Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
111 Cards in this Set
- Front
- Back
|
Accounts payable (A/P). |
Money owed by the firm to agencies and suppliers. |
|
|
Accounts receivable (A/R) |
Money owed to a company for goods or services sold. The figure is important in determining a business's ability to meet its financial obligations. |
|
|
Accrual accounting. |
An accounting method whereby income and expenses are booked when they are incurred, regardless of when they are actually received or paid. Revenues are recognized during the period in which the sales activity occurred; expenses are recognized in the same period as their associated revenues. |
|
|
Accruals |
An amount incurred as an expense in a given accounting period—but not paid by the end of that period. An example would be the electricity bill for a given quarter. |
|
|
Acid-test ratio |
See quick ratio. |
|
|
Activity-based costing (ABC). |
An approach to cost accounting that focuses on the activities or cost drivers required to produce each product or provide each service. ABC assumes that most overhead costs are related to activities within the firm and that they vary with respect to the drivers of those activities. |
|
|
Allocation. |
The process of spreading costs from one expense category to several others, typically based on usage. For example, such corporate overhead expenses as rent and utilities may be charged to departmental units based on square feet. |
|
|
Amortized expenses. |
The costs for assets such as buildings and computers, which are depreciated (expensed) over time to reflect their usable life. |
|
|
Assets |
The economic resources of a company. Assets commonly include cash, accounts receivable, notes receivable, inventories, land, buildings, machinery, equipment, and other investments |
|
|
Asset turnover. |
A measure of how efficiently a company uses its assets. To calculate asset turnover, divide sales by assets. The higher the number, the better. |
|
|
Balance sheet |
A means of summarizing a company's financial position—its assets, equity, and liabilities—at a specific point in time. According to the basic equation in a balance sheet, a company's assets equal its liabilities plus owner's equity. Balance sheet data is most helpful when compared with information from a previous year. |
|
|
Bankers ratio |
See current ratio. |
|
|
Book Value |
The value at which an asset is carried on a balance sheet. The book value of equipment is reduced each year for depreciation. Therefore, the book value at any time is the cost minus accumulated depreciation. |
|
|
Bottom Up Budgeting |
A process whereby managers put together budgets that they feel will best meet the needs and goals of their respective departments. These budgets are then "rolled up" to create an overall company budget, which is then adjusted, with requests for changes being sent back down to the individual departments. |
|
|
Breakeven |
The volume level at which the total contribution from a product line or investment equals total fixed costs. To calculate the breakeven volume, subtract the variable cost per unit from the selling price to determine the unit contribution, and then divide the total fixed costs by the unit contribution. |
|
|
Capital expenditure/capital investment |
. The payment required to acquire or improve a capital asset. See investment in PP&E. |
|
|
Cash-basis accounting. |
An accounting process that records transactions when cash actually changes hands. This practice is less conservative than accrual accounting when it comes to expense recognition, but sometimes more conservative when it comes to revenue recognition. |
|
|
Cash flow statement. |
A review of a company's use of cash, this statement tells where the company's money comes from, and where it goes—in other words, the flow of cash in, through, and out of the company. |
|
|
Cash utilization/cash flow measure. |
The changes that affect a cash account during an accounting period. |
|
|
Chart of accounts. |
A way to outline the accounting system of a business, the chart of accounts establishes how the business will operate, what information will be captured, and what information will subsequently be readily retrievable by the system. It includes such items as inventory, fixed assets, accounts receivable, and costs. |
|
|
Contributed capital. |
Capital received in exchange for stock. |
|
|
Contribution. |
The unit revenue minus variable costs per unit. The sum of money available to contribute to paying fixed costs. |
|
|
Cost/benefit analysis. |
A form of analysis that evaluates whether, over a given time frame, the benefits of the new investment, or the new business opportunity, outweigh the associated costs. |
|
|
Cost of capital. . |
The costs of different types of capital, including short-term debt, long-term debt, and equity. This cost is typically expressed as a percentage of the underlying capital |
|
|
Cost of goods sold (COGS). |
The total cost paid for the products sold during the accounting period, plus freight-in costs. Most small retail and wholesale businesses compute cost of goods sold by adding the value of the goods purchased during the accounting period to the value of the beginning inventory, and then subtracting from that figure the value of the inventory on hand at the end of the accounting period. For manufacturers, cost of goods sold includes, in addition to raw materials, the direct cost of manufacturing labor (including Social Security and unemployment taxes on factory employees), and overhead charges such as supervision, power, and supplies. |
