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Glossary of business terms

ACCOUNTS PAYABLE: the amount of money owed by the company, for goods and Services, to its suppliers; usually maintained solely for the purchase of inventory material.

ACCOUNTS RECEIVABLE: are funds owed to the company by cus tomers who havepurchased goods on credit terms, and who usually have 30,60. or 90 days in which to pay.

ACCRUED EXPENSES: the amount of money owed by a company for various goods not yet fully delivered or for services not yet fully performed.

ACCUMULATED DEPRECIATION: an account showing the total amount of depreciation of an asset that has been a ccumulated to date; appears in the fixed asset section of the balance sheet and is subfracted from the original cost of the asset.

AGE OF ACCOUNTS PAYABLE: the average number of days it took the company to pay its suppliers for the purchases of inventory o n credit.

AGE OF ACCOUNTS RECEIVABLE: the average number of days that it took the company's customers to pay for their credit sales.

AGE OF INVENTORY: the average number of days that it took for the company's merchandise to move through the business, from the date it was received until the date it was sold.

ALLOWANCE FOR DOUBTFUL ACCOUNTS: a provision for the amount of credit sales which may not be collected; this account is shown on the balance sheet and is subtracted from the total of accounts receivable to yield accounts receivable, net.

AMORTIZATION: the process of writing down the cost of an intangible asset. ASSETS: represent all of the tangible and intangible goods or things of

value owned by a company.

AVERAGE COST: the total cost of manufacturing all the inventory held by a company divided by the number of units held.

BAD DEBT EXPENSE: the estimated expense for credit sales which may never be collected.

BALANCE SHEET: a financial statement which reports the assets, the liabilities and the equity of a company at one point in time. Assets are listed on the left hand side while liabilities and equity are listed on the right.

BALANCE OF PAYMENT: the closely observed accounts of a country's trade with the rest of the world; the record of its external payments (and receipts).

BANKRUPTCY: the orderly liquidation of a firm caused by a default on, or non payment of, its obligations.

BOND: a certificate of long-term indebtedness issued by firms and governments; sometimes assets can be pledged as security.

BOOK VALUE OF A FIRM: the value of a firm arrived at by subtracting the total liabilities from the total assets.

BRAND NAME PRODUCT: a product sold with a company's name or specific name attached to it rather than being sold with only a general name, e.g., Coca Cola is a brand name of a particular cola soft drink

BREAK-EVEN ANALYSIS: the process of determining the break-even

. point for a certain business and/or a particular product.

BREAK-EVEN POINT: the level of output (volume) at which the revenues equal the total costs.

CASE: a statement of facts and opinions more or less relevant to an actual business situation in which a problem exists and a decision must be mad

CAPITAL INTENSIVE: a production process which depends more heavil y on machinery, plant and equipment than on labor.

CAPITAL MARKETS: these are MARKETS for the long term funds needed for capital investment, either to expand existing business projects or to start new ones. Capital markets can be divided into two.

CAPITAL STOCK: a balance sheet account showing the amount that was assigned to the shares of stock at the time they were originally issued.

CAPITAL SURPLUS OR PAID IN CAPITAL: when shares are sold at a. higher price than the original issue price, the difference in sellingprice multiplied by the number of shares sold is known as the capital surplus, may also include any capital gains made by a company.

CHATTEL: a lien similar to a real estate mortgage except the collateral is a moveable object, e.g., car.

COHESION: the force with which individuals remain united towards a certain goal or objective.

COLLATERAL: the assets of a borrower which have been pledged as security against the amount of money lent him.

COMMODITY: any article exchanged in trade, but most commonly used to refer to raw materials, including such minerals as tin, copper and manganese, and bulk-produced agricultural products such as coffee, tee and rubber.

COMMON STOCK: a certificate showing ownership in a corporation; preferred stockholders receive preferences over common stockholders in dividend payments, and on liquidation.

COMPETITION: the eternal contest between business firms to see which can perform the best either in terms of MARKET share, PROFIT, or some other recognized yardstick.

CONSIGNMENT: -(SELLING ON CONSIGNMENT): the sales process whereby a manufacturer will sell goods to a retailer with the understanding that there is no liability for payment until the retailer has sold the foods to . his customers.

