A B C of Business

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Ever found yourself bedazzled by a financial business adviser or sales persons financial lingo? bedazzledor perhaps you want to stand out and sound smart the next time you  get a chance to speak with the CEO at the company end-of-year party. Here’s an A-Z list of words that you can use to your advantage next time the opportunity shows itself, enjoy;

Autonomy:

Human resource management: A degree or level of freedom and discretion allowed to an employee over his or her job. As a general rule, jobs with high degree of autonomy engender a sense of responsibility and greater job satisfaction in the employee(s). Not every employee, however, prefers a job with high degree of responsibility.

Balance Sheet:

A condensed statement that shows the financial position of an entity on a specified date (usually the last day of an accounting period).
Among other items of information, a balance sheet states (1) what assets the entity owns, (2) how it paid for them, (3) what it owes (its liabilities), and (4) what is the amount left after satisfying the liabilities. Balance sheet data is based on a fundamental accounting equation (assets = liabilities + owners’ equity), and is classified under subheadings such as current assets, fixed assets, current liabilities, Long-term Liabilities. With income statement and cash flow statement, it comprises the set of documents indispensable in running a business.

An audited balance sheet is often demanded by investors, lenders, suppliers, and taxation authorities; and is usually required by law. To be considered valid, a balance sheet must give a true and fair view of an organization’s state of affairs, and must follow the provisions of GAAP(Generally Accepted Accounting Principles) in its preparation. Also called statement of condition, statement of financial condition, or statement of financial position.

Cash Flow:

Incomings and outgoings of cash, representing the operating activities of an organization.
In accounting, cash flow is the difference in amount of cash available at the beginning of a period (opening balance) and the amount at the end of that period (closing balance). It is called positive if the closing balance is higher than the opening balance, otherwise called negative. Cash flow is increased by (1) selling more goods or services, (2) selling an asset, (3) reducing costs, (4) increasing the selling price, (5) collecting faster, (6) paying slower, (7) bringing in more equity, or (8) taking a loan.

The level of cash flow is not necessarily a good measure of performance, and vice versa: high levels of cash flow do not necessarily mean high or even any profit; and high levels of profit do not automatically translate into high or even positive cash flow.

Depression:

Lowest point in an economic cycle characterized by (1) reduced purchasing power, (2) mass unemployment, (3) excess of supply over demand, (4) falling prices, or prices rising slower than usual, (5) falling wages, or wages rising slower than usual, and (6) general lack of confidence in the future. Also called a slump, a depression causes a drop in all economic activity. Major depressions may continue for several years, such as the Great Depression (1930-40) that had worldwide impact.

Escrow Account:

1. Accounting: Account in which funds are accumulated for specific disbursements.
2. Banking: Account to which an accountholder makes monthly or other periodic deposits, and authorizes the bank to withdraw funds to pay for certain fixed obligations such as taxes, rent, insurance premium.

Financial Leverage:

The use of borrowed money to increase production volume, and thus sales and earnings. It is measured as the ratio of total debt to total assets. The greater the amount of debt, the greater the financial leverage.
Since interest is a fixed cost (which can be written off against revenue) a loan allows an organization to generate more earnings without a corresponding increase in the equity capital requiring increased dividend payments (which cannot be written off against the earnings). However, while high leverage may be beneficial in boom periods, it may cause serious cash flow problems in recessionary periods because there might not be enough sales revenue to cover the interest payments, except loan is of a flexible nature.

Gross Income:

The amount by which sales revenue exceeds production costs (cost of sales).
Though operating income gives a more accurate picture of a company’s profitability, gross income provides a top-line view of a company’s production or (in case of a merchant) sales related cost structure. It is a measure of how well (or badly) a company is utilizing its capital, capacity, and other resources, and shows its competitive strengths and weaknesses in comparison with other companies in the same industry. A high gross income means stability in times of economic downturn because the company can afford to cut prices; a low gross income may mean low creditworthiness or inability to fight off competition.

Inflation:

A sustained, rapid increase in prices, as measured by some broad index (such as Consumer Price Index) over months or years, and mirrored in the correspondingly decreasing purchasing power of the currency. It has its worst effect on the fixed-wage earners, and is a disincentive to save.
There is no one single, universally accepted cause of inflation, and the modern economic theory describes three types of inflation: (1) Cost-push inflation is due to wage increases that cause businesses to raise prices to cover higher labor costs, which leads to demand for still higher wages (the wage-price spiral), (2) Demand-pull inflation results from increasing consumer demand financed by easier availability of credit; (3) Monetary inflation caused by the expansion in money supply (due to printing of more money by a government to cover its deficits).

Joint Stock Company:

1. In the UK: The original (17th century) name for a corporation in which the liability of the owners is limited to the nominal value of the stock (shares) held by them.
2. In the US: Corporation with unlimited liability for the shareholders. Investors in a US joint stock company receive stock (shares) which can be transferred, and can elect a board of directors, but are jointly-and-severally liable for company’s debts and obligations. A US joint stock company cannot hold title to a real property.

KISS Principle:

“Keep It Simple, Stupid.” A term which simply indicates that the simplest solution or path should be taken in a situation. This principle can be applied to any scenario, including many business activities, such as planning, management, and development.