|
|
Cost of services (COS). |
Charges billed to a customer for a service. Overhead is often included in the calculation of the cost of services. |
|
|
Costs and expenses. |
The costs related to running the business—for example, salaries, office overhead, light, heat, legal and accounting services. |
|
|
Current assets. |
Those assets that are most easily converted into cash: cash on hand, accounts receivable, and inventory. |
|
|
Current ratio. |
This is a prime measure of how solvent a company is. It's so popular with lenders that it's sometimes called the banker's ratio. Generally speaking, the higher the ratio, the better financial condition a company is in. A company that has $3.2 million in current assets and $1.2 million in current liabilities would have a current ratio of 2.7 to 1. That company would be generally healthier than one with a current ratio of 2.2 to 1. To calculate the current ratio, divide total current assets by total current liabilities. |
|
|
Days inventory. |
A measure of how long it takes a company to sell the average amount of inventory on hand during a given period of time. The longer it takes to sell the inventory, the greater the likelihood that it will not be sold at full value—and the greater the sum of cash that gets tied up. To calculate days inventory, divide the average amount of inventory on hand for the period by the cost of goods sold for the same period, then multiply that quotient by 365. |
|
|
Days payables. |
A measure that tells how many days—based on balance sheet and income statement data—it actually takes a company to pay its suppliers. The fewer the days it takes, the less likely the company is to default on its obligations. To calculate days payables, divide accounts payable by the cost of goods sold for the period in question, then multiply that quotient by 365. |
|
|
Days receivables. |
A measure that tells you in concrete terms—based on balance sheet and income statement data—how long it actually takes a company to collect what it is owed. A company that takes 45 days to collect its receivables will need significantly more working capital than one that takes four days to collect. To calculate days receivables, divide net accounts receivable for the given time period by net sales, then multiply that quotient by 365. |
|
|
Debt. |
What is owed to a creditor or supplier. Debt is sometimes referred to as notes payable or bonds payable. |
|
|
Debt to equity. |
This measure provides a description of how well the company is making use of borrowed money to enhance the return on owner's equity. To calculate the debt-to-equity ratio, divide total debt (long-term debt plus short-term debt plus current maturities) by total shareholders' equity. |
|
|
Depreciation. |
A way of accounting for the diminishing value of an asset as time goes by. |
|
|
Direct vs. indirect costs. |
Costs that are directly attributable to the manufacture of a product—for example, the cost of plastic for a bottling company. Direct costs vary in direct proportion to the number of units produced. Indirect costs cannot be directly attributed to a particular product—for example, the cost of machines that are used in the production of more than one product. |
|
|
Dividend. |
A payment (usually occurring quarterly) to the stockholders of a company, as a return on their investment. |
|
|
Earnings before interest and taxes (EBIT). See operating profit. |
See operating profit. |
|
|
Earnings per share (EPS). |
One of the most commonly watched indicators of a company's financial performance, it equals net income divided by the number of shares outstanding. When EPS falls, it usually takes the stock's price down with it. |
|
|
Earnings statement. |
See income statement. |
|
|
Economic Value Added (EVA). |
The profit left over after a company has met the cost of capital—the expectations of those who provided of the capital. |
|
|
Equity. |
The value of a company's assets minus its liabilities. On a balance sheet, equity is referred to as shareholders' equity or owner's equity. |
|
|
Expenditure. |
An activity that results in an expense, or, the payment of cash for goods or services. This is a more specific term than "disbursement," which can include payments other than cash. |
|
|
Financial leverage. |
A company's long-term debt in relation to its capital structure (the total of its common stock, preferred stock, long-term debt, and retained earnings). A company that has consistently high earnings can afford to be more leveraged, that is, it can afford to carry more long- term debt than a company whose earnings fluctuate significantly |
|
|
Financial statements. |
Reports of a company's financial performance. The three basic types of statement included in an annual report—the income statement, the balance sheet, and the cash flow statement— present related information, but provide different perspectives on a company's performance. |
|
|
Fiscal Periods |
. An accounting time period (month, quarter, year), at the end of which the books are closed and profit or loss is determined. |
|
|
Fixed assets. |
