Finance Definitions

Current Assets

(Liquidated within 12 months) Cash, Accounts Receivable, Inventory, Prepaid Expenses

Current Liabilities

(Paid within 12 Months) Accounts Payable, Accrued Payroll, income Taxes Payable, Notes Payable (to banks short term), Current Portion of Long Term Debt

Bill of materials

(document) a list of all the parts and components that go into manufacturing a product- this is the basis for purchasing and assembling the parts and subassemblies need to produce a given quantity of finished goods.

Sales

=Sales of Services=Revenue

Statement of Cash Flow

A report that shows the effect of all transactions that involve or influence cash but aren't reported on the income statement. It indicates whether cash is coming in or out of a company. Starts where income statement ends

Allowance for bad debts

A reserve- an estimated amount the company puts aside for the possibility that some customer balances will never be collected and will have to be written off.

Cost of Sales/Cost of Good Sold

Amount it costs to manufacture or buy products sold during the period, including raw materials, manufacturing labor, and related overhead costs

Income Statement

An accounting of revenue, expenses, and profit for a given accounting period. Also referred to as Profit and Loss Statement. It recaps all the company's activities intended to produce a profit.

Accounts Payable

Bills that must be paid to company suppliers and service providers

Cash Flow Cycle

Cash-raw materials-finished goods-receivables-cash Cash, Setup, Assets, Credit, Production, Sales, Collection, Cash

Loan covenant

Clauses in a loan agreement that require the borrower to do certain things or not do others during the term of the loan agreement

EBITDA

Earnings before Interest, Taxes, Interest, Depreciation and Amortization a way of present operating income for readers who aren't concerned with financial charges

GAAP

Generally Accepted Accounting Principles: A set of rules, conventions, standards and procedures established by the Financial Accounting Standards Board for reporting financial information in a consistent manner to facilitate understanding and comparison

Operating Income

Income directly related to what the company is made to do rather than any other financial transactions/activites

Notes Payable

Loans from banks and other lenders (borrowed money) that have covenants attached to them

Sales and Marketing Expenses

Marketing costs-finding out what people want and Selling Expenses-actually selling the products

Internal Rate of Return

Rate of return, stated as a percent, at which the return on investment equals the cost of capital to make the investment - amount invested in a project=return of project (break-even point)

Inventory

Raw Materials, Work in Process, Finished Goods can cost a company money in ways including deterioration, obsolescence (out of date0, and breakage

Write off

Removes money from accounts receivable and adds it to allowance for bad debts

SMART goals

Specific, Measurable, Achievable, Relevant, Trackable

Leverage

The ability to borrow and thereby to put more money into a business than has been instead by its owners, thus earning more than its invited capital could earn alone.

Liquidity

The ability to meet current obligations with cash or other assets that can be quickly converted to cash in order to pay bills as they come due.

Gross Profit

The gain the company earns by selling its products after accounting for al elements of the cost of sales.

Insolvency

The inability to pay bills as they come due. when TOTAL liabilities is greater than TOTAL assets

General Ledger

The principle accounting record to which all company transactions are recorded and summarized. it is a record from which information for the basic financial reports is drawn. Once huge books.

cost accounting

a area of management accounting that deals exclusively with the cost of making or buying a product or service that the company then sells to its customers. It helps with projecting and monitoring the detailed costs of individual production units to help managers identify, measure and control gross profit margins that are the key to the business' overall profitability

Basis point

a banking industry term that means 1/100 of a percentage point, thus 100 basis points is another way of saying 1 percent- its shorthand

debenture

a bond that may be sold publicly or privately but has no collateral ...?

Depreciation

a fixed asset losing value over time due to wear or other factors- this is charged as an expense on the income statement (depreciation expense) and on the balance sheet as (accumulated depreciation)

Yield curve

a line on a chart that plots the interest rates of bonds of equal credit quality but differing maturity dates

bond

a negotiable instrument thats typically sold by public companies which pays inteest quarterly and is usually publicly traded during its life like stock. low risk

angel investor

a person who invests in a start up on their onw personal account

Chart of Accounts

a systematic listing of all general ledger account names arranged in the way they normally appear in the financial statements (assets, liabilities, stockholders equity, revenue, expenses) groups transactions so that reporting and analysis is easier

Working capital

a way to measure the amount of a company's ready liquidity. Current Assets - Current Liabilities =....

manufacturing overhead

all costs necessary to operate the business not classified as direct labor or direct materials (rent, insurance, utilities etc)

Fixed assets

also referred to as Property, Plant and Equipment- assets that are used by a company for a long period of time

Accounts Recievable

amount due from customers as a result of sales made on credit (30-60 days

Return on Investment ROI

amount money earned on an investment compared to the amount of money invested, presented as a percentage of what was invested

Capital Stock

amount paid into the company by investors from purchasing company stock

Cash basis accounting

an accounting method that does not reflect debts that we owe others or others owe us, it is not considered indicative of economic reality.

