Business Exam 5

Creating a Financial Plan

Step 1: Take a Financial Inventory Step 2: Set Financial Goals Step 3: Know Where Your Money Goes Step 4: Create a Budget Step 5: Execute the Plan Step 6: Monitor and Assess Your Plan

trade credit

Suppliers will typically request payment within 30, 60, or 90 days. But using this will negate early payment discounts and, if payments extend beyond the trade credit period, delinquency penalties can accrue, usually larger companies use this

Money management

a key aspect of personal finance and generally includes: Determining what you have Setting goals for what you want or need Planning how to achieve your goals

current ratio (sometimes called liquidity ratio)

a measurement used to determine the extent to which a company can meet its current financial obligations. It is calculated as _____ = current assets / current liabilities. It allows for better comparisons, especially when comparing a company to an industry on average. Having too high of a ____ indicates the company may not be very efficient with its cash, but having too low of a _____ may indicate the company will face potential problems paying back its creditors.

Health insurance

a must. If your employer offers this coverage, take it. You might have to contribute some of the cost yourself, but it's well worth it. If you're self-employed, unemployed, or not covered by your employer, find your own coverage

no-load fund

a mutual fund that has little or no additional costs

Securities and Exchange Commission (SEC)

a part of the federal government that was created to protect investors. It regulates the securities exchanges and those who offer investment advice.

Serial bonds

a series of dates on which portions of the total bond mature. A number of municipal bonds, as well as some corporate bonds, are issued as _____. They are advantageous to the issuer because they reduce the overall interest expense of the bond issue and allow the issuer to time the maturity dates to the income from the project financed by the bond proceeds.

cash flow budget

a short-term budget that estimates cash inflows and outflows and can predict a business's cash flow gaps. Cash flow measures whether there are sufficient funds to pay outstanding bills

Crowdfunding

a way to generate funds via donations or investments from individuals. these sites include Kickstarter and Angellist.

retained earnings

accumulated profits

Liabilities

all debts and obligations and are listed on the balance sheet in the order in which they will come due

operating (or master) budget

all the operating costs for the entire organization, including inventory, sales, purchases, manufacturing, marketing, and operating expenses.

Compound interest

interest that is earned not only on principal, but also on any interest earned previously. In a savings account, as long as you leave your money in the account and don't take out the interest you've earned, you'll benefit from the compounding effect. The moral of the story is to start saving early, save often, and don't withdraw the interest earnings when you're 10 you have to save 25$ per week to millionaire, when you're 60 you have to save 370$

income statement

reflects the profitability of a company by showing how much money the company takes in and how much money it spends. revenues - expenses = profit (or loss) Revenues - Cost of Goods Sold - Operating Expenses - Taxes = Net Income

Investing activities

represent the cash involved in the purchase or sale of investments or income-producing assets such as buildings and equipment.

Index

represents a collection of related stocks based on certain shared characteristics such as having a similar size, belonging to a common industry, or trading on the same market exchange

Secured bonds

require some form of collateral pledged as security.

income statement

shows how much money is coming into a company and how much money a company is spending over a period. It shows how well a company has done in terms of profit and loss

statement of cash flows

shows the exchange of money between a company and everyone else it deals with over a period of time. It shows where cash was used and from what types of activities it was received

balance sheet

shows what the company owns and what it has borrowed at a fixed point in time and shows the net worth of the business.

Microloans

small, short-term loans specific to small business, with average amount being just $13,000. These are often administered through the Small Business Administration

fixed expenses

expenditures such as rent and car payments that don't change from month to month

Nonbank lenders

financial institutions that make loans but do not hold deposits.

401(k), 403(b), and 457 plans

forms of defined contribution plans. The numbers of the plans refer to the sections in the federal tax law that authorizes the plans

equity financing

generated by company owners rather than an outside lender.

Convertible bonds

give the bondholder the right to convert the bond into a predetermined number of shares of the company's stock.

