Dictionary - Business Fundamentals
# A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

10-Q

A 10-Q is a report of a company's performance that must be submitted quarterly by all public companies to the Securities and Exchange Commission (SEC) A 10-Q contains similar information as a 10-K, but is not as comprehensive.A 10-Q must be submitted at the end of the first 3 quarters of a company's fiscal year, while a 10-K is submitted at the end of the 4th quarter. Read more

Abatement Cost

An abatement cost refers to the cost associated with the voluntary or compulsory removal of an undesirable result of a production process. In many instances, companies produce goods or services that directly or indirectly result in a byproduct that may be medically or environmentally dangerous. Read more

Abnormal Spoilage

In the business world, abnormal spoilage refers to the unusual loss of goods or work in progress. Company XYZ is a restaurant chain that orders a lot of produce, which it keeps in walk-in refrigerators. Read more

Absenteeism

In the business world, absenteeism refers to the rate at which employees do not arrive for work as scheduled. Company XYZ is a health care provider. Read more

Absolute Rate

In an interest rate swap, the absolute rate is the sum of the fixed rate component and the variable bank rate. If two counterparties exchange a fixed interest rate and a variable interest rate as part of an interest rate swap based on a theoretical amount of principal, the absolute rate is the total of the fixed interest, or premium piece on top of the variable bank lending rate, or reference piece. Read more

Account Executive

An account executive is a person responsible for managing a relationship with a customer. For example, let's say John Doe works for an advertising agency. Read more

Accounts Payable Turnover Ratio

The accounts payable turnover ratio is a company's purchases made on credit as a percentage of average accounts payable.The formula for accounts payable turnover ratio is: Accounts Payable Turnover = Net Credit Purchases/Average Accounts Payable Let's assume Company XYZ buys $10 million of widget parts this year. Read more

Accretive

To be accretive is to increase earnings per share. This term is most often used in the context of acquisitions. Read more

Acid Test Ratio

With our acid test ratio explanation, you’ll learn how to calculate and interpret this important financial ratio.   Read more

Acquirer

An acquirer is a person or company that purchases all or a portion of an asset or company. Company XYZ wants to acquire Company ABC. Read more

Acquisition Debt

Acquisition debt is money that is borrowed in order to purchase a company or asset.A leveraged buyout (LBO) is a method of acquiring a company with money that is nearly all borrowed. Read more

Acquisition Loan

An acquisition loan is money borrowed specifically to purchase a company or asset. The basic idea behind acquisition loans is that the acquirer purchases the target with a loan collateralized by the target’s own assets. Read more

Activity Ratio

An activity ratio is a metric which determines the ability of a company to convert its balance sheet accounts into revenue. Activity ratios assess how effectively a company is able to generate revenue in the form of cash and sales based on its asset, liability and capital share accounts. Read more

Altman's Z-Score

Altman's Z-score is a financial statistic that is used to measure the probability of bankruptcy. Altman's Z-score is used to determine the likelihood of a company going bankrupt. Read more

American National Standards Institute (ANSI)

The American National Standards Institute (ANSI) is a private, non-profit organization that oversees the development and enforcement of standards for products, services and personnel in both the United States and around the world. Let’s say company XYZ produces headphones. Read more

American Rule

The American Rule, in law, is a rule by which each party pays its legal fees resulting from litigation.  This contrasts with the English Rule, which is the global norm, where the losing party pays the legal fees of the winning party. For example, assume the plaintiff (the party suing that claims to have been wronged by the defendant's actions) files a lawsuit against a defendant and hires an attorney on a contingent fee basis (whereby the attorney doesn't charge fees but gets a percentage of the settlement if the suit is victorious). Read more

Analyst

An analyst gathers and interprets data about securities, companies, corporate strategies, economies or financial markets.Analysts are sometimes called financial analysts, securities analysts, equity analysts or investment analysts (although there is a distinction among these titles). Read more

Annual General Meeting (AGM)

An annual general meeting (AGM) is an SEC-mandated gathering of a public company's senior management and shareholders for the purpose of exchanging important information. The Securities and Exchange Commission (SEC) mandates that publicly-traded companies keep their investors informed by way of an annual general meeting. Read more

Appraisal

An appraisal is an estimate of the market value of an item by a certified professional. Appraisals can be assigned to nearly any item, including real estate. Read more

Arbitration

Arbitration is a process in which impartial parties (arbitrators) help disagreeing parties resolve a dispute.Contracts, particularly financial ones, with disputes often go to arbitration. Read more

Asset

The easiest way to define an asset is that it’s an economic resource that can be owned by an individual, company, or country.Assets are expected to provide future economic benefits like:  Increased value for a company or country Increased net worth for an individual  Assets accomplish this by providing cash flow, reducing expenses, and/or increasing sales. Read more

Asymmetric Digital Subscriber Line (ADSL)

An asymmetric digital subscriber line (ADSL) is a modem technology that enables information and video to be transmitted over regular telephone lines. Though the mechanics of Internet access is highly technical, intuitively, the concept of ADSL is relatively simple: the use of regular copper wire phone lines to transmit data as well as voice. Read more

Average Annual Growth Rate (AAGR)

The average annual growth rate (AAGR) is the arithmetic mean of a series of growth rates. The average annual growth rate (AAGR) formula is: AAGR = (Growth Rate in Period A + Growth Rate in Period B + Growth Rate in Period C + [Other Periods]) / Number of Periods Let's look at an example. Read more

Average Revenue Per User (ARPU)

Average Revenue Per User (ARPU) is a measurement of profit in terms of customers. ARPU is generally applied for financial analysis at companies which offer subscriptions to customers. Read more

Backward Integration

Backward integration refers to a company buying or internally producing parts of its supply chain. For example, let's assume that Company XYZ manufactures widgets. Read more

Balance Reporting

Balance reporting is the act of communicating the balance in an account. Banks do balance reporting when a customer inquires about the balance in an account. Read more

Bandwagon Effect

The bandwagon effect is when people go along with what everyone else is doing. Let's say Fruit Computers launches a cellphone that is popular with hipsters. Read more

Bankmail

Bankmail is a bank's promise that it will finance a company's takeover bid and not help the other bidders. Let's say Company XYZ wants to buy Company ABC. Read more