CONTINUOUS PROCESS: a type of manufacturing process which exhibits the following characteristics: a limited variety of output: the movement of each unit of production through the same sequence of operations; no designation of the process to a particular customer; and has specialized machines and/or operations employed.

CONVENIENCE GOOD: a good which the consumer wants readily available, e.g. food or cigarettes.

CORPORATION: a separate and legal entity, apart from its owners, which is created by law and which is granted rights set out in its corporate charter.

COST OF GOODS SOLD: the cost associated with the product which the company intends to sell; may be the cost'to make or buy the product.

CPM CRITICAL PATH METHOD: a planning tool used by managers to estimate how much time is required to complete various parts of a project so that it can be completed on time.

CREDIT: the process of purchasing goods or services without paying cash immediately.

CREDITOR: a person or company who lends money or extends credit to another person or company.

CURRENCY: the circulating media of exchange in a country.

CURRENT ACCOUNT: that portion of country's balance of payments that records current (as opposed to capital) transactions, including visible trade (exports and imports), invisible trade (income and expenditures for services), profits'earned from foreign operation, interest and transfer payments.

CURRENT ASSETS: include cash and items which in the normal course of business will be converted into cash within one operating cycle, usually a year.

CURRENT LIABILITIES: the amount of money owed by a company which must be paid back within the next accounting period, usually a year.

CUSTOMS: the government service responsible for the assessment and collection of import and export duties and taxes and the administration of other laws and regulations that apply to the importation, transit and exportation of goods.

DEALER: performs the marketing functions similar to a retailer except the term dealer is used when speaking of an industrial good or product.

DEBENTURE: a certificate of long-term debt based on general credit

(no specific assets pledged as security).

DEBT TO TOTAL ASSETS: the amount of assets which have been financed by creditors or debtors. Both on a short-term and long-term basis.

DEMAND LOAN: a form of short -term credit; a promissory note whereby the borrower agrees to repay the amount of the loan on demand. The lender is not restricted to allowing the loan to run over a specific period of time; he may demand payment, in full, at any time. (See Promissory Note)

DEMOGRAPHICS: the study of populations as to their numbers, age, sex, income levels, etc.

DEPRECIATION: an attempt to recognize that an asset will wear out or become obsolete within a certain period of time by showing a portion of the cost of an asset as an expense during each year of its estimated useful life.

DEPTH OF PRODUCT LINE: refers to the number of' different sizes, colours, models, qualities, prices, etc., that may be available within each product line.

DISTRIBUTOR: an independent business concern which renders services in between-the producer and the ultimate household consumer or the industrial user. See Middleman.

DIVIDEND: a distribution to the shareholders; may be either a cash payment or payment in, more stock.

DURABLE GOOD: a classification of product life expectancy whereby the product is expected to provide the consumer with a benefit for a long period of time, e.g. a car; refrigerator, etc.

EFFECTIVENESS (IN PRODUCTION TASK): the extent to which the manufacturing firm is able to realize the desired production objectives with a minimum of cost, effort and waste.

ENTREPRENEUR: the person who organizes the factors of production

(land, labor, and capital), the risk taker in business.

EUROPEAN COMMUNITY (EC): the European Economic Community (EEC) came into being on January 1,1958, based on the Treaty of Rome, with six participating member states (France, Italy, the Federal Republic of Germany, Belgium, the Netherlands and Luxembourg). The United Kingdom, Denmark and Ireland joined the Community in 1973, and Greece in 1981. Spain and Portugal became members in 1986. A number of other European countries have already, or are expected to apply for membership in the 1990s. Sweden, Finland and Austria joined the Community in 1995. In recent years, the Community made major efforts to deepen its integration by attempting to remove remaining barriers to the free movement of goods, people, capital and services within the EC via what became known as the single market or 1992 program. Part 1, Article 1 of the Maastricht Treaty on European Union formalized the use of EC as

reference to European Community. The treaty also introduced the term

European Union as a broader legal entity than the EC. The Community is

headquartered in Brussels.

EXCHANGE RATE: the price at which one currency can be exchanged for another. Exchange rates come in various forms.

EXPENDITURE: the purchase of an asset or service.

EXPENSE: the using up of resources in order to earn revenue; an

expenditure that is made to earn revenues.

FACTORING ACCOUNTS RECEIVABLE: the process whereby a company sells its accounts receivable to a factor, usually at a value less than the net book value of the accounts receivable, in order to obtain short -term funds sooner than waiting for normal payment by customers; it then becomes the task of the factor to collect the debt.

