Business Finance Glossary

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ACCOUNTS PAYABLE:
Amounts due for purchases made on credit.
ACCOUNTS RECEIVABLE:
A claim against a debtor for merchandise sold or services rendered in exchange for the customer's promise to pay on a later date.
ACCOUNTS RECEIVABLE TURNOVER:
The net credit sales during a specific period divided by the average accounts receivable due from trade debtors; evaluates the quality of the accounts by relating the average total outstanding to the volume of credit sales.
ACCRUAL ACCOUNTING:
An accounting method that recognizes sales when made and expenses when incurred, regardless of when the associated cash transactions actually occur.
ACQUISITION COST:
The cost a business incurs from purchasing inventory, distinct from actual product costs.
ANNUAL CASH FLOW:
The total of a firm's net income plus depreciation; the total measures the net incremental cash generated by operations over the course of a year.
ASSET TURNOVER:
The ratio of total sales to total assets; a measure of the efficiency of asset utilization.
AVERAGE COLLECTION PERIOD:
The average number of days each credit sales dollar remains outstanding; a qualitative indicator of the collectibility of a firm's accounts receivable.
AVERAGE CONTRIBUTION MARGIN:
Total sales divided by total contribution margin.
AVERAGE INVESTMENT PERIOD:
The length of time each dollar remains in inventory before a sale converts it into cash or accounts receivable.
BAD-DEBT WRITE-OFF:
The loss incurred when an open account sale proves to be uncollectible.
BALANCE SHEET:
A financial statement that indicates what the firm owns and how those assets are financed in the form of liabilities and ownership interest.
BREAK-EVEN ANALYSIS:
An analytic technique for studying the relationships among fixed costs, variable costs, and profits.
BREAK-EVEN CASH FLOW:
The level of operations where total cash expenses equal total cash revenue.
BREAK-EVEN POINT:
The volume of sales in a business where total costs equal total revenue.
CARRYING COSTS:
Financial costs incurred directly or indirectly from carrying a firm's investment in assets.
CASH CAPABILITY:
The total that comes from adding the firm's cash reserves to any available but unemployed credit consideration.
CASH CONVERSION PERIOD:
The time lapse between the customer's decision to purchase a product and the date the payment for the purchase becomes cash available for reinvestment.
CASH FLOW CYCLE:
The natural flow of cash through the operations in a business: cash to inventory to accounts receivable to cash.
CASH RATIO:
Relates a firm's current cash balance to current liabilities; the most stringent test of liquidity.
COLLECTION PERIOD:
See Average Collection Period.
COMMON-SIZE BALANCE SHEET:
Expresses each account as a percentage of total assets or total liabilities and stockholders' equity.
COMMON-SIZE INCOME STATEMENT:
Expresses each account as a percentage of total sales.
COMPONENT MANAGEMENT:
The management effort that concentrates on control of the firm's investment in assets.
CONTRIBUTION MARGIN:
Excess of sales price over variable expenses; an important element in break-even analysis.
COST OF GOODS SOLD:
The cost associated with units sold during a specific time period.
COVERAGE RATIOS:
Relates a firm's operating results measured by its income statement to its fixed obligations.
CREDIT POLICY:
The guidelines used in the decision process that approves or disapproves of an open account sale.
CURRENT RATIO:
Current assets divided by current liabilities; a measure of a firm's liquidity.

DAYS' SALES IN INVENTORY:
See Average Investment Period.
DEBT/EQUITY RATIO:
The ratio of the total debt to the total equity employed in a business.
DEBT SERVICE RATIO:
Fixed principal repayments divided by annual cash flow (net income plus depreciation).
DEGREE OF OPERATING LEVERAGE (DOL):
Percentage change in operating profits divided by percentage change in sales.
DEPRECIATION:
A deduction of part of the cost of an asset from income each year of the asset's useful life.
EBIT:
Earnings before interest and taxes.
EBT:
Earnings before taxes.
ECONOMIC ORDERING QUANTITY (EOQ):
The optimum (least cost) quantity of inventory that should be ordered.
EQUITY:
See Stockholders' Equity.
EXPANSION STOCK:
Inventory added to help increase sales for the business seeking a higher sales volume.
FIFO ACCOUNTING:
A system of writing off inventory into cost of goods sold; items purchased first are written off first; referred to as first in, first out.
FINANCIAL STRUCTURE:
The firm's balance sheet.
FIXED ASSETS:
Relatively permanent assets used in the operation of a business.
FIXED ASSET TURNOVER:
The result obtained by dividing the firm's sales volume by its investment in fixed assets; a measure of the efficiency in employing those assets.
FIXED CHARGE RATIO:
Measure of the ability to pay annual fixed finance charges (lease payments and interest charges).
FIXED COSTS:
Operating costs that remain constant regardless of the firm's sales volume; an important element in break-even analysis.
FYE:
Fiscal year end.
GROSS PROFITS:
Total sales minus total cost of goods sold.
GROSS PROFIT MARGIN:
Gross profits divided by total sales.
GROWTH STOCK:
That portion of the firm's investment in inventory designed to satisfy an anticipated increase in sales.
GROSS WORKING CAPITAL:
Cumulative investment in current assets - cash, accounts receivable, and inventory. Also called "working" assets.
INCOME STATEMENT:
A financial statement that measures the profitability of the firm over a period of time; all expenses are subtracted from sales to arrive at net income.
INVENTORY:
Goods, purchased or manufactured, held by a business for sale.
INVENTORY/SALES RATIO:
The proportional relationship between a firm's investment in inventory and its monthly sales volume; a criterion for controlling the firm's investment in inventory.
INVENTORY TURNOVER RATE:
The cost of goods sold for a period divided by the firm's average investment in inventory; a measure of inventory management efficiency.
INVESTMENT:
The funds a business invests in accounts receivable, inventory, and fixed assets.
ITEM ANALYSIS:
The technique that isolates the turnover rate associated with the specific items that make up the inventory in a business.