Bargain Purchase

Also called negative goodwill, a bargain purchase occurs when a company buys an asset for less than its fair market value.Negative goodwill is the opposite of goodwill. Read more

Better Business Bureau (BBB)

The Better Business Bureau (BBB) was born out of so-called ‘vigilance committees’ which arose in the early 1900s to correct advertising abuses and help facilitate consumer trust in the marketplace.There are more than 100 independently incorporated local BBB organizations spanning the U.S and Canada. Read more

Bill of Lading

A bill of lading is like a receipt -- it is an acknowledgement of the receipt of goods.A carrier often gives a shipper a bill of lading and an invoice when it is moving goods for the shipper. Read more

Board of Directors

Consisting of elected individuals who serve as advisors to a corporation, a board of directors acts as a proxy (representative or substitute) for shareholders.For-profit and nonprofit corporations – as well as some government agencies – have a board of directors. Read more

Break-Even Analysis

Break even analysis is a calculation of the quantity sold which generates enough revenues to equal expenses.In securities trading, the meaning of break even analysis is the point at which gains are equal to losses.  Another definition of break even analysis is the examination and calculation of the margin of safety that’s based on a company’s revenue – as well as the related costs of running the organization.  A break-even analysis helps business owners determine when they'll begin to turn a profit, which can help them better price their products. Read more

CAGR - Compound Annual Growth Rate

CAGR stands for compound annual growth rate.A widely-used measure of growth, CAGR is used to evaluate anything that can fluctuate in value (such as assets and investments). Read more

Capital Improvement

In general, a capital improvement is a one-time expenditure for physical assets such as buildings, land, construction, landscaping or major equipment. Let's say Town XYZ wants to refurbish ABC Elementary School. Read more

Capital IQ

Capital IQ is a research division of Standard & Poor's. Essentially, Capital IQ provides research and analysis on companies. Read more

Capital Structure

Capital structure refers to the blend of debt and equity a company uses to fund and finance its operations. If Company XYZ has completed an initial public offering and a bond offering, we could therefore say that Company XYZ's capital structure includes debt and equity. Read more

Cash Budget

Cash budget is a review or projection of cash inflows and outflows.It can be used as a tool for analyzing the revenues and costs of a company or individual. Read more

Cash Equivalents

Cash equivalents are company assets that are easily converted to cash. Although there is some leeway for judgment in particular situations, examples of cash equivalents include marketable securities and Treasury bills. Read more

Cash Flow Per Share

Cash flow per share represents the portion of a company's cash flow allocated to each share of common stock. Cash flow per share can be calculated by dividing cash flow earned in a given reporting period (usually quarterly or annually) by the total number of shares outstanding during the same term. Read more

Cash Market

A cash market is a market for securities or commodities in which the goods are sold for cash and delivered immediately.In some cases, "immediate" means one month or less. Read more

Chief Executive Officer (CEO)

The chief executive officer (CEO) oversees the entire operation of a company or organization.A CEO is responsible for coordinating effective operating, marketing, financial, cultural and legal strategies that maximize shareholder value. Read more

Chief Financial Officer (CFO)

The chief financial officer (CFO) oversees the financial operation of a company or organization. The CFO's job is to coordinate effective financial, accounting and tax strategies to maximize shareholder value. Read more

Class Action

Class action is a type of civil lawsuit brought by a group of people who are "similarly situated" -- that is, they have been harmed in a similar way.In the business world, this group is most often shareholders, customers or employees. Read more

CNN Effect

The CNN effect refers to a major negative impact on consumer spending as a result of breaking news. CNN (which was later joined by MSNBC, BBC World News and Fox News) offers minute-by-minute updates on breaking events at home and abroad. Read more

Cockroach Theory

Cockroach theory refers to the notion that unfavorable reports about a company will, once publicized, be followed by similar reports about other companies in the industry. Named in reference to the popularly-held belief that the discovery of one cockroach is likely to indicate the presence of others, cockroach theory is the unofficial name for the widely-accepted notion that one piece of bad news about a company will tease out news of similar circumstances surrounding other companies in the respective industry. Read more

Conglomerate

A conglomerate is a corporation made up of several smaller, independently-run companies which may operate across several sectors and industries. Conglomerates are generally formed for two reasons: to diversify risk by participating in unrelated businesses or to expand a business within an industry to include suppliers and product purchasers. Read more

Consignment

In consignment, an arrangement is made between owners and third parties (consignees), where consignees agree to sell the owners’ goods for a commission.Most typically, these commissions are a flat fee or a percentage of the sale.  Consignment is a trust-based commercial arrangement from which both consignors and consignees can benefit.  An item is placed in the care of a consignee until it’s purchased by a buyer. Read more

Consolidation

In business, consolidation refers to the merger of several companies in a specific industry, which typically concentrates market share in the hands of a few large companies. Perhaps one of the most obvious examples of industry consolidation can be seen in the evolution of public accounting over the twenty years. Read more

Corporate Social Responsibility (CSR)

Learn how corporate social responsibility benefits companies and communities alike.  Read more

Cost of Capital

Cost of capital can best be described as the ability to cover both asset and liability expenditures while generating a profit.  A simpler cost of capital definition: Companies can use this rate of return to decide whether to move forward with a project.Investors can use this economic principle to determine the risk of investing in a company.  Cost of capital is the return (%) expected by investors who provide capital for a business. Read more

Coverage Ratio

A coverage ratio divides a company's income or cash flow by a certain expense in order to determine financial solvency. Some of the most common coverage ratios include the fixed-charge coverage ratio, debt service coverage ratio, times interest earned (TIE), and the interest coverage ratio. Read more

Current Ratio

The current ratio is a commonly-used financial ratio.It tells investors and analysts whether a company is able to pay its current liabilities with its current assets (typically within a 12-month period).  To calculate current ratio, you’ll need the firm’s balance sheet and the following formula:  Let's look at the balance sheet for Company XYZ: We can calculate Company XYZ's current ratio as:  2,000 / 1,000 = 2.0 At the end of 2020, Company XYZ had $2.00 in current assets for every dollar of current liabilities. Read more

DAGMAR

DAGMAR is a marketing term that stands for "define advertising goals, measure advertising results." For example, let's assume that Company XYZ wants to measure the effectiveness of the marketing campaign for its latest Widget.The company starts testing a commercial that is designed to move potential customers through the four stages of the purchase process: 1) In the awareness stage, Company XYZ makes the consumer aware that there is a new Widget on the market. Read more