FACTORY OVERHEAD: the costs to the firm of the indirect expenses which are incurred in the manufacturing process, such as indirect labour or factory rent.

FIXED ASSETS: physical items which are not consumed within one operating cycle; assets which are used in the production of goods or services and are not intended for resale.

FIXED COST: a cost which does not change in proportion to volume changes (at least not over a certain range of volume); expressed as a total dollar figure.

FTXED RATE: Governments fix the rate against something else: the price of gold, the dollar, or the ecu, for example. When it has to change the rate, a government does so either by a devaluation (increasing the amount of currency per dollar, ounce of gold, or whatever) or by a revaluation (decreasing the amount of currency per unit).

FLOATING RATE: governments allow their currency to find its own level according to demand in the foreign-exchange markets.

FORWARD CONTRACT: a contract between two companies for the delivery of specified goods or currency at some specified time in the future and for a specified price. A forward contract differs from a futures contract in that it is not entered into primarily to create a tradable i nstrument.

FORWARD MARKET: a market in which contracts for future deliver ies of goods and securities on a specified date are entered into at fixed prices.

FRANCHISE: a system under which a manufacturer grants to certain deal-' ers the right to sell his product or service in generally defined areas, in exchange for a promise to promote and merchandise the product in a certain manner.

FRANCHISEE: a person or firm that is licensed by a franchise or to sell its products or services in a specific territory under a franchising agreement.

FRANCHISOR: the person or firm who sells or licenses a franchise.

GOODWILL: an intangible asset; an amount paid upon the sale of one company to another, for a favourable location, reputation brand name, loyalty of existing customers, etc.: calculated as the excess purchase price of the company over and above the book value of the company.

GROSS PROFIT: the markup or margin the company charges or earns on its production costs: the difference, once cost of goods sold, is subtracted from net sales.

HIERARCHY OF NEEDS: a ranking of human needs into several levels or stages, from 1-5, physiological, security, social, ego, self-actualization; the lower needs in the hierarchy must be satisfied first before higher-level needs can emerge.

INTANGIBLE ASSET: an asset which does not have a tangible form but still has a value, i.e. patents.

INFLATION: the economic phenomenon of a general rise in prices. The most commonly used measure of inflation is the increase in the price of a

basket of retail goods over a period of time.

INVENTORY: the goods a company holds for sale or use, and material and partially finished products which will be sold upon completion.

INTEREST: a sum paid for the use of borrowed capital, usually expressed in terms of a rate or percentage of the capital involved (the interest rate), which is normally higher when the risk (including the probability of inflation) is greater.

INTERNATIONAL MONETARY FUND (IMF): an international fi nancial institution proposed at the 1944 Bretton Woods Conference and established in 1946 that seeks to stabilize the international monetary system as a sound basis for the orderly expansion of international trade. The Fund monitors exchange rate policies of member countries, lends them foreign exchange resources to support their adjustment policies when they experience balance of payments difficulties, and provides them financial assistance when they experience temporary shortfalls in commodity export earnings.

JOB SHOP PROCESS: a type of manufacturing process which exhibits the following characteristics; the potential for an extensive product line; a variable routine of jobs; production for individual customers; and general pur pose facilities and machines.

JOINT VENTURE: a business venture entered into jointly by two or more partners. Companies favor joint ventures when they are exploring a new market or a new geographical region.

LABOUR INTENSIVE: production process involving relatively larger amounts of human input in comparison to capital input (machinery).

IABILITIES: consist of all the debts or claims owed by the company. LIEN: the right to retain property belonging to another until a debt due

j from the latter is paid.

LINE OF CREDIT: an arrangement between a company or bank and its customers with respect to the maximum amount of unsecured credit the lender will permit the firm-to owe at any one point in time: the borrower may use all or part of the total amount allowed.

LIQUIDITY: the quickness and ease with which an asset may be converted into cash.

LONG-TERM CREDIT the acquisition of funds, usually obtained by issuing more equity or long-term debt instruments, which must be repaid in a period greater than ten years from the time of agreement.

LONG-TERM LIABILITIES: a balance sheet classifi cation of the amount of money owed by the company which is due to be paid after one year from the date of the balance sheet.

