BA 1500 Exam 1 Mizzou

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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


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