Data Warehousing

Also known as enterprise data warehousing, data warehousing is an electronic method of organizing, analyzing, and reporting information.In modern business, being able to integrate multiple sources of data is crucial to make better-informed decisions.  For example, data warehousing makes data mining possible, which assists businesses in looking for data patterns that can lead to higher sales and profits. Read more

Day Rate

A day rate is the daily cost of a good, service, or operating a business. Let's say that John Doe is a consultant to media companies. Read more

Days Sales Outstanding (DSO)

Days sales outstanding (DSO) is the ratio of receivables to the daily average of credit sales. The formula for daily sales oustanding is: DSO = Receivables / (Net Annual Sales on Credit / 360) If a company does not sell on credit (that is, the customer must pay immediately), then total sales is used in the denominator. Read more

Days Working Capital

Days working capital is the ratio of working capital to sales.The formula is: Days Working Capital = (Average Working Capital x 365)/Annual Sales Working capital is money available to a company for day-to-day operations. Read more

De-Merger

A de-merger is the partial or full sale of an asset or business segment. Let's assume Company XYZ is the parent of a food company, a car company and a clothing company. Read more

Debtor in Possession (DIP)

Debtor in possession (DIP) refers to the status of a business that retains control of its assets and continues to operate while under the Chapter 11 bankruptcy reorganization process.  Under Chapter 11 bankruptcy, a business files for protection from creditors while it reorganizes itself. Read more

Debtor-in-Possession (DIP) Financing

Debtor-in-possession (DIP) financing refers to financing for a business that retains control of its assets and continues to operate while under the Chapter 11 bankruptcy reorganization process.  Under Chapter 11 bankruptcy, a business files for protection from creditors while it reorganizes itself. Read more

Deduction

A deduction is a reduction in taxable income, which thereby lowers the amount of taxes owed.Federal, state, and local tax codes determine what kinds of items or expenses are deductible and which taxpayers are eligible for deductions. Read more

Diluted Earnings per Share

Diluted earnings per share is a measure of profit.The formula for diluted earnings per share is: Fully Diluted Earnings Per Share = (Net Income - Preferred Stock Dividends) / (Common Shares Outstanding + Unexercised Employee Stock Options + Convertible Preferred Shares + Convertible Debt + Warrants) Let's assume Company XYZ had $10,000,000 of net income this year. Read more

Direct Tax

A direct tax is any tax levied on companies or individuals that cannot be transferred to another party.It is the opposite of indirect tax. Read more

DUNS Number

A DUNS number (DUNS stands for Data Universal Numbering System) identifies a company.  Let's say Brad Smith of Tampa, Florida, owns a business called Brad's Bagels. Read more

Duress

Duress is pressure that one person or entity puts on another person to do something that he or she would normally not do. Let's say Artie owns a restaurant called Vesuvio. Read more

Early Majority

The early majority is a group of people who purchase or try new products -- typically technology -- after a much smaller population of innovators and early adopters have done so. The early majority is one of five types of consumers (the others are innovators, early adopters, late majority, and laggards) along the "Diffusion of Innovations Curve" pioneered by Everett Rogers. Read more

Earnings Multiplier

The earnings multiplier, also called the price-to-earnings ratio (P/E), is a valuation method used to compare a company’s current share price to its per-share earnings. The market value per share is the current trading price for one share in a company, a relatively straightforward definition. Read more

Earnings Season

Earnings season refers to the four times per year when most public companies announce their quarterly and/or annual earnings. Although there are no official dates, earnings seasons usually last about a month and start in mid-January (after the fourth quarter ends in December), mid-April (after the first quarter ends in March), mid-July (after the second quarter ends in June), and mid-October (after the third quarter ends in September). Read more

Eat Your Own Dog Food

The term "eat your own dog food" means a company uses its own products and services. Let's say Company XYZ manufactures laptop computers. Read more

Eating Someone's Lunch

Eating someone's lunch is a business strategy where a company gains market share by aggressively taking it away from a competing company. Eating someone's lunch can be carried out in a number of ways including: Aggressive pricing strategies Release of new products Implementation of better services Aggressive marketing of products or services In all these scenarios, the strategy is based on the desire to eat up a larger portion of the market share for a particular product or service. Read more

EBITDA - Earnings Before Interest, Taxes, Depreciation and Amortization

Earnings before interest, taxes, depreciation, and amortization (EBITDA) is a measure of corporate profitability.Analysts and investors use EBITDA to evaluate a company's underlying profits without factoring in financing/accounting decisions or tax environments. Although EBITDA reporting is not required under Generally Accepted Accounting Principles (GAAP), many companies include a breakdown of their EBITDA along with their quarterly and annual financial reports. Read more

Elasticity

From examples of elastic goods to calculating elasticity, this definition contains everything you need to understand this financial term. Read more

Electronic Data Gathering, Analysis and Retrieval (EDGAR)

EDGAR, the Electronic Data Gathering, Analysis and Retrieval system, is an automated system of submission used by public companies required to file forms with the U.S.Securities and Exchange Commission (SEC) In 1984, EDGAR was created by the SEC to improve the quality and speed of information available to investors and corporations. Read more

Elevator Pitch

An elevator pitch is a quick explanation of a business idea or other proposal.The term reflects the idea that in the time it takes to ride an elevator, the speaker should be able to summarize the key elements of the idea in a compelling way. Read more

Employee Contribution Fund

An employee contribution fund is a company-sponsored plan where employees deposit (contribute) their own money towards a charity. In an employee contribution fund, a company sets up a program where employees can make donations (usually deducted directly from their paychecks) to a charity that the company supports. Read more

Enterprise Value to Cash Flow from Operations (EV/CFO)

Enterprise value to cash flow from operations (EV/CFO) is the ratio of the entire economic value of a company to the cash it produces.The formula for EV/CFO is: EV/CFO = (Market Capitalization + Total Debt – Cash)/Cash from Operations Some analysts adjust the debt portion of the formula to include preferred stock; they may also adjust the cash portion of the formula to include current accounts receivable and liquid inventory. Read more