Accrual basis accounting

an accounting method that records transactions when an economic event occurs

Revolving credit line

an agreement by a bank or other lender to provide cash on demand up to a specific limit and then, as the borrower pays back all or part of the loan, to allow the borrower to borrow up to that limit again as often as needed, also known as a revolver

Economic Event

an offer made, accepted, and fulfilled. Purchase of something- recorded as soon as the commitment to enter into the transaction has been consummated NOT when cash is received or paid for the commitment. Not a promise or request

Collateral

assets pledged by a borrower to protect the lender's interests by guaranteeing the loan payment, its a cushion

Spread

banking term that refers to the difference between the rate a bank pays for its money and the rate at which it can lend that money.

The lifecycle of a company

birth, rapid growth, slowing growth, plateau, decline, demise

Weighted Average Cost of Capital

calculated cost of all capital employed by the company- helps management decide the value of an investment with a given return

process costing

collecting all costs incurred in a continuous process the averaging the costs over all units produced

job costing

collecting costs for the manufacturing process, applies costs to specific jobs since there is the opportunity for customizable jobs

management by exception

compares standards with actual results and brings up any significant differences to managers for corrective action

Direct labor

cost of wages paid to workers directly employed in manufacturing products/ providing services

Operating Expenses

costs regarding what it takes to keep the business running and to support the sales of the company's products or services

Variable Costs

costs that increase in direct relation to sales volume

Semi fixed costs

costs that increase in relation to sales but at a slower pace (aspects of both fixed and variable costs)

common stock

equity ownership in a corporation that entitles

Standard costing

estimates the overall cost of production assuming normal operations- allows for faster financial reporting

General and Administrative Expense

everything else

Prepaid Expenses

expenses paid in advanced...current asset

preferred stock

get dividends before commons stcok

Investment banker

individual or firm that assists companies in raising money by finding private investors, acquiring companies, or selling company's shares in the public market

Finance

managing the companies financial records. Two responsibilities 1. to safeguard the assets of the company by properly accounting for them and monitoring their use. 2. to organize information from transactions and present it in reports that help managers function more effectively.

venture capitalist

member of a firm that invests in emerging companies many in start up mode typically for others rather than for their own account.

Convertible Debt

money loaned under an agreement that gives the lender the right under certain conditions to forgo payment of part or all of the debt in return for some other asset

Research and Development

money spent towards creating new pro dust or improve existing ones-keeps company innovative and current (engineering expenses and Product development)

Forecast, Projection, Financial plan

months not detailed shorter period but includes p&l multiyear detailed plan

Discounted cash flow

more sophisticated way to look at Return on Investment: accounts for the cost of money employed and the amount of time it has been committed as well as the timing of the earning on that investment all at an assumed interested rate. evaluates long term investments

Determining Breakeven point

net cost incurred / potential selling price = # of units needed to sell to cover costs.

Earnings Per Share

net income is divided by number of shares held by all the owners one of the principle gauges of a company's performance

Retained earnings

profits of a business that have not been paid out to the owners or stockholders as of the balance sheet date. These earnings are reinvested into the company

Price/Earnings Ratio

ratio between tock price and its earnings per share

Accounting

recording and reporting all business transactions

ARTistic

records of a company's financial data must be Accurate, Relevant, and Timely to be used effectively by managers, investors and the government

Materiality

refers to how influential financial data is to an investors decision- very material very influential

Net 30

sent to customers saying they are suggested to? pay them 30 days after the date on the invoice

SWOT analysis

strengths, weaknesses, opportunities, threats: determines the significant internal and external advantages and obstacles the company must address to be successful

Stockholders equity

the amount that would theoretically remain if all the assets were sold and all liabilities paid off. it equals the total amount nested in the company by its owner plus the accumulated profits of the business. Total Assets - Total Liabilities= Stockholders equity Capital Stock, Contributed Capital, Retained Earnings

Amortization

the decline in value of a intangible asset with a multiyear life (website, patent, license, or someone else's intellectual property)

Dilution

the devaluing of stock by more shares being issued/availble

Balance Sheet

the financial document that summarizes a company's financial condition, with all its assets, liabilities and stockholders equity, as of a given date, usually the end of a month, a quarter or a year. A "snapshot"

Initial public offering IPO

the first sale of equity in a company to the public vernally in form of shares of common stock through an investment banking firm.

Chief Financial Officer-CFO

the job title of the officer in charge of all financial activities

direct materials

the raw materials that go directing into making a product

Net income

the real bottom line- the financial result of everything the company has done

Breakeven point

the sales volume of a product or service at which the sales dollars earned = all costs incurred to make or buy and deliver product/service. At this point there is neither a profit nor loss in the company

Factoring

the selling of a company's accounts receivable at a discount to a business that assumes the credit risk of the accounts and receives cash as the customers pay their invoices

conversion cost

the sum of all the direct labor and manufacturing overhead costs that belong to that department and that process

Present value

the value of a sum of money in todays terms- money in the future is of less value because of potential investment

Valuation

the ventures proposed total market value, which determines the amount of ownership interest any investor will receive.

fixed costs

those costs that essential remain unchanged even though the business increases its sales volume (rent)

payback period

time it takes, to earn back the total amount of money invested

Future value

value at some future date of a sum of money invested today, to be returned in the future with its earnings at doe assumed rate of return