S&P 500

groups stocks of the 500 largest companies, most of which are American

Diversification

having a variety of investments, such as different companies in different industries. It spreads the risk of loss out and reduces the likelihood that you will suffer significant losses

Life insurance

helps replace income lost due to your death to those who are dependent upon you, such as a spouse, children, parents, or other family members. When you purchase this policy, you name the person(s) who receive your ____ benefits as your beneficiaries. Some types of these policies can act as long-term savings plans, whereas other types are strictly for protection. Consulting an insurance professional will help you determine your needs for many types of insurance.

Gross profit

how much money a company makes just from its products and how efficiently management controls costs in the production process

Peer-to-peer lending

a growing source of funding for small businesses. As the name implies, it is the process of individuals lending to one another. Sites such as Prosper.com and Peer-Lend.com can facilitate this process.

futures contract

An agreement between a buyer and a seller to receive (or deliver) an asset in the future at a specific price that is agreed upon today

Home-owner's and renter's insurance

These types of insurance protect your home and the contents. It also has liability coverage if someone gets hurt on your property.

junk bonds

Those bonds with the lowest ratings—and the most risk offer a high interest rate to attract investors. Investors should be very comfortable with the associated risks before adding these to their portfolio.

Managing Personal Credit

Tip 1: Check the interest rate and annual fee. Tip 2: Don't charge if you can't pay. Tip 3: Establish a credit history in another way. Know your credit score!

Long-term liabilities

include debts and obligations that are due in more than one year, such as mortgage loans, long-term leases, and bonds issued for large projects.

NASDAQ 100

includes 100 of the largest domestic and international nonfinancial companies listed on the NASDAQ stock exchange. Note that: The NASDAQ 100 does not include financial institutions. The NASDAQ 100 includes companies incorporated outside the United States.

Disability insurance

insurance pays you benefits if you should become disabled and are no longer able to earn a living. Many employers offer this coverage along with their health insurance coverage. If yours does not, you should determine how your expenses would be met should something permanently disabling happen.

Financial accounting

produces financial documents to aid decision makers outside an organization in making decisions regarding investments and credibility

Inflation risk

the risk that inflation will exceed the rate of interest on the bond

Liquidity risk

the risk that investors will be unable to sell their bonds before maturity

Market risk

the risk that market conditions will decrease the value of the bond

Credit or default risk

the risk that the borrower will not be able to make principal or interest payments on time

bookkeeping

the systematic recording of a company's every financial transaction. This precise process is a small but important part of accounting

Cost of Goods Sold

the variable expenses a company incurs to manufacture and sell a product, including the price of raw materials used in creating the good along with the labor costs used to produce and sell the items

bear market

there is decreasing investor confidence and the market declines in value

bull market

there is increasing investor confidence and the market increases in value

Current assets

those assets that can be turned into cash within a year

Balance Sheet

A snapshot of a business's financial condition at a specific moment in time Based on the accounting equation

unexpected expenses

Although you can't determine the exact amount to fill in for this category, an estimate will help in your planning.

Equity financing advantages/disadvantages

Equity financing does not require the payments of interest, which can improve the company's cash flow. However, using equity financing means giving up shares of ownership.

Choosing Stocks

Evaluate the company's fundamental data, such as earnings, financial statements, ratios. Be aware of current events in the news that could influence a stock's price. Know how a company and its stock have performed in the past. Study financial charts to compare the historical performances of multiple companies and to observe trends in the data. Consider the opinions of industry analysts who independently research and analyze the investment potential of companies.