Loan:

Written or oral agreement for a temporary transfer of a property (usually cash) from its owner (the lender) to a borrower who promises to return it according to the terms of the agreement, usually with interest for its use. If the loan is repayable on the demand of the lender, it is called a demand loan. If repayable in equal monthly payments, it is an installment loan. If repayable in lump sum on the loan’s maturity (expiration) date, it is a time loan. Banks further classify their loans into other categories such as consumer, commercial, and industrial loans, construction and mortgage loans, and secured and unsecured loans.

Monetary Policy:

Economic strategy chosen by a government in deciding expansion or contraction in the country’s money-supply. Applied usually through the central bank, a monetary policy employs three major tools: (1) buying or selling national debt, (2) changing credit restrictions, and (3) changing the interest rates by changing reserve requirements. Monetary policy plays the dominant role in control of the aggregate-demand and, by extension, of inflation in an economy. Also called monetary regime.

Nepotism:

Practice of appointing relatives and friends in one’s organization to positions for which outsiders might be better qualified. Despite its negative connotations, nepotism (if applied sensibly) is an important and positive practice in the startup and formative years of a firm where complete trust and willingness to work hard (for little or no immediate reward) are critical for its survival.

Opportunity Cost:

A benefit, profit, or value of something that must be given up to acquire or achieve something else. Since every resource (land, money, time, etc.) can be put to alternative uses, every action, choice, or decision has an associated opportunity cost.
Opportunity costs are fundamental costs in economics, and are used in computing cost benefit analysis of a project. Such costs, however, are not recorded in the account books but are recognized in decision making by computing the cash outlays and their resulting profit or loss.

Profit Margin:

Ratio of profit after taxes to cost-of-sales, often expressed as a percentage. It is one of the measures of the profitability of a firm, and an indicator of its cost structure. Formula: After-tax profit x 100 ÷ cost of sales.

Qualitative Analysis:

Examination of non-measurable data such as a firm’s reputation, a brand’ image, or a customer’s feelings about a product.

Receivable:

Accounting term for amount due from a customer, employee, supplier (as a rebate or refund), or any other party. Receivables are classified as accounts receivable, notes receivable, etc., and represent an asset of the firm.

Sole Proprietorship:

Simplest, oldest, and most common form of business ownership in which only one individual acquires all the benefits and risks of running an enterprise. In a sole-proprietorship there is no legal distinction between the assets and liabilities of a business and those of its owner. It is by far the most popular business structure for startups because of its ease of formation, least record keeping, minimal regulatory controls, and avoidance of double taxation.

Tort:

Generally refers to private (as opposed to public) and civil (as opposed to criminal) offenses for which law may provide monetary compensation (see damages) to the aggrieved party as a remedy. Some torts (such as assault), however, are crimes. Whereas (1) breach of a contract does not ordinarily fall under tort law, negligent driving (a tortious act) by a taxi driver is a breach of contract to carry the passenger safely to his or her destination; (2) it usually must be shown that the wrong was committed with intention or negligence, tort of strict liability does not require any such proof; (3) common legal relief for a tort is monetary compensation, in some cases (such as nuisance to a neighbor) an injunction to prevent recurrence of the act may be granted; (4) motive with which a tortious act is committed is usually immaterial, in some cases (such as malicious prosecution) presence of malice is essential

Utility:

1. Business: Large firm that owns and/or operates facilities used for generation and transmission or distribution of electricity, gas, or water to general public.
2. Computing: Auxiliary program that performs a specific useful function to maintain, or augment the efficiency of, a computer system. Utilities range from the small and simple to the large and complex, and from being marginally useful to being indispensable. Functions performed by utilities include data compression, data recovery, disk defragmentation, management of computer resources and files, system diagnosis, virus detection, and numerous other.Also called utility program.
3. Economics: Pleasure or satisfaction (value for money) derived by a person from the consumption of a good or service or from being in a particular place, and for the maximization of which all economic actions are motivated. It is the subjective or psychic return which cannot be measured in absolute or objective terms. Goods or services that have utility for one person may not have for another, and what may have utility for a person at a certain time or place may not have it at another. See also utility theory.
4. Ethics: As described by the English philosopher-reformer Jeremy Bentham (1748-1832), what appears to “augment or diminish the happiness of the party whose interest is in question.”
5. Patent law: Usefulness of the item for which a patent is applied. An invention must be capable of use and must perform some useful function for to be considered patentable.

Value Proposition:

An analysis or statement of the combination of goods and services offered by a company to its customers in exchange for payment.

Working Capital:

1. The cash available for day-to-day operations of an organization. Strictly speaking, one borrows cash (and not working capital) to be able to buy assets or to pay for obligations. Also called current capital.
2. Accounting: Net liquid assets computed by deducting current liabilities from current assets. The amount of available working capital is a measure of a firm’s ability to meet its short-term obligations. Sources of working capital are (1) net income, (2) long-term loans, (3) sale of capital assets, and (4) injection of funds by stockholders. Ample working capital allows management to take advantage of unexpected opportunities, and to qualify for bank loans and favorable trade credit terms. In the normal trade cycle of a company, working capital equals working assets. Also called net current assets.

XW:

Symbol used in financial press to indicate that a stock is trading without (ex) warrants.

Yield:

The annual income earned from an investment, expressed usually as a percentage of the money invested.

Zombie Debt:

A term used to describe older debts that have been brought “back to life” by collection actions. Zombie debt is debt that a consumer may have forgotten about until it is resurrected as the expiration of the statute of limitations on that debt draws near. Collection actions at this point are almost always through a debt buyer or collection agency versus the original lender.smart

Definitions from businessdictionary.com.

 

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