BA 1500 Exam 1 Mizzou
Objective
A specific, short-range target or aim
Closing the books
transferring net revenue and expense account balances to retained earnings for the period
Social Environment
trends and forces in a society at large
Vision Statement
A brief and inspirational expression of what a company aspires to be
Values Statement
A brief articulation of the principles that guide a company's decisions and behaviors
Mission Statement
A brief statement of why an organization exists; in other words, what the organization aims to accomplish for customers, investors, and other stakeholders
Goal
A broad, long-range target or aim
Start-Up Budget
A budget that identifies the money a new company will need to spend launch operations
Zero-Based Budgeting
A budgeting approach in which each department starts from zero every year and must justify every item in the budget, rather than simply adjusting the previous year's budget amounts
Financial Plan
A document that outlines the funds needed for a certain period of time, along with the sources and intended uses of those funds
Market
A group of customers who need or want an particular product and have the money to buy it
earnings per share
A measure of a firm's profitability for each share of outstanding stock, calculated by dividing net income after taxes by the average number of shares of common stock outstanding
Balanced Scorecard
A method of monitoring the performance from four perspectives: finances, operations, customer relationships, and the growth and development of employees and intellectual property
Participative Management
A philosophy of allowing employees to take part in planning and decision making
Budget
A planning and control tool that reflects expected revenues, operating expenses and cash receipts and outlays
Freddie Mac
A secondary mortgage institution similar to Fannie Mae
Organizational Culture
A set of shared values and norms that support the management system and that guide management and employee behavior
Liquidity Crisis
A severe shortage of liquidity throughout a sector of the economy or the entire economy, during which companies can't get enough cash to meet their operating needs
Underwriter
A specialized type of bank that buys the shares from the company preparing an IPO and sells them to investors
Customer Relationship Management (CRM)
A type of information system that captures, organizes, and capitalizes on all the interactions that a company has with its customers
International Financial Reporting Standards (IFRS)
Accounting standards and practices used in many countries outside of the United States
Accounts Payable
Accounts that a firm currently owes to other parties
Accounts Receivable
Amounts that are currently owed to a firm
Prospectus
An SEC-required document that discloses required information about the company, its finances, and its plans for using the money it hopes to raise
Lease
An agreement to use an asset in exchange for regular payment (similar to renting)
Marketing Concept
An approach to business management that stresses customer needs and wants, seeks long-term profitability, and integrates marketing with other functional units within the organization
Line of Credit
An arrangement in which a final institution makes money available for use at any time after the load has been approved
Management Pyramid
An organizational structure divided into top, middle, and first-line management
Barrier to Entry
Any resource or capability a company must have before it can start competing in a given market
Equity Financing
Arranging funding by selling ownership shares in the company, publicly or privately
Accounting Equation
Basic accounting equation: assets=liabilities + owners' equity
Services Businesses
Companies that create value by performing activities that deliver some benefit to customers
Debentures
Corporate bonds backed only by the reputation of the issuer
Convertible Bonds
Corporate bonds that can be exchanged at the owner's discretion into common stock of the issuing company
Mortgage-backed Securities
Credit derivatives based on home mortgages
Trade Credit
Credit obtained by a purchaser directly from a supplier
EBITDA
Earnings before interest, taxes, depreciation, and amortization
Planning
Establishing objectives and goals for an organization and determining the best ways to accomplish them
Short-Term Financing
Financing used to cover current expenses (generally repaid within a year)
Long-Term Financing
Financing used to cover long-term expenses such as assets (generally repaid over a period of more than one year)
Independent Mortgage companies
Nonbank companies that use thier own funds to offer mortgages
Employee Empowerment
Granting decision-making and problem-solving authorities to employees so they can act without getting approval from management
Organizing
The process of arranging resources to carry out the organization's plans
Federal Funds Rate
Interest rate that member banks charge each other to borrow money overnight from the funds they keep in the federal reserve accounts
Autocratic Leaders
Leaders who do not involve others in decision making balanced scorecard
Laissez-Faire Leaders
Leaders who leave most decisions up to employees, particularly those concerning day-to-day matters
Dodd-Frank Act