MACROECONOMICS: that part of economics that is primarily concerned with the study of relationships between broad economic aggregates, such as national income, savings, investment, consumption, employment, the money supply, the average price level, exports, imports and the balance of payments.

MANAGEMENT: the organization and coordination of an enterprise. The manager who conducts or supervises production for example, may be a paid expert in administration, as opposed to the entrepreneur who originally conceived the operation and took the risk in monitoring it.

MANUFACTURER: a firm that converts raw materials into finished pods, intended for resale in possibly three ways; directly to the ultimate consumer; to a retailer; or to a retailer via a wholesaler.

MANUFACTURING OVERHEAD: see Factory Overhead.

MARK-DOWN: the reduction in selling price expressed as a percentage of the selling price.

MARK-ON: the difference between the selling price per unit and the cost price per unit, expressed as a percentage of the selling price.

MARK-UP: the difference between the selling price per unit and cost price per unit, expressed as a percentage of the cost price.

MARKET: the area within which buyers and sellers interact to effect economic exchanges.

MARKET SEGMENT: a group of people sharing some characteristics among themselves such that a specific product will appeal to them all

MARKET SEGMENTATION: the process of designing a special marketing program for a special segment of the market or several programs for several segments.

MARKET VALUE: the amount for which an asset may be sold in the marketplace.

MARKETABLE SECURITIES: an investment of company funds in some' other organization which is expected to be converted into cash within one year a current asset.

MARKETING MIX: the term used to describe the combination of the four inputs which constitute the core of a company's marketing system: the product, the distribution system, the price structure and the promotional activities.

MEDIUM-TERM CREDIT: the acquisition of funds from such sources as chartered banks, the Federal Business Development Bank and private sources which must usually be repaid in a period greater than one year but not greater than ten years.

MIDDLEMAN: a firm which participates in the buying and selling of goods; a firm which is neither the end consumer nor the original manufacturer, e.g. a wholesaler.

MONOPOLY: the condition that exists in a market when a single supplier controls the preponderant supply of a product to such an extent that it can set quantity and prices for maximum profitability with little or no regard for the pressures of demand and supply that operate in competitive economic markets.

MORTGAGE: a pledge of real estate as collateral for a loan. MOTIVATION: a person's inner drive to accomplish something.

NET BOOR VALUE: the difference between the cost of a fixed asset and its accumulated depreciation.

NET EARNINGS: see PROFIT. NET INCOME: see PROFIT.

NET SALES: represents revenue earned by the company from its customers for goods sold or services rendered; also represents the amount which remains after sales discounts, and sales returns and allowances have been subtracted from Gross Sales.

NON-DURABLE GOOD: a classification of product life expectancy whereby the product is expected to provide the consumer with a benefit for only a very short period of time, e.g. deodorents, food, cosmetics, etc.

NOTES PAYABLE: the amount of money owed by the company usually to a bank, in return for giving the lender a promissory note.

OBSOLESCENCE: a loss in the usefulness of an asset because of the development of improved equipment, changes in style, or othej causes not related to the physical condition of the asset.

OFFSHORE: places that set out to attract foreign-currency financial business by creating a fiscally and legally attractive environment are known as offshore centers. Most of them are on small, warm islands.

OPERATING EXPENSES: the costs associated with sales and administration activities as distinct from those associated with the production process.

OPERATING PROFIT: the net gain from the company's normal operating activities; the difference once total operating expenses have been subtracted from gross margin.

OVERHEAD: the operating expenses of a business that cannot be attributed to any one department or product.

PAR VALUE: the predetermined amount printed on the face of a stock certificate; may represent the price of the stock when it was originally issued or it may be a completely arbitrary amount.

PARTNERSHIP: an unincorporated business owned by two or more individuals; a general partnership is faced with unlimited liability for all of the partnership debts.

PATENTS: the legal protection of a process or an invention ora formula by the federal government; protects against imitation for a specified period of time.

PENETRATION STRATEGY: a pricing strategy which combines a

low selling price and a high volume of sales.

REFERRED STOCK: a certificate showing ownership in a corporation; preferred stockholders receive preference over common stockholders in dividend payments, and in bankmptcy payments.

PREPAYMENT: certain services or items which are purchased prior to the period during which its benefits are received; treated as an asset until it is consumed, e.g. prepaid insurance.