Assets that are difficult to convert to cash—for example, buildings, and equipment. Sometimes called plant assets. |
|
|
Fixed costs. |
Fixed costs remain constant despite sales volume; they include interest expense, rent, depreciation, and insurance expenses. |
|
|
General ledger. |
A company's centralized and authoritative accounting record, where balance sheet, income, and expense information for the period in question is summarized. |
|
|
Generally accepted accounting principles (GAAP). |
The rules and conventions that accountants follow in recording and summarizing transactions and preparing financial statements. |
|
|
Gross margin. |
A ratio that measures the percentage of gross profit relative to sales revenue. |
|
|
Gross profit. |
The sum left over after all direct product expenses or costs of goods sold have been subtracted from revenues. |
|
|
Growth. |
An increase in the value of a company's revenues, profits, or the value of its equity. |
|
|
Growth indicators. |
Measures that tell about a company's financial health. Common measures of growth include sales growth, profitability growth, and growth in earnings per share. |
|
|
Hurdle rate. |
The rate of return on investment dollars required for a project to be worthwhile. It is typically a higher rate of return than what would have been obtained by investing the capital in low- or moderate-risk financial instruments. |
|
|
Income statement. |
A report that indicates how much profit or loss a company generates over a period of time—a month, a quarter, or a year. In addition, the income statement, sometimes referred to as the earnings statement, tells how much money the company spends to make its profits. |
|
|
Interest coverage. |
This measures a company's margin of safety, or how many times over the company can make its interest payments. To calculate interest coverage, divide earnings before interest and taxes by the interest expense. |
|
|
Internal rate of return (IRR). |
The discount rate at which the net present value (NPV) of an investment equals zero. |
|
|
Inventory. |
The supplies of the company that are or will become its product. Examples include the merchandise in a shop, the finished work in a warehouse, work-in-progress, and raw materials. |
|
|
Investment in PP&E. |
Dollars spent on property, plant, and equipment. Sometimes called capital investment or capital expenditures. |
|
|
Invoice. |
A bill submitted to the purchaser, listing all items or services, together with amounts for each. |
|
|
Journals. |
The transaction records of the business. |
|
|
Leverage ratios. |
Ratios that assess a company's debt structure. The greater the component of long- term debt in a company's overall debt structure, the greater the financial leverage. These ratios, including interest coverage and debt to equity, help determine whether a company's level of debt is appropriate and assess its ability to pay the interest on its debts. |
|
|
Liabilities. |
The economic claims against a company's resources. Such debts include bank loans, mortgages, and accounts payable. |
|
|
Margin (%). |
Another term for profit, this equals revenues minus expenses. The margin is often expressed as the percentage by which revenues exceed expenses. |
|
|
Market price appreciation. |
The increase in the value of an asset over a specified time period. |
|
|
Market value. |
The value of an asset if it were to be sold at the current market price. |
|
|
Net book value (NBV). |
The value at which an asset appears on the books of an organization, minus any depreciation (usually as of the date of the last balance sheet) that has been applied since its purchase or its last valuation. |
|
|
Net income. |
The income of an organization after deducting the expenses, including interest and taxes, incurred in earning that income. |
|
|
Net income per employee. |
See productivity measures. |
|
|
Net present value (NPV). |
The economic value of an investment, calculated by subtracting the cost of the investment from the present value of the investment's future earnings. Because of the time value of money, the investment's future earnings must be discounted in order to be expressed accurately in today's dollars. |
|
|
Operating cash flow (OCF). |
The net movement of funds from the operations side of a business, as opposed to the investment side. OCF is usually described in terms of the sources and uses of cash. When more cash is going out than coming in, there is a negative cash flow; when more cash is coming in than going out, there is a positive cash flow. |
|
|
Operating earnings. |
Gross margin less operating expenses and depreciation. Also called earnings before interest and taxes, or EBIT. |
|
|
Operating expenses. |
Expenses that occur in operating a business, for example: administrative employee salaries, rents, sales and marketing costs, as well as other costs of business not directly attributed to manufacturing a product. |
|
|
Operating profit (EBIT). |
The difference between the revenues of a company and the costs and expenses associated with conducting business. Also known as earnings before interest and taxes (EBIT). |
|
|
Operating ratios. |
Financial measures that link various income statement and balance sheet figures to provide an assessment of a company's operating efficiency. Examples of operating ratios include asset turnover, days receivables, days payables, days inventory, current ratio, and quick ratio. |