Legislation passed in 2010 aimed at reforming the banking industry and offering consumers greater protection
Secured Loans
Loans backed up with assets that the lender can claim in case of default such as a piece of property
Unsecured Loans
Loans that require a good credit rating but no collateral
Operations Management
Management of the people involved and the processes of creating goods
Private Equity
Ownership assets that aren't publicly traded; includes venture capital
Financial Management
Planning for a firm's money needs and managing the allocation and spending of funds
Marketing Mix
Product, Price, Distribution, and Customer Communication
Net Income ("the bottom line")
Profit earned or loss incurred by a firm, determined by subtracting expenses from revenues
Hedging
Protecting against cost increases with contracts that allow a company to buy supplies in the future at designated prices
GAAP (Generally Accepted Accounting Principles)
Standards and practices used by publicly held corporations in the United States and a few other countries in the preparation of financial statements
Cognitive Dissonance
Tension that exists when a person's beliefs don't match his or her behaviors; a common example is buyer's remorse, when someone regrets a purchase immediately after making it
Cost of Capital
The average rate of interest a firm pays on its combination of debt and equity
Federal Reserve System
The central banking system of the United States; responsible for regulating banks and implementing monetary policy
Economic Environment
The conditions and forces that affect the cost and availability of goods, services and labor and thereby shape the behavior of buyers and sellers
Market Segmentation
The division of a diverse market into smaller, relatively homogeneous groups with similar needs, wants, and purchase behaviors
Fannie Mae
The government-sponsored enterprise responsible for guaranteeing and funding home mortgages
Loan-to-Value (LTV)
The percentage of an asset's market value that a lender is willing to finance when offering a loan; the rest of the purchase price has to be paid by the buyer as a down payment
Owners' Equity
The portion of a company's assets that belongs to the owners after obligations to all creditors have been met
Leading
The process of guiding and motivating people to work toward organizational goals
Controlling
The process of measuring progress against goals and objectives and correcting deviations if results are not as expected
Professionalism
The quality of performing at a high level and conducting oneself with purpose and pride
Return on Sales
The ratio between net income after taxes and net sales; also known as the profit margin
First Line Managers
Those at the lowest level of the management hierarchy; they supervise the operating employees and implement the plans set at the higher management levels
Bubble
a market situation in which frenzied demand for an asset pushes the price of that asset far beyond its true economic value
Operating Budget
a budget that identifies all sources of revenue and coordinates the spending of those funds throughout the coming year (aka master budget)
Project Budget
a budget that identifies the costs needed to accomplish a particular project
Capital Budget
a budget that outlines expenditures for real estate, new facilities, major equipment, and other capital investments
Market Environment
a company's target customers, the buying influences that shape the behavior of those customers, and competitors that market similar products to those customers
Business Model
a concise description of how a business intends to generate revenue
Income statement
a financial record of a company's revenues, expenses, and profits over a given period of time; also known as a profit-and-loss statement
Capital Structure
a firm's mix of debt and equity financing
Market Share
a firm's portion of the total sales in a market
Permission-Based Marketing
a marketing approach in which firms first ask permission to deliver messages to an audience and then promise to restrict their communication efforts to those subject areas in which audience members have expressed interest
Debt-to-Assets ratio
a measure of a firm's ability to carry long-term debt, calculated by dividing total liabilities by total assets
Quick Ratio
a measure of a firm's short-term liquidity, calculated by adding cash, marketable securities, and receivables, then dividing that sum by current liabilities; also known as the acid-test ratio
Current Ratio
a measure of a firm's short-term liquidity, calculated by dividing current assets by current liabilities
Quality
a measure of how closely a product conforms to predetermined standards and customer expectations
Accounts Receivable Turnover Ratio
a measure of the time a company takes to turn its accounts receivable into cash, calculated by dividing sales by the average value of accounts receivable for a period
Inventory Turnover Ratio
a measure of the time a company takes to turn its inventory into sales, calculated by dividing cost of goods sold by the average value of inventory for a period
Bonds
a method of funding in which the issuer borrows from an investor and provides a written promise to make regular interest payments and repay the borrowed amount in the future
double-entry bookkeeping