PRIVATIZATION: the process of selling off the shares in a state-owned business to the private sector.

PRIMARY MARKETS: in which new money is actually raised from investors in the form of shares, bonds, or long-term bank loans.

PRODUCT GROUP: a number of related product lines.

PRODUCT LIFE CYCLE: the evolution of a product through periods of introduction, growth, maturity, and decline-obsolescence; the time duration for each period of the cycle varies amongst different products.

PRODUCT LINE: a group of related products, intended for essentially similar uses, which possess reasonably similar physical characteristics.

PROFIT: the amount which remains after all revenues have been added up and all expenses have been subtracted.

PROJECT PROCESS: a type of manufacturingprocess which exhibits the followingcharacteristics: a very complex or unique end product; theproduct is normally stationary and production resources are brought to the product; the product is usually specialized for each customer, e.g. the building of .a space vehicle.

PROMISSORY NOTE: written promises to pay a certain sum of money, to a certain person or institution, at a certain time; usually used when money has been lent for a short term to a business or individual; the note may also specify any other agreed upon arrangements such as interest.

PROPERTY: an asset whose ownership gives the right to present or future material benefits, as protected by law. The term property refers not only to the possession of material goods, such as land, buildings and production facilities, but also to less tangible assets, such as manufacturing processes, design and brand names.

PROPRIETORS HIP: an unincorporated b usiness owned and usually operated by a single individual.

PROTECTIONISM: the deliberate use or encouragement of restrictions on imports to enable relatively inefficient domestic producers to complete successfully with foreign producers.

RATE OF RETURN: the reward from an investment, including both capital gain and income.

RATIO: the relationship between two quantities, expressed either as a percentage or as the multiple of one to the other. Ratios are a favorite tool of financial analysts for comparing one accounting item with another, for example, the ratio of net profit to sales.

RETAILER: a firm selling goods to ultimate consumers.

RETAINED EARNINGS; the accumulated total of after tax profits and losses from operations over the life of the company that has not been paid out in the form of dividends.

RETURN ON INVESTMENT (R.O.I.): a method of determining the amount of money made from operations relative to a shareholders' investment; a ratio obtained by dividing the net profit after tax and before dividends by the average years' equity

REVENUE: an increase in owners' equity resulting from operations. RISK: the likelihood of success versus the likelihood of failure for any

undertaking; assessing risk is the process of trying to quantify or judge which likelihood is the larger and by how much.

SECONDARY MARKETS: in which investors trade their shares or bonds and sell them to somebody else.

SECURITIES: originally the documents that gave evidence of the ownership of investments like shares or bonds.

SHAREHOLDERS' EQUITY: also known as owners' equity or net worth;

represents the interest, stake or claim the owners have in the company.

SHOPPING GOOD: a good which the consumer is willing to compare prices and other features in different outlets.before making a purc hase, e.g. stereo sound system, car.

SHORT-TERM CREDIT: the extension of credit from such sources as trade creditors, banks, finance companies, etc., which must be repaid within one year.

SKIMMING STRATEGY: a sales pricing strategy which combines a high

selling price and a low volume of sales in order to get maximum quick return.

TAKEOVER: to take overa company is simply to gain control of it. A takeover is a formal process of gaining control that, in the case of public companies, involves procedures dictated by the local stock exchange and/or government.

TAX: a payment exacted on persons, corporations and other economic entities by a government to help pay for government operations or to

discourage the consumption of the goods or services taxed by raising their cost.

VALUE: the intrinsic worth of specific goods or services, generally identifiable as the amount of money they can be exchanged for at any given time.

VALUE ADDED TAX: an indirect tax on consumption that is levied at each discrete point in the chain of production and distribution, from the raw material stage to final consumption. Each processor or merchant pays a tax proportional to the amount by which he increases the value of the goods he purchases for resale after making his own contribution.

WHOLESALER: a firm that sells goods intended for resale by other merchants or for use in other businesses.

WIDTH OF A PRODUCT GROUP: refers to the number of different product lines carried within each product group.

WORLD BANK: the International Bank for Reconstruction and Development (IBRD), commonly referred to as the World Bank, is an intergovernmental financial institution located in Washington, D.C. Its objectives are to help raise productivity and incomes and reduce poverty in development countries. It was established in December 1945 on the basis of a plan developed at the Bretton Woods Conference of 1944.


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