Short-Term Loans and Grants

Commercial banks Nonbank lenders Microloans Grants Peer-to-peer lending Crowdfunding

Financing Long-Term Business Needs

Debt financing - Loans - Secured bonds - Unsecured bonds Equity - Retained earnings - Issuing stock - Venture capitalists

457 plans

Government entities offer these plans

401(k) plans

For-profit companies offer these plans

Preferred stock

Have no voting rights Receive a fixed dividend before common stockholders Have a greater right to assets a class of ownership in which the preferred stockholders have a claim to assets before common stockholders if the firm goes out of business. In addition, preferred stockholders receive a fixed dividend that must be paid before the payment of any dividends to common stockholders. Preferred shareholders, however, do not have voting privileges

unsecured loan

If the firm has an excellent credit history and solid relationship with the lending institution, they may get this, which doesn't require collateral

compound interest

If you deposit your money in the bank, you will earn interest on your investment. However, you will also earn interest on the interest that you have already received

Taxes

Income (Salary, interest, dividends) - Deductions = Taxable Income

Money market funds

Invest in treasury bills and certificates of deposit Considered very safe Interest higher than checking and savings accounts Not insured by the FDIC

Sarbanes-Oxley Act

It was created to protect investors from corporate accounting fraud. passed in 2002 by Congress The act established the Public Company Accounting Oversight Board, which is responsible for overseeing financial audits of public companies

financial inventory

List everything of value that you own (your assets) and everything that you owe in loans and credit card balances (your liabilities) Subtract your liabilities from your assets to determine your net worth If you're young and just starting out, there might not be much to write down at first. But it's still a useful exercise, and every year, if things go right, you'll have more to add to this statement Determining your net worth is similar to a company preparing a balance sheet, just arranged a bit differently Assets - Liabilities Net Worth

Car insurance

Most states require this insurance. There are three types of this coverage: liability, collision, and comprehensive

403(b) plans

Nonprofit organizations offer these plans

International Financial Reporting Standards (IFRS)

Other countries have their own agreed-upon accounting standards, which may differ from GAAP. Recently, there has been a movement toward international convergence of accounting standards. Most other countries are beginning to accept a common set of country-neutral accounting standards

Long-Term Financing with Equity

Retained earnings Public issues of stock Venture capital

Monitor and Assess Your Plan

Review your budget and actual expenses each month. Make adjustments as needed

Personal Finances Summary

Set your financial goals. Make a plan to achieve these goals and stick to it. Pay yourself first, start early, and pay often. Use debt wisely and establish good credit. Make sure you and your assets are insured.

financial goals

Short-term goals should be simple, measurable, and realistic. Long-term goals should also be realistic, but motivational as well. Break long-term goals down into more manageable goals. Prioritize goals by breaking them down into wants and needs. Put needs above wants and short-term above long-term. Write all the goals down and refer back to them.

initial public offering, or IPO

The first sale of stock to the public by a company The buyers are generally large institutional buyers, such as insurance companies and large corporate pension plans, as opposed to individual buyers. The underwriters want to sell the issue as quickly as possible to receive a return on their purchase.

double entry bookkeeping

To maintain the balance of assets and liabilities plus owners' equity, accountants use a recording system It recognizes that for every transaction that affects an asset, an equal transaction must also affect either a liability or owners' equity

risk-return relationship

There is a direct relationship between risk and return for all securities, with the least risky investments offering the lowest amount of return and vice versa The least risky investments offer the least amount of return. If reducing risk is a necessity, then you need to increase the amount of money you invest, increase the length of time to invest, or lower your expectations

Execute the Plan

Track your expenses. Pay off all unpaid credit card debt. Reduce interest rates on loans. Try using cash only to reduce impulse buying

personal finance

When an individual or a family applies principles of finance to managing the ways in which monies are budgeted, saved, invested, preserved for future life events, and protected against risks

option

a contract that gives a buyer the right (but not obligation) to buy (call) or sell (put) a particular security at a specific price on or before a certain date. You are paying for the opportunity to purchase the asset under certain conditions. If things go wrong, you are losing the cost of it. If things go right, you could be making substantial profits. They are quite complicated, though, and can be quite risky.

mutual fund

a financial intermediary that allows a group of investors to pool their money together with a predetermined investment objective. Advantages: They provide diversification, with a large variety of securities. They are professionally managed and have large research staffs. It is very easy to buy and sell these, so you can get your money quickly. Only a small investment is required to invest in one and, if you select the right fund, the management fees can be very low.

budget

a financial plan that outlines the company's planned cash flows, expected operating expenses, and anticipated revenues.

prospectus

a formal legal document that provides details about an investment.