Event Risk

Event risk is the risk of a negative impact on a company's financial position as a result of an unexpected event like a natural disaster, industrial accident or hostile takeover. Occasionally companies face events that unexpectedly impact their ability to operate or their ability to make debt payments. Read more

Fabless Company

A fabless company is a company that designs, develops and markets but does not manufacture silicon wafers."Fab" is short for "fabrication." Fabless facilities do not have fabrication facilities. Read more

Financial Engineering

Financial engineering is the quantitative, technical development of financial strategies and products. Financial engineers design, create and implement new financial instruments, models and processes to solve problems in finance and take advantage of new financial opportunities. Read more

Financial Guarantee

In general, a financial guarantee is a promise to take responsibility for another company's financial obligation if that company cannot meet its obligation.The entity assuming this responsibility is called the guarantor. Read more

Financial Planning and Analysis (FP&A)

There are two parts to FP&A: financial planning and financial analysis.Financial planning is the process of creating a complete account of an individual’s or business’s plan for long-term security. Read more

Fiscal Year-End

A fiscal year-end is the end of a 12-month, 365-day, or 13-period (or other measure) period of time. Let's say Company ABC has a fiscal year that begins Jan. Read more

Fixed Costs

Fixed costs are independent expenses that companies must pay, regardless of what their business does.Because they cover expenses that help keep the business up and running, they are sometimes referred to as overhead costs.  Fixed costs do not change when goods or services produced or sold by a company move up or down. Read more

Fleet Card

A fleet card is a type of plastic payment card, either debit or credit, that is issued to employees to pay for expenses related to vehicle operations, notably fuel and maintenance.Payment of vehicle-related costs through a fleet card system enables a company to keep close track and tightly manage expenses related to fleet vehicles they own and operate. Read more

Forensic Accounting

Forensic accounting is a form of investigative accounting which examines financial records in order to find evidence for a lawsuit or criminal prosecution. Forensic Accounting is sometimes referred to as forensic auditing. Read more

Forensic Auditing

Forensic auditing examines individual or company financial records as an investigative measure that attempts to derive evidence suitable for use in litigation. Forensic auditing can sometimes be referred to as forensic accounting. Read more

Fortune 100

The Fortune 100 is an annual list of the 100 largest companies in the United States.Fortune magazine publishes the list. Read more

Fortune 1000

The Fortune 1000 is an annual list of the 1,000 largest companies in the United States.Fortune magazine publishes the list. Read more

Fortune 500

The Fortune 500 is an annual list, published by Fortune magazine, of the 500 largest companies by revenue in the United States. Any company that reports financial data to a United States government agency is eligible for consideration in the Fortune 500. Read more

Forward Price-to-Earnings Ratio (Forward P/E)

The forward price-to-earnings ratio (forward P/E) is a valuation method used to compare a company’s current share price to its expected per-share earnings. The market value per share is the current trading price for one share in a company, a relatively straightforward definition. Read more

Future Value (FV)

Future value (FV) refers to a method of calculating how much the present value (PV) of an asset or cash will be worth at a specific time in the future. One dollar put into a savings account today might be worth more than one dollar a year from now. Read more

Game Changer

A game changer is a person or thing that radically changes an industry or a company.  For instance, when Apple introduced the iPod, the product was a game changer. Read more

General Partner

A general partner is a member of a partnership that can incur debt or obligations on behalf of the partnership and is personally liable for those debts or obligations. In some partnerships, all the partners are general partners, and they are all liable for the debts and obligations of the business. Read more

Goldbricker

Goldbricker refers to coating something with gold so as to pass it off for something valuable, though colloquially, the term refers to an unproductive person. For example, assume John comes to work late every day, chats with his coworkers about the March Madness brackets, takes a two-hour lunch, sits in the bathroom for 30 minutes, takes a 45-minute break, surfs the internet on personal business, and then leaves early. Read more

Golden Life Jacket

A golden life jacket is a compensation package offered by an acquirer to executives of the company it is acquiring.It is the same as a stay bonus. Read more

Goodness of Fit

Goodness of fit (also known as a chi-square goodness of fit) is a statistical term referring to how far apart the expected values of a financial model are from the actual values. Goodness of fit is a component of regression analysis, which is a statistical method used in finance and a variety of other fields to make predictions based on observed values. Read more

Goods in Process

Also known as work in process (WIP), goods in process are the component of a company's inventory that is partially completed.  Goods in process = (operating inventory goods in process + raw materials used during the period + direct labor during the period + factory overhead for period) - ending inventory The value of that partially completed inventory is recorded as goods in process on the asset side of the balance sheet.For example, let's assume Company XYZ manufactures widgets. Read more

Goodwill-to-Assets Ratio

The goodwill-to-assets ratio describes the percentage of a firm's total assets that can be explained by the amount of goodwill on the balance sheet.  The formula for the goodwill-to-assets ratio is: Goodwill to Assets = Goodwill / Total Assets For example, let's assume Company XYZ has $5,000,000 of goodwill on its balance sheet.Its total assets are $20,000,000. Read more

Greenwashing

Greenwashing is the act of misleading customers and potential customers into believing that a product or service is environmentally friendly. Let's say Company XYZ produces a new line of plastic food containers. Read more

Halo Effect

The halo effect is a phenomenon whereby consumers perceive the products or services from a certain company to be better than they really are. Let's say Company XYZ makes the "Xphone." The Xphone has many functions and a nice design. Read more

Harvesting

Harvesting, also known as an exit or liquidity event, is the act of cashing out of an ownership position in a company. For example, let’s say John Doe and Jim Smith sink their life savings into opening Company XYZ. Read more

Healthcare Power of Attorney (HCPA)

A healthcare power of attorney (HCPA) is a document that legally authorizes someone to make health-related decisions on someone else's behalf. Individuals sometimes become too unwell or unfit to make decisions regarding their healthcare treatments. Read more

Heavy Industry

Heavy industries often sell their products to other industries rather than to end users and consumers.In other words, they usually make products that are used to make other products. Read more

Highly Compensated Employee

Highly compensated employees are usually limited in the amount of money they can set aside in their 401(k) plans and other retirement plans.Specifically, the federal government limits the amount of money that the HCEs at a company can contribute to 125% of the average that the non-HCE's contribute to a plan. Read more

