LETTER OF CREDIT (LOC) is a legal document issued by a buyer's bank that uponpresentation of required documents payment would be made. Usually confirmed by thesellers bank, protection is given to the seller that payment will be made if the goods areshipped correctly, and protection is given to the buyer that the goods will be shippedbefore payment is made.

MARGINAL COST

MARGINAL COST is a calculation showing the change in total cost as a result of achange in volume, e.g. if one more item of output increases the total cost by $25, themarginal cost is $25. It is usually useful to determine marginal cost because it can aid indetermining if the rate of production should be altered.

MARKET CAPITALIZATION

MARKET CAPITALIZATION is the total dollar value of all outstanding shares. It iscalculated by multiplying the number of shares times the current market price. The termis commonly referred to as 'market cap'.

MATCHING CONCEPT

MATCHING CONCEPT is the accounting principle that requires the recognition of allcosts that are directly associated with the realization of the revenue reported within theincome statement.

MONEY MARKET

MONEY MARKET is a sector of the capital market where short-term obligations such asTreasury bills, commercial paper and bankers acceptances are bought and sold.

MUTUAL FUND

MUTUAL FUND, according to the SEC, is a company that brings together money frommany people and invests it in stocks, bonds or other assets. The combined holdings ofstocks, bonds or other assets the fund owns are known as its portfolio. Each investor inthe fund owns shares, which represent a part of these holdings.


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NASDAQ

NASDAQ is a computerized system established by the NASD to facilitate trading byproviding broker/dealers with current bid and ask price quotes on over-the-counter stocksand some listed stocks. Unlike the Amex and the NYSE, the NASDAQ (once an acronym

for the National Association of securities Dealers Automated Quotation system) does nothave a physical trading floor that brings together buyers and sellers. Instead, all tradingon the NASDAQ exchange is done over a network of computers and telephones. Also,the NASDAQ does not employ market specialists to buy unfilled orders like the NYSEdoes. The NASDAQ began when brokers started informally trading via telephone; thenetwork was later formalized and linked by computer in the early 1970s. In 1998 theparent company of the NASDAQ purchased the Amex, although the two continue tooperate separately. Orders for stock are sent out electronically on the NASDAQ, wheremarket makers list their buy and sell prices. Once a price is agreed upon, the transactionis executed electronically.

NEBT

NEBT is Net Earning Before Taxes.

NET ASSET VALUE

NET ASSET VALUE (NAV) in securities, except money market funds which alwayshave a NAV of $1.00, represents the market value or price of one fund share. It iscalculated by the total value of the funds portfolio less liabilities divided by the numberof shares; or, in corporate valuations, it is a measure of the shareholders' aggregate wealthin the company, which is defined as the actual or hypothetical market value of the

company's assets less its liabilities.

OPEN-END FUND

OPEN-END FUND is a mutual fund that continually offers shares for sale and willalways redeem existing shares for cash at the shareholder's request.

PRUDENCE

PRUDENCE is having foresight and caution along with discretion, and to not actrecklessly.


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QUICK RATIO

QUICK RATIO (or Acid Test Ratio) is a more rigorous test than the Current Ratio ofshort-run solvency, the current ability of a firm to pay its current debts as they come due.This ratio considers only cash, marketable securities (cash equivalents) and accounts

receivable because they are considered to be the most liquid forms of current assets. AQuick Ratio less than 1.0 implies "dependency" on inventory and other current assets toliquidate short-term debt. Formula: (Cash + Cash Equivalents + Accounts Receivable) /Total Liabilities

RATIO ANALYSIS

RATIO ANALYSIS involves conversion of financial numbers for a firm into ratios.Ratio analysis allows comparison of one firm to another. Since ratios look at relationshipsinside the firm, a firm of one size can be directly compared to a second firm (or acollection of firms) which may be larger or smaller or even in a different business.

Financial Ratio Analysis is a method of comparison not dependent on the size of eitherfirm. Financial Ratios provide a broader basis for comparison than do raw numbers. Inthe VentureLine database the comparison is conducted against the industry (SIC Code) inwhich each particular listing is associated.