Dow Jones Industrial Average (DJIA)

an index that consists of 30 of the largest capitalized public companies in the United States.

Venture capital

an investment in the form of money that includes a substantial amount of risk for the investors who command an active role in the management decisions of the company. They are willing to wait longer for returns on their investment, but they expect higher than normal results.

The difference between a futures contract and an options contract

an option gives you the right to purchase the underlying asset whereas with a futures contract, you have an obligation to purchase the underlying asset.

Liability Car insurance

covers damage or injury you have caused to someone else

Comprehensive Car insurance

covers damage to your car from theft, fire, or other non-collision-related accidents

Short-term financing

any type of financing that is repaid within a year or less. It is used to finance day-to-day operations such as payroll, inventory purchases, and overhead, such as utilities, rent, and leases. Self-financing, family, and friends Credit cards Trade credit Factoring

Unsecured bonds (debenture bonds)

are issued with no collateral. They are only backed by the general creditworthiness and reputation of the issuer.

Taxes paid

are subtracted to determine net income (or net income after taxes)

Collision Car insurance

covers damage to your vehicle from a collision with a moving or stationary object

fundamental accounting equation

assets = liabilities + owners' equity

Intangible assets

assets that do not have physical characteristics but still have value such as trademarks, patents, copyrights, brand recognition, and customer or employee relations

Fixed assets

assets that have more long-term use, such as real estate, buildings, machinery, and equipment

Secured bonds

backed by collateral, which is generally corporate-owned property

Municipal bonds (or munis)

bonds issued by state or local governments or governmental agencies Many of these bonds are tax-exempt

Treasury bills (or T-bills)

bonds that mature from 2 weeks to 26 weeks. They are sold at a discount, so you are paying less upfront. When the bond matures, you receive the full face value of the bond. The difference is the interest

Treasury bonds

bonds that mature in 30 years and pay interest semiannually. When a bond matures, you receive the face value

Treasury notes (or T-notes)

bonds that mature in two, five, or ten years. Interest is paid semiannually. You can hold these to maturity or you can sell them prior to their maturity. When it matures, you receive the face value

capital budget

considers the company's long-range plans and outlines the expected financial needs for significant capital purchases such as real estate, manufacturing equipment, plant expansions, or technology.

Bond mutual funds

consist solely of bonds. Some bond funds are categorized by type of bond to include municipal bond funds, corporate bond funds, and U.S. government bond funds. Some bond funds are categorized by maturity to include long-term bond funds, short-term bond funds, and intermediate-term bond funds.

Corporate bonds

debt securities issued by corporations

operating profit margin

determines a company's profitability of operations. It indicates how efficiently management is in using business operations to generate a profit

gross profit margin

determines a company's profitability of production. It indicates how efficient management is in using its labor and raw materials to produce goods.

Stock Performance

directly related to changes in stock price, which is impacted by supply and demand Stock prices change in reaction to company actions and broader news based on economic forecasts, industry or sector concerns, or global events bull market bear market

grants

do not have to be repaid, but they generally require an extensive application process.

Growth stocks

issued by "young" entrepreneurial companies that are experiencing rapid growth and expansion. These stocks pay little or no dividends. Investment potential is through appreciation in stock value. These tend to be riskier than other stocks because entrepreneurial companies do not have a proven track record.

Blue chip stocks

issued by companies that have a long history of consistent growth and stability. these types of companies pay regular dividends and maintain a reasonably steady share price. GE, IBM, and Sears are representative of these

Cyclical stocks

issued by companies that produce goods or services that are affected by economic trends. The prices of these stocks tend to go down when the economy is failing (in a recessionary period) and go up when the economy is healthy. Examples of these include automobiles, home building, and travel.