Horizontal Integration

Horizontal integration occurs when a company purchases a number of competitors.It is the opposite of vertical integration, whereby the parent purchases businesses in each stage of a product's life cycle (that is, it buys suppliers, distributors, wholesalers and retailers of the product). Read more

Hostile Takeover Bid

A hostile takeover bid is a type of acquisition or merger offer that is made against the wishes of the board (and usually management) of the target company. In a hostile takeover bid situation, the target company's board of directors rejects the offer, but the bidder continues to pursue the acquisition. Read more

Identifiable Asset

An identifiable asset is anything that has commercial or exchange value and can provide future economic benefits.Identifiable assets can be tangible or intangible. Read more

Idle Time

Also called down time, idle time is when employees or machines are not working but are being paid. Let's say Company XYZ manufactures autos. Read more

Inchoate

Inchoate is a legal term indicating that a transaction or activity has been discussed or even agreed upon but is not final or is still incomplete. Let's say Company XYZ wants to buy Company ABC. Read more

Injunction

Injunctions are an alternative to monetary judgments, in which the court might order a party to pay damages to another party.In some cases, they are much better for defendants to deal with; in Jane's case, the monetary damages could have come with a much higher cost if Donuts and Company alleged that it lost business in Arizona due to Jane's knock-off. Read more

Insider

An insider is an employee, director or any other person who is privy to confidential, nonpublic information about a company. Given their position, managers and executives within a company are privy to information about a company's operations that is not available to the investing public. Read more

Interest Coverage Ratio

The interest coverage ratio, also known as times interest earned, is a measure of how well a company can meet its interest-payment obligations. The interest coverage ratio is also referred to as the times interest earned ratio. Read more

Interest Rate Swap

An interest rate swap is a financial contract between two parties (such as companies or investors) that want to exchange interest rates.These could be interest rates they’re paying on loans or rates they’re receiving on investments.  It's important to note that loans and investments aren’t traded or altered: The parties only exchange the interest rates they pay on their loans or receive from their investments. Read more

Internal Rate of Return | IRR

Internal rate of return (IRR) is the discount rate that makes the net present value of all cash flows (both positive and negative) equal to zero for a specific project or investment.  IRR may also be referred to as the discounted cash flow rate of return (DCFROR).  What Does IRR Tell You About a Project?The internal rate of return is used to evaluate projects or investments. Read more

Joint Liability

Joint liability refers to the individual and collective obligation of more than one party on a loan. Joint liability is best illustrated by two married people who apply jointly for a credit card to maximize the amount of money they can borrow. Read more

Jointly and Severally

Jointly and severally is a legal phrase that means two or more persons are fully responsible equally for the liability. Jointly means that both parties have joint liability, giving responsibility for the full amount of the obligation to each party.  In this case, for example, if one party dies or declares bankruptcy, the full amount of the obligation falls to the other party.  As such, one or both of the parties can be sued for the full obligation. Read more

Judgment

A judgment is a court order to pay someone else a sum of money or other remedy. Let's say John Doe owns a pit bull he hasn't trained very well. Read more

Junior Debt

In the event of a borrower’s bankruptcy, junior debt is debt that is repaid after the obligations to senior lenders or creditors have been fulfilled.Usually, it also has no collateral. Read more

Just in Time (JIT)

In the manufacturing and logistics world, just in time (JIT) inventory management helps companies reduce storage costs and improve quality.Originated by the Toyota Motor Company in 1938, the just in time concept helps companies reduce waste and align all production processes.  Does just in time management work for every company? Read more

Kanban

Kanban is a Japanese term that refers to the  "just-in-time" inventory method's signal to a supplier to send more inventory.  Just in time (JIT) is an inventory management method whereby materials, goods and even labor are scheduled to arrive or be replenished only exactly when needed in the production process.Toyota Motor Company developed JIT in the 1950s. Read more

Keepwell Agreement

A keepwell agreement is a legal agreement between a parent company and a subsidiary to ensure solvency and financial stability for the duration of the agreement. For example, let's assume that Company XYZ is a subsidiary of Company ABC. Read more

Keidanren

Keidanren is the abbreviation for Keizai Dantai Reng?kai or the Japanese Business Federation, which is a Japanese association of businesses. Established in 1946, Keidanren has absorbed and merged with many other organziations over the years. Read more

Key Employee

Losing key executives, particularly founders, can be very traumatic for companies.Their talent is usually hard to come by, and their roles are often more than just symbolic—in many cases these executives are the "face" of a company. Read more

Key Performance Indicators (KPI)

Key performance indicators (KPIs) are written goals for companies, departments within companies and often individual employees. Let's say John Doe is the CEO of Company XYZ, and he wants the company to "produce higher-quality products" next year. Read more

Killer Application

A killer application is software that induces consumers to buy new hardware. Software for 3-D printers is an example of a killer app. Read more

Lady Macbeth Strategy

A Lady Macbeth strategy is a merger strategy in which a company betrays a target company by first appearing as a friendly alternative to an unfriendly acquirer and then later joining forces with the unfriendly acquirer. Lady Macbeth is a character from Shakespeare's famous play Macbeth. Read more

Last Fiscal Year (LFY)

Last fiscal year (LFY) refers to a company's most recent completed fiscal year. A fiscal year is a company's 12-month accounting cycle. Read more

Last Twelve Months (LTM)

Last twelve months (LTM), also known as trailing twelve months (TTM), is the 12-month interval occurring before a given point in time.  For example, an analyst who is issuing a report on October 15, 2012, will report last twelve months (LTW) earnings as those from October 1, 2011, to September 30, 2012.  Analysts and policymakers frequently use the last twelve months to gauge economic performance and to analyze data from the past year.It is important not to confuse the last twelve months with the last fiscal year (LFY), which covers the organization's most recently-completed fiscal year. Read more

Lease

A lease is an agreement, usually in writing, between the owner of an asset and a lessee. There are many kinds of leases. Read more

Lease to Own

Lease to own describes a situation in which a lessee leases an asset from the lessor and can become the owner of the asset after the lease term expires. For example, let's say John Doe's son, Jake, wants to learn to play the flute. Read more

Leasehold

A leasehold is an accounting category that contains leased assets. For example, let's say that Company XYZ leases a widget-making machine from Company ABC. Read more