a method of recording financial transactions that requires a debit entry and credit entry for each transaction to ensure that the accounting equation is always kept in balance
Adjustable Rate Mortgage (ARM)
a mortgage that features variable interest rates over the life of the loan
Securitization
a process in which debts such as mortgages are pooled together and transformed into investments
Mentoring
a process in which experienced managers guide less-experienced colleagues in nuances of office politics, serving as role models for appropriate business behavior and helping to negotiate the corporate structure
Credit Freeze
a situation in which credit has become so scarce that it is virtually unavailable, at any cost, to most potential borrowers
Statement of Cash Flows
a statement of a firm's cash receipts and cash payments that presents information on its sources and uses of cash
Collateral
a tangible asset a lender can claim if a borrower defaults on a loan
Business Mindset
a view of business that considers the myriad decisions that must be made and the many problems that must be overcome before companies can deliver the products that satisfy customer needs
Accrual Basis
an accounting method in which revenue is recorded when a sale is made and an expense is recorded when it is incurred
Business
any profit-seeking organization that provides goods and services designed to satisfy customers' needs
Assets
any things of value owned or leased by a business
Debt Financing
arranging funding by borrowing money
Fixed Assets
assets retained for long-term use, such as land, buildings, machinery, and equipment; also referred to as property, plant, and equipment
thrift banks
banking institutions that offer deposit accounts and focus on offering home mortgage loans; also called thrifts, or savings and loan associations
Private banking
banking services for wealthy individuals and families
Commercial Banks
banks that accept deposits, offer various checking and savings accounts, and provide loans
Retail Banks
banks that provide financial services to consumers
Managerial Roles
behavioral patterns and activities involved in carrying out the functions of management; includes interpersonal, informational, and decisional roles
Secured Bonds
bonds backed by specific assets that will be given to bondholders if the borrowed amount is not repaid
Geographic Segmentation
categorization of customers according to their geographical location
Behavioral Segmentation
categorization of customers according to their relationship with products or response to product characteristics
Benchmarking
collecting and comparing process and performance data from other companies
goods-producing businesses
companies that create value by making "things", most of which are tangible (THIS ALSO INCLUDES SOFTWARE COMPANIES)
Organizational Market
companies, government agencies, and other organizations that buy goods and services either to resell or to use in the creation of their own goods and services
Diversification
creating new products for new markets
Standards
criteria against which performance is measured
Working Capital
current assets minus current liabilities
Technological Environment
forces resulting from the practical application of science to innovations, products, and processes
Audit
formal evaluation of the fairness and reliability of a client's financial statements
Research and Development (R&D)
functional area responsible for conceiving and designing new products
Coaching
helping employees reach their highest potential by meeting with them, discussing problems that hinder their ability to work effectively, and offering suggestions and encouragement to overcome these problems
Subprime Mortgages
home loans for borrowers with low credit scores
cause-related marketing
identification and marketing of a social issue, cause, or idea to selected target markets
Private Accountants
in-house accountants employed by organizations and businesses other than a public accounting firm; also called corporate accountants
External Auditors
independent accounting firms that provide auditing services for public companies
Stakeholders
internal and external groups affected by a company's decisions and activities
Legal and Regulatory Environment
laws and regulations at local, state, national, and even international levels
Democratic Leaders
leaders who delegate authority and involve employees in decision making
Debt-to-Equity ratio
measure of the extent to which a business is financed by debt as opposed to invested capital, calculated by dividing the company's total liabilities by owners' equity
Accounting
measuring, interpreting, and communicating financial information to support internal and external decision making
Revenue
money a company brings in through sales of goods and services
Capital Investments
money paid to acquire something of permanent value in a business
Mortgage Brokers
nonbank companies that initiate loans on behalf of a mortgage lender in exchange for a fee
Credit Unions
not-for-profit, member-owned cooperatives that offer deposit accounts and lending services to consumers and small businesses
Long-term Liabilities
obligations that fall due more than a year from the date of the balance sheet
Factoring
obtaining funding by selling accounts receivable
not-for-profit organizations