Government bonds

issued by national governments. They are the safest investment, because the government backs them. They are divided into categories based on their maturity.

Income stocks

issued by utility companies that pay large dividends. Investors who are looking for reliable income from their investments and not appreciation of share value invest in these

callable bonds

issuer can either repay the investors their initial investment at the maturity date or the issuer can choose to retire the issue early and repay the investors their investment at the "callable date." Issuers invoke the call option on these when interest rates have fallen and the bonds can be refinanced at a lower rate. To the investor, they present a degree of uncertainty, and therefore carry a higher interest rate than similar noncallable bonds.

periodic expenses

items such as taxes or donations that you pay, but not on a monthly basis

"invisible" expenses

items you don't really realize you buy. The best way to determine your this is to create a "penny journal" that tracks your daily spending habits to the last penny

owners' equity

literally the amount the owners in the business can call their own. It is often referred to as the owners' capital account. For larger publicly owned companies, it becomes a bit more complicated. Shareholders are the owners of publicly owned companies. In this case, it is the value of the stock issued as part of the owners' (shareholders') investment in the business and retained earnings

Managerial accounting

provides information and analysis to mangers within an organization so they can make decisions. They help determine which business activities are most and least profitable. Based on their analysis, management is better equipped to make decisions about whether to continue with, expand, or eliminate certain business activities. It produces budgets so senior management can make informed decisions. By monitoring the activities involved in planned budgets, they help determine and anticipate in what areas the company strays from its budgeted expectations.

Asset allocation

looks at the mix of investment types in your portfolio, including cash, stocks, and bonds. Portfolios with a small amount of their investments in stock are less risky than those with a higher percentage in stock.

debt-to-equity ratio

measures how much debt a company has relative to its assets by comparing a company's total liabilities to its total shareholders' equity. It is calculated as _____ = total liabilities / shareholders' equity. It can give a general idea of a company's financial leverage. It will tell potential investors how much a company is willing to go into debt with creditors, lenders, and suppliers over debt with shareholders. A lower ____ number means that a company is using less leverage and has more equity. Companies with too much long-term debt may end up financially overburdened with interest payments.

Stock mutual funds (equity funds)

much more popular than bond or money market funds. Similar to bond funds, They are broken down into various categories. They invest in stocks with a particular strategy in mind, such as growth funds, value funds, and blend funds. Another popular breakdown of them are those that invest in companies that are defined by their capitalization (cap) or size, such as large-cap funds, mid-cap funds, and small-cap funds. Additionally, there is a wide assortment of funds that center on international investments such as global funds, foreign funds, country-specific funds, or emerging market funds. Lastly, there are sector funds that invest in companies from a particular industry sector such as technology, automotive, banking, and health care.

load funds

mutual funds have additional costs (loads) that are rolled into the overall package to cover marketing and other fund expenses

Short-term liabilities (current liabilities)

obligations a company is responsible for paying within a year or less and are listed first on the balance sheet

Debt financing

occurs when a company borrows money that it is legally obligated to repay, with interest, by a specified time.

insider trading

occurs when an investor buys or sells securities based on information that has not been disclosed to the public

common stock

ordinary" stock. Vote on corporate policy and board of directors Have a lesser right to dividends and assets Common stockholders have the right to elect a board of directors and vote on corporate policy. They are also entitled to a share of the company's dividends. However, common stockholders have the least priority as far as ownership and repayment in the event a company goes out of business.

financial manager

oversees the financial operations of a company and is responsible for: Developing plans that outline a company's financial short-term and long-term needs Defining the sources and uses of funds that are needed to reach goals Monitoring the cash flow of a company to ensure that obligations are paid in a timely and efficient manner and that funds owed to the company are collected efficiently Investing any excess funds so those funds can grow and be used for future developments Raising capital for future growth and expansion Evaluating financial outcomes and expectations Generating financial reports

Exchange-traded funds

pool a group of stocks, like a mutual fund, but are traded on the exchanges. Their price can vary during the day, unlike mutual funds which are traded only at the end of the day. Fees for ETFs can be lower than traditional mutual funds.

earnings per share

portion of a company's profit allocated to the stockholders on a per-share basis is determined by calculating this

Tax accounting

preparing taxes and giving advice on tax strategies. The process for filing taxes can be complicated and is ever-changing, so companies often have these people on staff, or they hire an outside accounting firm to prepare their taxes.