Legacy Assets

Legacy assets are assets that have been on a company's balance sheet for a long time and are usually obsolete. For example, let's say that Company XYZ makes computers. Read more

Lemon

A lemon is an item whose defects were not outwardly apparent at the time that it was sold to a consumer.  ”Lemon” has typically referred to a defective new car but its current application has become more widespread. What constitutes a lemon?  Using the example of a car, any new vehicle that has a substantial and/or continuous problem that isn't fixed within a reasonable number of attempts, or that has had a certain number of days out of service or in repair. Read more

Letter of Guarantee

In general, a letter of guarantee is a written promise to take responsibility for another company's financial obligation if that company cannot meet its obligation.The entity assuming this responsibility is the guarantor. Read more

Leverage Ratio

A leverage ratio is used to evaluate a company’s debt load in relation to its equity and assets.Investors use leverage ratios to understand how a company plans to meet its financial obligations and to determine how its debt is used to finance operations.  These types of financial ratios shouldn’t be used alone but alongside other metrics to determine a company’s overall economic health.  When the debt ratio is low (below 1.0), principal and interest payments don't command such a large portion of the company's cash flow. Read more

Limited Liability

Limited liability is limited exposure to financial risk by investors of a company or a partnership.This exposure is usually limited to the individual's investment.  In certain cases where an investor invests his money with a company or partnership, this investor will not be liable for any financial risk beyond what he has invested in the business entity. Read more

Limited Liability Company (LLC)

A limited liability company (LLC) is a type of business entity formed that can be taxed like a partnership but protects its shareholders from liability beyond their investment. Investors can decide to set up any type of legal business structure they like. Read more

Liquidate

In the financial world, to liquidate something means to sell it for cash.Although this sounds harmless, in the corporate world the term often carries a connotation of failure, because it is most often used in discussions about Chapter 7 -- a section of U.S. Read more

Liquidity Risk

This expert financial definition reveals everything you need to know about mitigating, measuring, and managing liquidity risk.  Read more

Logistics

Logistics is the integration and management of the product value chain from suppliers to the customer.  It includes all aspects of the chain of production, including design, suppliers, financing, information, energy, transportation, distribution, and sales. Logistics involves the integration of the production and delivery of a product or service in order to ensure efficient and effective management.  Originally, logistics was used in the military to coordinate the delivery of soldiers and weapons to the right place at the right time.  The critical nature of the place and timing in war required special integration and precision.  Logistics consists of identifying the steps in a production value chain, ensuring just in time (JIT) delivery of the inputs for an assembly process, coordinating the flow of information, and the scheduling of delivery.   As the diagram shows, logistics manages the flow from supplier to customer in order to ensure that supply and product inventory is not accumulated or wasted. Read more

Long-Term Asset

A long-term asset is an asset that a company expects to sell or otherwise recognize the economic value of after more than one year. An asset is anything that has commercial or exchange value. Read more

Made To Order (MTO)

Made to Order (MTO) is a production and inventory strategy in which companies manufacture products or provide services according to each customer's specifications rather than according to a homogenous specification. Let's say Company XYZ produces widgets. Read more

Made to Stock (MTS)

Made to Stock (MTS) is a production and inventory strategy in which companies manufacture products or provide services according to their forecast of customer demand. Let's say Company XYZ produces widgets, which are popular Christmas presents. Read more

Malfeasance

Malfeasance is the legal term for intentionally doing something that is illegal. Let's say John Doe is Jane Smith's broker. Read more

Management Discussion and Analysis

In the financial world, a management discussion and analysis (MD&A) is a written explanation of a public company's performance for the reporting period.The explanation appears in the company's disclosures to the Securities and Exchange Commission (usually the 10-K and 10-Q). Read more

Margin

Margin can be defined in two main ways:  It is the ratio of profit divided by revenue.This financial ratio is used to determine a company’s profitability.  Money borrowed from a brokerage firm in order to leverage an investment. Read more

Market Segmentation

Market segmentation is a marketing strategy that separates individuals in a market into discrete groups based on certain criteria. Market segmentation is predicated on the notion that a given product or service may be effectively marketable to only certain individuals. Read more

Marketing Mix

The definition of marketing mix can best be described as the combination of elements used to promote products or services.These variable elements are based upon the analysis of the “four P’s” of marketing: product, price, place, and promotion. Read more

Merger

Using historical merger examples and straightforward language, this is the simplest definition of merger anywhere. ​ Read more

Mosaic Theory

In the finance world, the mosaic theory refers to a research approach whereby the analyst arrives at a conclusion by piecing together bits of publicly available information. For example, let's assume that John Doe is an analyst at Company XYZ. Read more

Natural Capital

Natural capital is a term that describes an economy's natural resources such as water, timber or oil. Let's say Company XYZ is a paper manufacturer. Read more

Negative Confirmation

A negative confirmation occurs when entities that have a relationship with an auditor's client indicate they have financial discrepancies or disagreements regarding their accounts with the client. For example, let's assume Company XYZ is working on its year-end audit. Read more

Negative Watch

Negative watch is a status that credit-ratings agencies assign to companies that might receive a lower credit rating in the future. Moody's, Standard & Poor's, and Fitch's are the three primary credit ratings agencies in the United States. Read more

Negotiable

Negotiable refers to an item that can be sold or transferred to another party as a form of unconditional payment.Negotiable also means that the terms of an agreement can be adjusted. Read more

Negotiation

Negotiation is a process in which two or more parties resolve a dispute or come to a mutual agreement. Negotiations occur all the time in the business world, and they are often strategic in nature. Read more

Net Assets

Net assets are what a company owns outright, minus what it owes.Put another way, net assets equal the company assets (economic resources) minus liabilities (what is owed to someone else). Read more

Net Current Asset Value Per Share (NCAVPS)

The net current asset value per share (NCAVPS) equals a company's current assets divided by its number of shares outstanding. The formula for NCAVPS is: NCAVPS = (Current Assets - Current Liabilities) / Shares Outstanding A current asset is cash or an asset that can be converted to cash within one year. Read more

Net Payoff

Net payoff is the profit or loss on the sale of a good or service after all the costs of producing and selling that good or service have been subtracted. Let's assume investor X wants to sell his house for $700,000. Read more

Net Present Value of Growth Opportunities (NPVGO)