LEVERAGE (OR DEBT) RATIO:
Total liabilities divided by total assets. Measures the proportion of a firm's total asset investment financed by creditors.
LIFO ACCOUNTING:
A system of writing off inventory into cost of goods sold; items purchased last are written off first; referred to as last-in, first-out.
LIQUIDITY:
The ability of a business to meet obligations in a timely manner.

(to be continued)
 
#2
NET PROFIT MARGIN:
Evaluates overall ability to squeeze profits from each sales dollar. Net profits divided by sales.
NET WORKING CAPITAL:
Current liabilities subtracted from gross working capital; provides an estimate of a firm's liquidity.
NIFO ACCOUNTING:
Next in, first out accounting for inventory, which uses inventory replacement costs to record the cost of goods sold.
OPEN ACCOUNT SALE:
A sale made in exchange for the purchaser's promise to pay on a later date; however, no promissory note is involved.
OPERATING LEVERAGE:
Based on the premise that fixed costs leverage any sales increase into a larger increase in operating profits.
OPERATING PROFIT MARGIN:
Deducting operating expenses (all costs incurred from normal operations, excluding interest charges and income taxes) from gross profits; the best measure of a firm's ability to make financial gains.
OPPORTUNITY CASH:
Overinvesting in cash in order to increase earnings and enhance liquidity.
OPPORTUNITY COSTS:
Earnings that might have been obtained if a productive asset, service, or capacity had been applied to some alternative use.
OVERINVESTMENT:
Any cash committed to excess investment in accounts receivable, inventory, or fixed assets; or, extra assets unnecessary for the firm's level of operations.
PRETAX PROFIT MARGIN:
Earning before taxes (EBT) divided by sales; provides the best measure of actual earnings.
QUANTITY DISCOUNTS:
Price reductions obtained by purchasing goods in larger lots.
QUICK RATIO:
Similar to current ratio, but it excludes inventory from the measure of liquid assets.
RECEIVABLES/SALES RATIO:
The proportional relationship between a firm's investment in accounts receivable and its monthly sales volume; a criterion for controlling the firm's investment in accounts receivable.
RETURN ON INVESTMENT (ROI):
Earnings divided by average total assets; same as return on assets. A measure of the firm's asset utilization efficiency.
RETURN ON STOCKHOLDERS' EQUITY (ROE):
The yield that earnings represent relative to the accounting value of the stockholders' investment, or net profits divided by the stockholders' equity.

SAFETY STOCK:
Inventory held by a firm in excess of anticipated requirements to protect against unforeseen shortages.
SALES/FIXED-ASSET RATIO:
See Fixed-Asset Turnover.
SALES FORECAST:
Projection of annual unit sales volume across operating periods, such as weeks, months, or quarters in order to control a firm's investment in inventory.
SELLING TERMS:
The length of time a seller allows for payment of purchases made on credit; often includes discounts allowed for early payment.
STOCKHOLDERS' EQUITY:
The total of common stock and all retained earnings.
STOCK-OUT COST:
The opportunity cost that results from the inability to satisfy customer demand because of insufficient inventory.
STRAIGHT-LINE DEPRECIATION:
A method of depreciation that takes the depreciable cost of an asset and divides it by its useful life to determine the annual depreciation expense; straight-line depreciation creates a uniform expense every year an asset is depreciated.
STRUCTURAL MANAGEMENT:
The management perspective that seeks to maintain the proper balance among the elements that make up the financial structure in a business.
TARGET PROFIT SALES VOLUME:
The average contribution margin divided by fixed costs plus target profits.
TIMES-INTEREST-EARNED RATIO (TIE):
Relates a firm's operating profits to the annual interest charges from its debt obligations.
TOTAL CONTRIBUTION MARGIN:
Total sales minus total variable costs.
TRADE CREDIT:
Interbusiness debt that arises from credit sales; recorded as an account receivable by the seller and as an account payable by the buyer.
TRADE DISCOUNT:
A deduction in the list price of goods allowed by a seller in return for payment within a specified time; for example, 2% Ten, Net Thirty-Day terms allow a 2% discount from the list price if paid within ten days.
VARIABLE COST:
A cost that is uniform per unit, but that fluctuates in total in direct proportion to changes in the related total activity or volume; an important element in break-even analysis.

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luonchinguoc

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#3
Pay out time : A measurement of
profitability or liquidity of an investment, being the time required to
 

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