Value stocks

priced less than what would be expected based on earnings. If the assessment is correct, these can be good investments.

secured loan

requires collateral, generally the asset the loan is financing, to guarantee the debt.

Auditing

responsible for reviewing and evaluating the accuracy of financial reports. Large corporations may have private accountants on staff who work in house to determine whether the company's financial information is recorded correctly using proper procedures. Generally, companies hire independent ____ from outside the company to ensure their financial reports have been prepared accurately and are not biased or manipulated in any way

SEP IRAs

retirement accounts for those who are self-employed.

Pension plans

retirement plans established by your employer

Operating expenses

sales, general, and administrative expenses. These costs may consist of items such as rent, salaries, wages, utilities, depreciation, and insurance. Expenses associated with research and development of new products also are included

Individual retirement accounts (IRAs)

special savings accounts created by the government. The benefit of putting your retirement savings into an ___ is that you put pretax money into an ____, thus reducing your current taxable income. You don't pay tax on money in the account until after you have retired and withdrawn the money. You cannot begin to withdraw money without penalty from your ___ until after you have reached the age of 59½. You must begin to withdraw from your ____ when you are 70½.

generally acceptable accounting principles (GAAP)

standard accounting rules defined by the Financial Accounting Standard Board, an independent organization. can be subject to different interpretations which can lead to problems

Financial management

strategic planning for short- and long-term funds for current and future needs. It establishes and monitors controls to make certain the plans and budgets are managed sufficiently so that the business can reach its financial goals

Revenue bonds

supported by the income generated by the project they finance

General obligation bonds

supported by the taxing power of the issuer so they tend to be very safe

Working capital

tells you what is left over if the company pays off its short-term liabilities with its short-term assets. It is a measure of a company's short-term financial fitness, as well as its efficiency. ____ ratio is calculated as: current assets - current liabilities = ____ If a company has positive _____ (its current assets are greater than its current liabilities), that means it is able to pay off its short-term liabilities. If a company has negative _____ (its current assets are less than its current liabilities), that means it is currently unable to offset its short-term liabilities with its current assets.

A budget, or a spending plan

tells you where your money should go each month It should also include savings as a regular fixed expense. Every month, whether you think you can afford to or not, you need to pay yourself first. Initially, your savings should accumulate so that you have a "rainy day fund" that is equal to at least one month's worth of bills. Eventually, this fund should be built up to cover three to six months of fixed expenses. Once you've established a rainy day fund, your savings should go into an interest-bearing account—whether it is a certificate of deposit, a money market fund, a mutual fund, or stocks and bonds. Many financial planning experts suggest setting aside at least 10 percent of every paycheck.

Net income

the "bottom line" and is usually stated on the very last line of an income statement

Government and not-for-profit accounting

the accounting required for organizations that are not focused on generating a profit, such as legislative bodies and charities. ____ organizations need financial management expertise. Although their goal is not to make a profit, these organizations still must distribute and manage funds, maintain a budget, and plan for future projects. ____ organizations must also report their financial activities so taxpayers and donors can see how funds are spent and used.

retained earnings

the accumulated profits a business has held onto for reinvestment into the company.

Leverage

the amount of debt used to finance a firm's assets

Revenue

the amount of money generated by a business by either selling goods or performing services. If a company has several different product lines or businesses, the income statement shows each product or division in categories to distinguish how much each generated in _____

Par (face) value

the amount of money the bondholder will get back once a bond reaches maturity. Most newly issued bonds sell at _____, except Treasury bills that sell for less than _____

coupon

the bond's interest rate. They are a percent of par, so a ____of 10 percent on a bond with $1,000 par value would generate $100 in interest a year. While most bonds pay interest twice a year, some bonds offer monthly, quarterly, or annual payments. Today, interest payments are transferred electronically.