RED HERRING

RED HERRING is a preliminary registration statement describing the issue (the IPO) andprospects of the company that must be filed with the SEC or provincial securitiescommission. There is no price or issue size stated in the red herring. Red Herrings aresometimes updated several times before it is called the final prospectus. It is known as a

red herring because it contains a statement typed in red that the company is notattempting to sell their shares before the registration is approved by the SEC.

REPO

REPO is a contract under which the seller of securities, such as Treasury Bills, agrees tobuy them back at a specified time and price. Also called repurchase agreement orbuyback.


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ROLLOVER

ROLLOVER is: a. in U.S. real estate tax law, a delayed tax that allows you to apply theprofit you make selling your old house to pay for the new one without paying capitalgains taxes on the profit. In order to rollover the profits, the new house must be more

expensive than the old and the two sales must occur within two years of each other; b. ininvestments, it is the transferring of funds from one investment to another such as rollingover the proceeds from a bond which has matured into another bond, or the rolling overof the proceeds of a share sale into a tax-efficient investment vehicle like a VentureCapital Trust; or, c. in banking, it is the term used when a borrower obtains authorityfrom a bank to delay a principal payment on a loan.

ROI

ROI (Return on Investment) can be calculated in various ways. The most commonmethod is Net Income as a percentage of Net Book Value (total assets minus intangibleassets and liabilities).

ROYALTY

ROYALTY is the share of the product, or of the proceeds realized from the product,reserved by an owner for permitting another entity to exploit and use that entity'sproperty, i.e. it is the rental paid to the original owner of property based upon apercentage of sales, profit or production. Royalty can involve literary works, inventions,and other intellectual property, as well as mining leases and conveyances.

ROYALTY

ROYALTY is the share of the product, or of the proceeds realized from the product,reserved by an owner for permitting another entity to exploit and use that entity'sproperty, i.e. it is the rental paid to the original owner of property based upon apercentage of sales, profit or production. Royalty can involve literary works, inventions,and other intellectual property, as well as mining leases and conveyances.

SPECULATOR

SPECULATOR is an investor who is willing to accept substantial risk for the possibilityof a large return.


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SUBSTANCE OVER FORM

SUBSTANCE OVER FORM is an accounting concept where the entity is accounting foritems according to their substance and economic reality and not merely their legal form.This concept is one of the key determinants of reliable information. For most transactions

there will be no difference, so no issue arises. In some cases however, the two divergeand the choice of how to present the transactions can give very different results. Thisdifference occurs when an asset or liability is not recognized in the accounts even thoughbenefits or obligations may result from the transaction, or oppositely.

SWOT ANALYSIS

SWOT ANALYSIS is one of the most used forms of business analysis. A SWOTexamines and assesses the impacts of internal strengths and weaknesses, and externalopportunities and threats, on the success of the "subject" of analysis. An important part ofa SWOT analysis involves listing and evaluating the firms strengths, weaknesses,

opportunities, and threats. Each of these elements is described:1. Strengths: Strengths are those factors that make an organization more competitive thanits marketplace peers. Strengths are what the company has a distinctive advantage atdoing or what resources it has that is strategic to the competition. Strengths are, in effect,resources, capabilities and core competencies that the organization holds that can be usedeffectively to achieve its performance objectives.2. Weaknesses: A weakness is a limitation, fault, or defect within the organization thatwill keep it from achieving its objectives; it is what an organization does poorly or whereit has inferior capabilities or resources as compared to the competition.3. Opportunities: Opportunities include any favorable current prospective situation in theorganizations environment, such as a trend, market, change or overlooked need that

supports the demand for a product or service and permits the organization to enhance itscompetitive position.4. Threats: A threat includes any unfavorable situation, trend or impending change in anorganizations environment that is currently or potentially damaging or threatening to itsability to compete. It may be a barrier, constraint, or anything that might inflict problems,damages, harm or injury to the organization.