organizations that provide goods and services without having a profit motive
Strategic Plans
plans that establish the actions and the resource allocation required to accomplish strategic goals; they're usually defined for periods of two to five years and developed by top managers
Crisis Management
procedures and systems for minimizing the harm that might result from some unusually threatening situations
Certified Public Accountant (CPA)
professionally licensed accountants who meet certain requirements for education and experience and who pass a comprehensive examination
Market Development
selling existing products to new markets
Market Penetration
selling more of a firm's existing products in the markets it already serves
Commercial Paper
short-term promissory notes, or contractual agreements, to repay a borrowed amount by a specified time with a specified interest rate
Defaults
situations in which borrowers stop making payments on their loans
Interpersonal Skills
skills required to understand other people and to interact effectively with them
Competitive Advantage
some aspect of a product or company that makes it more appealing to target customers
Balance Sheet
statement of a firm's financial position on a particular date (aka statement of financial position)
Distribution Channels
systems for moving goods and services from producers to customers; also known as marketing channels
Information Technology (IT)
systems that promote communication and information usage through the company or that allow companies to offer new services to their customers
Administrative skills
technical skills in information gathering, data analysis, planning, organizing, and other aspects of managerial work
Technical skills
the ability and knowledge to perform the mechanics of a particular job
Decision-Making skills
the ability to identify a decision situation, analyze the problem, weigh the alternatives, choose an alternative, implement it, and evaluate the results
Conceptual skills
the ability to understand the relationship of parts to the whole
Exchange Process
the act of obtaining a desired object or service from another party by offering something of value in return
Gross Profit
the amount remaining when the cost of goods sold is deducted from net sales; also known as gross margin
Management Accounting
the area of accounting concerned with preparing data for use by managers within the organization
Financial Accounting
the area of accounting concerned with preparing financial information for users outside the organization
Risk/Return trade-off
the balance of potential risks against potential rewards
Social Commerce
the creation and sharing of product-related information among customers and potential customers
stealth marketing
the delivery of marketing messages to people who are not aware that hey are being marketed to; these messages can be delivered by either acquaintances or strangers, depending on the technique
Etiquette
the expected norms of behavior in any particular situation
Federal Deposit Insurance Corporation (FDIC)
the federal agency responsible for protecting money in customer accounts and managing the transition of assets whenever a bank fails
Secondary Mortgage Market
the financial market in which mortgages are bought and sold, providing much of the funds that are loaned to homebuyers
Matching Principle
the fundamental principle requiring that expenses incurred in producing revenue be deducted from the revenues they generate during an accounting period
controller
the highest-ranking accountant in a company, responsible for overseeing all accounting functions
Sarbanes-Oxley
the informal name of comprehensive legislation designed to improve the integrity and accountability of financial information
Prime Rate
the interest rate a bank charges its best load customers
Prime Interest Rate
the lowest rate of interest that banks charge for short-term loans to their most creditworthy customers
Profit
the money left after all costs and expenses of a business are paid
Compensating Balance
the portion of an unsecured loan that is kept on deposit at a lending institution to protect the lender and increase the lender's return
Retained Earnings
the portion of shareholders' equity earned by the company but not distributed to its owners in the form of dividends
Utility
the power of a good or service to satisfy a human need
Financial Control
the process of analyzing and adjusting the basic financial plan to correct for deviations from forecasted events
Marketing
the process of creating value for customers and building relationships with those customers in order to capture value back from them
Management
the process of planning, organizing, leading and controlling to meet organizational goals
Return on Equity
the ratio between net income after taxes and total owners' equity
Leverage
the technique of increasing the rate of return on an investment by financing it with borrowed funds
Top Managers
those at the highest level of the organization's management hierarchy; they are responsible for setting strategic goals, and they have the most power and responsibility in the organization
Middle Managers
those in the middle of the management hierarchy; they develop plans to implement the goals of top managers and coordinate the work of first-line managers