Net Present Value of Growth Opportunities (NPVGO) is the simply the present value of additional cash flows associated with an acquisition, net of the purchase price of the acquisition.Essentially, the concept adds the present value of assets in place to the present value of the company's growth prospects. Read more

Net Present Value Rule

The net present value rule is the idea that investors and managers should only engage in deals, projects or transactions that have positive net present value (NPV).  Using the NPV formula, the net present value rule decides if an acquisition or project is worth it based on the following criteria: If NPV < 0, the project/acquisition will lose the company money and therefore may not be considered.If NPV = 0, the project/acquisition will neither increase nor decrease value of the company and non-monetary benefits may instead be considered before a decision is made. Read more

Net Profit Margin

Net profit margin is a metric that indicates how well a company can transform its revenues into profits.Net profit margin is the percent of revenue remaining after all operating expenses, interest, taxes, and preferred stock dividends have been deducted from a company's gross or total revenue. Read more

Non-Negotiable

Non-negotiable refers to something that cannot be bought, sold, exchanged or transferred.Non-negotiable also can refer to a term or condition that is not open to negotiation. Read more

Notary

A notary, also called a notary public, is a person who is authorized to witness the signing of important documents. A notary public goes through training and obtains an official seal to affix to paperwork that he or she has witnessed signing. Read more

Obsolete Inventory

Obsolete inventory is inventory that is essentially useless and/or unsellable. For example, consider Company XYZ, a cheese manufacturer. Read more

Ocean Bill of Lading

An ocean bill of lading is a receipt and invoice between a carrier and a shipper. For example, let's assume that Company XYZ is in Seattle and it wants to purchase goods from Supplier ABC in China. Read more

Official Strike

An official strike, also called an "official industrial action," is a work stoppage by a union. For example, let's say that the unionized workers at a company feel that they are underpaid. Read more

Offtake Agreement

An offtake agreement is an agreement between a buyer and seller of a resource to purchase or sell products that are yet to be produced. Let's say Company X developed a way to grow a special kind of popcorn that turns purple when popped. Read more

Oil Reserves

Oil reserves are estimates of the amount of crude oil in a specific area. Let's say Company XYZ is an oil company that is actively engaged in detecting and drilling for oil. Read more

One-Stop Shop

A one-stop shop is a single location where all of the needed services for a particular activity are provided. One-stop shopping is a popular concept for packaging products and service-oriented businesses. Read more

Operating Cost

An operating cost is a day-to-day cost incurred in the normal course of business.These costs appear on the income statement. Read more

Operating Expense Ratio (OER)

An operating expense ratio (also referred to as OER) is an extremely common real estate analysis.OER measures where analysts measure the costs to operate a piece of property versus the income it generates.  Operating expenses are costs associated with running a business's core operations on a daily basis. Read more

Operating Lease

An operating lease is simply a lease that does not give the lessee rights similar to those of an owner of the asset. Let's assume Company XYZ needs a widget machine for its factory. Read more

Operating Margin

Operating margin is a financial metric used to measure the profitability of a business.The operating margin shows what percentage of revenue is left over after paying for costs of goods sold and operating expenses (but before interest and taxes are deducted). Read more

Operating Ratio

Operating ratio is the ratio of operating expenses to net sales.Operating ratio is also a common term in the insurance business, where it refers to an issuer's profit from underwriting and investment activities. Read more

Outsourcing

From common outsourcing models to the most popular companies who contract out to other countries, learn why outsourcing is such an integral part of the world economy.  Read more

Paris Club

The Paris Club is slang for 19 developed countries who meet in Paris to discuss issues with nations to which they have lent money. The Paris Club has several members, including the United States, United Kingdom, Japan, Belgium, Canada, France, Germany, Italy, Netherlands, Sweden, Switzerland and Russia. Read more

Payee

The term "payee" refers to an individual or entity that will receive a payment.It can also be referred to as the beneficiary in situations that pertain to a benefactor.  There are a number of examples of payees. Read more

Payroll

Payroll expenses are the total salaries and wages that a company pays its employees for their services.In the accounting world, “doing payroll” is also a term used for calculating and processing paychecks. Read more

Petty Cash

Petty cash is money kept on-hand, generally, by businesses for making change for clients and to cover minor costs. Petty cash is commonly associated with storefront-type businesses who deal with clients who may pay in cash. Read more

Physical Asset

A physical asset is anything that has commercial or exchange value and has a physical form. For example, let’s assume that XYZ Company intends to purchase an office building for $10,000,000. Read more

Plowback Ratio

The opposite of the dividend payout ratio, a company's plowback ratio is calculated as follows: Plowback ratio = 1 – (Annual Dividend Per Share / Earnings Per Share) Let's assume Company XYZ reported earnings per share of $5 last year and paid $1 in dividends.Using the formula above, Company XYZ's dividend payout ratio is: $1 / $5 = 20% Company XYZ distributed 20% of its income in dividends and reinvested the rest back into the company. Read more

Porter's 5 Forces

Porter's 5 Forces is an analytical framework for assessing business competitiveness strategies in a particular market. Michael E. Read more

Predictive Indicator

A predictive indicator is a ratio, index, report or other measurement that signals a company or market's direction in advance.  The business cycle has highs and lows.That's why predicting what's around the corner is one of the best (but most difficult) ways to protect and grow portfolios. Read more

Prepackaged Bankruptcy

Prepackaged bankruptcy refers to a plan for reorganization under Chapter 11 that a company drafts in cooperation with its lenders. If a company determines that Chapter 11 bankruptcy is inevitable, it may first contact and meet with its lenders in order to formulate a mutually beneficial reorganization plan prior to any official proceedings. Read more

Price Fixing

Price fixing is an agreement among businesses to sell the same product or service at the same price. Price fixing involves the cooperation among two or more business competitors to set or stabilize a price for a product or service.  It may involve setting a minimum price, setting a maximum discount on price, agreeing to buy supplies at an "agreed upon" maximum price, agreeing to a standard set of charges or surcharges for a product or service, or even agreeing to a set rate of production of a product.  In any case, it involves an agreement that disrupts open market price competition. Read more

Price-to-Book Ratio (P/B)

The price-to-book ratio measures a company's market price in relation to its book value.The ratio denotes how much equity investors are paying for each dollar in net assets. Read more