|
|
Owner's equity. |
See equity. |
|
|
Payback period. |
The length of time needed to recoup the cost of a capital investment; the time that transpires before an investment pays for itself. |
|
|
Pretax profit. |
Net income before federal income taxes. |
|
|
Price-to-book ratio. |
A method of valuation for stock, this ratio is calculated by dividing the current market price of a share of stock by the stock's book value per share. |
|
|
Price-to-earnings ratio (P/E). |
A common measure of how cheap or expensive a stock is, relative to earnings. P/E equals the current price of a share of stock divided by the previous 12 months' earnings per share. |
|
|
Productivity measures. |
Indicators such as sales-per-employee and net-income-per-employee, which link revenue and profit generation information to work force data, thereby providing a picture of employees' effectiveness in producing sales and income. |
|
|
Profit margin. |
See return on sales. |
|
|
Profitability ratios. |
Measures of a company's level of profitability, in which sales and profits are expressed as a percentage of various other items. Examples include return on assets, return on equity, and return on sales. |
|
|
Property, plant, and equipment (PP&E). |
A line item on a balance sheet that lists the value of a business's land, buildings, machinery, equipment, and natural resources that are used for the purpose of producing products or providing services. |
|
|
Purchase order. |
A written authorization to a vendor to deliver goods or services at an agreed upon price. When the supplier accepts the purchase order, it is a legally binding purchase contract. |
|
|
Quick ratio. |
A measure of a company's assets that can be quickly liquidated and used to pay debts. It is sometimes called the acid-test ratio, because it measures a company's ability to deal instantly with its liabilities. To calculate the quick ratio, divide cash, receivables, and marketable securities by current liabilities. |
|
|
Ratio analysis. |
A means of analyzing the information contained in the three financial statements, a financial ratio is two key numbers from a company's financial statements expressed in relation to each other. Ratios are most meaningful when compared to the same measures for other companies in the same industry |
|
|
Retained earnings. |
Annual net profits left after payments of dividends that accumulate on a company's balance sheet. |
|
|
Return on assets (ROA). |
Expressed as a percentage, ROA is a quantitative description of how well a company has invested in its assets. To calculate it, divide the net income for a given time period by the total assets. The larger the ROA, the better a company is performing. |
|
|
Return on equity (ROE)/return on owner's equity. |
This measure shows the return on the portion of the company's financing that is provided by owners. It answers the question, "How profitable have management's efforts been?". To calculate ROE, divide the total income by total owners' equity. |
|
|
Return on investment (ROI). |
A financial ratio measuring the cash return from an investment relative to its cost. |
|
|
Return on sales (ROS). |
Also known as profit margin, ROS is a way to measure a company's operational efficiency—how its sales translate into profit. To calculate ROS, divide net income by the total sales revenue. |
|
|
Shareholders' equity.. |
See equity |
|
|
Sunk costs. |
Prior investment that cannot be affected by current decisions, and thus should not be factored into the calculation of the profitability of an initiative. |
|
|
SWOT analyses. |
An analysis of a company's strengths, weaknesses, opportunities, and threats. |
|
|
Time value of money. |
The principle that a dollar received today is worth more than a dollar received at a given point in the future. Even without the effects of inflation, the dollar received today would be worth more because it could be invested immediately, thereby earning additional revenue. |
|
|
Top-down budgeting. |
A budgeting process whereby senior management sets very specific objectives for such things as net income, profit margins, and expenses. Unit managers then allocate their budget within these parameters to ensure that the objectives are achieved. |
|
|
Valuation. |
An estimate of a company's value, usually for the purposes of purchase and sale, or taxation. Leverage ratios and operating ratios provide means of evaluating and comparing companies' worth. Wall Street uses other ratios that describe a company's financial performance in relation to its stock price: earnings per share (EPS), price-to-earnings ratio (P/E), and price-to-book ratio. |
|
|
Variable costs. |
Costs that are incurred in relation to sales volume; examples include the cost of materials and sales commissions. |
|
|
Working capital. |
A measure of a business's ability to pay its financial obligations, working capital equals the difference between a company's current assets (easily sellable goods, cash, and bank deposits) and its current liabilities (debt due in less than a year, interest payments, etc.). Shortages of working capital are often relieved by short-term loans. |
|
|
. |
. |
|
|
. |
. |
|
|
. |
. |
|
|
. |
. |
|
|
. |
. |
|
|
. |
. |
|
|
. |
. |
|
|
. |
. |
|
|
. |
. |
|
|
hi |
. |