A firms strengths and weaknesses (i.e., its internal environment) are made up of factorsover which it has greater relative control. These factors include the firms resources;culture; systems; staffing practices; and the personal values of the firms managers.Meanwhile, an organizations opportunities and threats (i.e., its external environment) aremade up of those factors over which the organization has lesser relative control. Thesefactors include, among others, overall demand, the degree of market saturation,government policies, economic condition, social, cultural, and ethical developments;technological developments; ecological developments, and the factors making up PortersFive Forces (i.e., intensity of rivalry, threat of new entrants, threat of substitute products,bargaining power of buyers, and bargaining power of suppliers.)


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TAX SHELTER

TAX SHELTER are legal methods taxpayers can use to reduce tax liabilities. Anexample is the use of depreciation of assets.

UPSTREAM / DOWNSTREAM SALES

UPSTREAM / DOWNSTREAM SALES is normally associated with inter-companysales: Upstream is a subsidiary selling into the parent entity; while downstream is theparent selling into a subsidiary.

VOLATILITY

VOLATILITY, in securities, is the measurement of the change in price over a given timeperiod. It is often expressed as a percentage and computed as the annualized standarddeviation of percentage change in daily price.

WEIGHTED AVERAGE COST OF CAPITAL

WEIGHTED AVERAGE COST OF CAPITAL (WACC) is an average representing theexpected return on all of a companys securities. Each source of capital, such as stocks,bonds, and other debt, is weighted in the calculation according to its prominence in thecompanys capital structure.

WORKING CAPITAL

WORKING CAPITAL (WC) is current assets minus current liabilities; also called net

current assets or current capital. It measures the margin of protection for currentcreditors. It reflects the ability to finance current operations.

YANKEE BOND

YANKEE BOND is a dollar bond issued by a non-U.S. borrower in the United States

ZERO COUPON BONDS

ZERO COUPON BONDS are bonds priced at a large discount from face value. The

bonds mature at full face value so the difference between the original issue price and theface value represents interest income. The issuer of the zero coupon bond saves on cashflow since the interest isnt paid out until the end of the bond holding period.

13TH PERIOD

13TH PERIOD in the fiscal year is the period used for fiscal year-end adjusting entries(periods 1-12 being the months in the fiscal year).


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15 MINUTE RULE

15 MINUTE RULE is a timekeeping method used as a semi-official delay prior to endingor beginning an activity. For example: a. Only waiting for a tardy college instructor for15 minutes prior to the class being terminated, or, b. Putting a 15 minute hands-off delay

before impulsively eating a candy when dieting.

2-WAY MATCHING

2-WAY MATCHING is the comparison of relevant voucher to purchase order.

4 Cs OF CREDIT

4 Cs OF CREDIT are the four primary considerations that will affect a lenders decisionto approve or decline your loan application. Known as the 4 C's of credit:

1.

Capacity - what is your ability to repay the loan? Do you have a job or anotherincome source? Do you have other debts?2. Character - will you repay the loan? Have you used credit before? Do you pay

your bills on time?3. Collateral - if you fail to repay your loan, is there something of value that you

agree to forfeit? For example, if you are buying your first car, it could be used ascollateral to insure that you will repay the loan. If you default, you lose your car.

4. Capital (accumulation) - what are you worth? Do you have other assets, such as asavings account, car, or certificate of deposit that could be used to repay the debt?

5. 4-4-5 CALENDARin budgeting and accounting, is the breakdown of each month into weeks by counting thenumber of times Friday occurs within each month, e.g., Jan = 4 weeks, Feb = 4 weeks, Mar =5 weeks, Apr = 4 weeks, May = 4 weeks, Jun = 5 weeks, etc. to total 52 weeks in a 12 monthperiod. Every third month, Friday will occur 5 times. All other months, Friday will occur 4times. In the months where Friday occurs 5 times, it is considered a 5 week month. Whereas,the 4 Friday months will be considered as 4 week months.


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finance and accounting terms and their explanations

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