Glossary BA: Finance

 

Key Term

Definition

finance

The function in a business that acquires funds for the firm and manages funds within the firm.

financial management

The job of managing a firm's resources so it can meet its goals and objectives.

balance sheet

A financial statement that shows a company's assets (what it owns), liabilities (what it owes), and net worth at a specific point in time.

working capital

Money set aside or used for operating a business.

current assets

Short-term resources such as cash, investments, accounts receivable, and inventory.

fixed assets

Assets expected to last for many years, such as plants and equipment.

current liabilities

Short-term debts such as accrued salaries, accounts payable, accrued taxes, and short-term bank loans.

stockholders‘ equity

Equals assets minus liabilities and reflects historical values.

cash

The most liquid form of money.

accounts receivable

Money owed the company by customers.

inventory

All raw materials, components, completed or partially completed products, and pieces of equipment a firm uses.

investments

Money that is temporarily fixed in financial assets.

accounts payable

Amounts owed to a company's suppliers for goods/services purchased with credit.

accrued salaries

Unpaid financial obligations regarding the labour force incurred by an organisation.

short-term loans

Credits from bank that have to be repaid within a year.

lockbox

An address, usually a commercial bank, for receiving payments in order to speed collections from customers.

marketable security

Temporary investments of extra cash for up to one year in U. S. Treasury bills, certificates of deposit, commercial paper, or Eurodollar loans.

treasury bill

A short-term, marketable, federal government security with a maturity of one year or less.

commercial CD

CDs issued by commercial banks and brokerage companies, available in minimum amounts of $100,000, which may be traded prior to maturity.

commercial paper

Unsecured promissory notes of $25,000 and up that mature (come due) in 270 days or less.

discounts

Temporary price reductions often employed to boost sales or to speed up payment of bills.

late payment charge

A penalty interest for not paying a bill until the due date.

trade credit

Credit extended by suppliers for the purchase of their goods and services.

line of credit

An arrangement by which a bank agrees to lend a specified amount of money to the organisation upon request--provided that the bank has the required funds to make the loan.

secured loan

Loans backed by collateral that the bank can claim if the borrower does not repay the loan.

unsecured loan

Loans backed only by the borrower's good reputation and previous credit rating.

factoring

The process of selling accounts receivable for cash.

capital budgeting

The process of analysing the needs of a business and selecting the assets that will maximise its value.

risk

1. The chance of loss, the degree of probability of loss, and the amount of possible loss. 2. The chance an entrepreneur takes of losing time and money on a business that may not prove profitable.

debt

Money owed to a third party.

bond

A long-term, interest-bearing certificate issued by a business firm or by a government that promises to pay the bond holder a specified sum of money on a specified date.

unsecured bond

A bond backed only by the reputation of the issuer.

secured bond

A bond issued with some form of collateral.

serial bond

A sequence of small bond issues of progressively longer maturity.

floating-rate bond

Bonds with interest rates that change with current interest rates otherwise available in the economy.

junk bond

Bonds that offer higher rates of return than other bonds but at higher risk because of the greater likelihood of default.

equity

Assets minus liabilities.

common stock

The most basic form of ownership in a firm; it confers voting rights and the right to share in the firm's profits through dividends, if offered by the firm's board of directors.

preferred stock

Stock that gives its owners preference in the payment of dividends and an earlier claim on assets than common stockholders if the company is forced out of business and its assets sold.

retained earnings

Earnings after expenses and taxes that are reinvested in the assets of the firm; they belong to the owners in the form of equity.

investment banking

The sale of stocks and bonds for corporations.

primary market

The market where firms raise financial capital.

secondary market

Stock exchanges where investors can trade their securities with others.

new issue

Raising capital for the first time, either in form of bonds or stocks.

stocks

Shares of ownership in a company.

initial public offering

A company's first-time issuance of stock to the public.

stock exchange

An organisation whose members can buy and sell (exchange) securities for companies and investors.

over-the-counter market

Exchange that provides a means to trade stocks not listed on the national exchanges.

securities market

The mechanism for buying and selling securities.

bull market

A period when prices in the market are generally increasing.

bear market

A period when prices in the market are generally decreasing.

Dow Jones Industrial Average

The average cost of 30 selected industrial stocks, used to give an indication of the direction (up or down) of the stock market over time.

NASDAQ

An automated information network that provides brokers and dealers with price quotations on securities traded over the counter.

speculation

A situation where a company's stock is bought or sold on the basis of a belief that its price will soon go up or down.