Financing activities

the cash exchanged between the firm and its owners (or shareholders) and creditors, including dividend payments and debt service.

maturity date

the date on which the bond matures and the investor's principal is repaid.

Financial statements

the formal reports of a business's financial transactions that accountants prepare periodically. They represent what has happened in the past and provide management, as well as various outsiders such as creditors and investors, with a perspective of what is going to happen in the future. Publicly owned companies are required to publish three types: balance sheet income statement statement of cash flows

secondary market

the market in which investors purchase securities from other investors rather than directly from the issuing company it's best for individuals to wait to buy shares of the company

Inventory

the merchandise a business owns but has not sold. ___ on hand is necessary to satisfy customers' needs quickly, which makes for good business.

Operating activities

the money that a company receives and spends over a specific period measures whether there are sufficient funds to pay outstanding bills measure cash used or provided by the core business of the company.

variable expenses

the monthly payments you have to make that may change from month to month. Gas, food, clothing, entertainment, and cell phone charges

Defined contribution plans

the most common retirement benefit offered today. Your employer contributes a percentage of each paycheck that you have specified into your account. Many companies, to encourage you to contribute to the plan, will match your investment—in essence giving you money when you save. You often have the opportunity to select the investments from a menu of choices

Defensive stocks

the opposite of cyclical stocks. Defensive stocks are issued by companies producing staples such as food, drugs, and insurance and usually maintain their value regardless of the state of the economy

Corporate accounting

the part of an organization's finance department that is responsible for gathering and assembling data required for key financial statements. It has two separate functions: managerial accounting and financial accounting.

Factoring

the process of selling accounts receivable for cash. Although costly at times, it can be an important strategy for companies to bridge cash flow gaps. Large corporations have the advantage over smaller startup companies in that they have a greater ability to establish a credit or debt rating.

Credit risk

the risk associated with the bond issuer's ability to meet its financial obligations.

Legislative risk

the risk that changing tax laws will affect the value of the bond

Accounting

tracking a business's income and expenses through a process of recording financial transactions. The transactions are then summarized into key financial reports that are further used to evaluate the business's current and expected financial status. It is not just for large organizations. It defines the heart and soul of even the smallest business as it helps to "account for" what the business has done, what it is currently doing, and what it has the potential to do. Although it involves a great deal of precision, there are also some degrees of interpretation in the process of it. This makes it both an art and a science. The "language of business" Tracking income and expenses Preparing financial reports

Roth IRA

type of retirement account, but it differs from a traditional IRA in several ways. Contributions to a ___ are not made with pretax dollars. However, withdrawals are usually tax free, and there are fewer restrictions on when and how you can withdraw your money. They are restricted to individuals whose income falls below a certain level specified by guidelines established by the IRS.

Debenture bonds

unsecured bonds, backed only by the corporation's promise to pay

Ratio analysis

used to compare current data to data from previous years, competitors' data, or industry averages. Ratios eliminate the effect of size, so you can reasonably compare a large company's performance to a smaller company's performance. There are three main calculations using information from a balance sheet to determine a company's financial health and liquidity: Working capital current ratio (sometimes called liquidity ratio) debt-to-equity ratio

liabilities

what a company owes to its creditors

owners' equity

what a company owes to its owners

assets

what a company owns

debt

will have to be repaid out of the company's income and requires regular interest payments. However, interest payments on debt are tax-deductible and debt does not impact ownership and control of a company.

defined benefit plans

you were paid a certain percentage of your salary after you had retired. To qualify, you had to work for the company for a certain amount of time. The problem with them is that the companies bore the risk and responsibility of having sufficient funds to meet their pension obligations