Price-to-Earnings Ratio (P/E)

The price-to-earnings ratio (P/E) is a valuation method used to compare a company’s current share price to its per-share earnings. The market value per share is the current trading price for one share in a company, a relatively straightforward definition. Read more

Price-to-Tangible Book Value Ratio

The price-to-tangible book value ratio measures a company's market price in relation to its tangible book value.The ratio denotes how much investors are paying for each dollar of physical assets. Read more

Private Company

Out of the 18 million businesses in the United States, fewer than 4,000 are publicly listed on a stock exchange.That means private companies remain the default model of conducting business.  So what are they and how do private companies differ from public companies? Read more

Procurement

The simplest definition of procurement is the act of a business buying goods or services. Read more

Quality Management

Quality management is the act of ensuring that a company's goods and services are built and delivered to spec, on time and at the appropriate cost. For example, let's assume that Company XYZ makes widgets. Read more

Quick Response (QR) Code

Quick response (QR) code is a type of two-dimensional barcode that can be read with specific QR barcode readers and most mobile phone cameras.The code is made of small black squares and rectangles that are arranged in a square pattern on a white background that codes for text, URL or other information. Read more

Quick-Rinse Bankruptcy

A quick-rinse bankruptcy moves through the courts especially quickly. Let's say Company XYZ is struggling to pay its vendors and is quickly running out of cash to pay its employees. Read more

Quorum

A quorum is the minimum number of directors required to conduct a board meeting.Usually is a quorum is a majority. Read more

Quota

Quota can refer to a measure that sets the limits, either minimum or maximum, on a particular activity. Quotas are usually set by government or by an organization of producers of a particular product.  For trade quotas, governments set the quota limiting the import of a particular product, restricting the access to the domestic market by an offshore producer, and giving the domestic producers the opportunity to improve their position in the market. Read more

Receivables Turnover Ratio

The receivables turnover ratio is a company's sales made on credit as a percentage of average accounts receivable.The formula for receivables turnover ratio is: Receivables Turnover = Net Credit Sales/Average Accounts Receivable For example, let's assume that Company XYZ sells $10,000,000 of widget parts this year. Read more

Receivership

Receivership is a form of bankruptcy in which a court-appointed trustee reorganizes the bankrupt entity.  In a receivership, a receiver takes custody of the company's property and operations. Read more

Reference Rate

A reference rate is an interest rate that determines another interest rate. Let's say you want to borrow $5,000 to start a business. Read more

Reorganization

Reorganization may refer to the rehabilitation of a company's finances pursuant to a bankruptcy.It can also refer to any process that affects the tax structure of a corporation. Read more

Repurchase Agreement (Repo)

A repurchase agreement is the sale of a security combined with an agreement to repurchase the same security at a higher price at a future date. It is also referred to as a "repo."  For example, trader A may sell a specific security to trader B for a set price and agree to buy back the security for a specified amount at a later date. Read more

Restructure

Restructure, or restructuring, refers to the management process of reorganizing a company to make it more profitable.  During a major transition, a buyout or a bankruptcy, for example, the management may consider restructuring a company. A restructuring may include a variety of measures to eliminate diseconomies of scale, such as reorganizing and streamlining the management and operations, integrating management teams from the buyers or new owners or spinning-off, closing, or streamlining various operating units within the company. Read more

Return on Assets (ROA)

Return on assets (ROA) is a financial ratio that can help analyze the profitability of a company.ROA measures the amount of profit a company generates as a percentage relative to its total assets.  Put another way, ROA answers the question of how much money is made (net income) from what a company owns (assets). Read more

Return on Capital (ROC)

Return on capital (ROC) is a ratio that measures how well a company turns capital (e.g.debt, equity) into profits. Read more

Return on Equity (ROE)

Return on equity (ROE) is a measurement of how effectively a business uses equity – or the money contributed by its stockholders and cumulative retained profits – to produce income.In other words, ROE indicates a company’s ability to turn equity capital into net profit.  You may also hear ROE referred to as “return on net assets.” A high ROE suggests that a company’s management team is more efficient when it comes to utilizing investment financing to grow their business (and is more likely to provide better returns to investors). Read more

Return on Investment (ROI)

ROI (or return on investment) is a key financial ratio that measures the gain/loss from an investment in relation to the initial investment.  Due to its flexibility and simplicity, ROI is one of the most frequently used profitability metrics.It's extremely useful to gauge the efficiency and profitability of investments. Read more

Return on Net Assets (RONA)

Return on net assets is a metric which measures a company's financial performance with regard to fixed assets combined with working capital. Return on net assets (RONA) is calculated by dividing a company's net income in a given period by the total value of both its fixed assets and its working capital. Read more

Revenue per Available Room (RevPAR)

Revenue per available room, or RevPAR for short, is a ratio commonly used to measure financial performance in the hospitality industry.The metric, which is a function of both room rates and occupancy, is one of the most important gauges of health among hotel operators. Read more

Revenue Per Employee

Revenue per employee measures the average revenue generated by each employee of a company.  Revenue per employee is calculated by dividing a firm's revenue by its total number of workers (Revenue/Number of Employees).Let's take a closer look some sample figures from Company XYZ: 2005 Revenue:  $50,000,000 Employees:  312 By plugging the information provided above into the above formula, we can calculate the firm's revenue per employee as follows: $50,000,000/312 = $160,256.41 Therefore, every employee at Company XYZ contributed approximately $160,256 in revenue for 2005. Read more

Reverse Triangular Merger

A reverse triangular merger is a merger in which the acquisition is carried out by a subsidiary of the acquiring company. In a reverse triangular merger, a subsidiary of the acquiring company executes the purchase of the target company. Read more

Right of First Refusal

Right of first refusal grants the terms of a transaction to one party to determine if they are interested (i.e., the holder of the right of first refusal) before it is given to a third party. Right of first refusal is a contractual term giving its holder the option to buy or sell something before the owner is allowed to buy or sell the same item to a third party. Read more

Rolling EPS

The rolling EPS is a variation of the earnings per share (EPS) metric which measures a company's profitability. The rolling EPS is measured on the basis of a year and is calculated by adding a company's EPS from the two previous quarters to the projected EPS for the two upcoming quarters. Read more

Runs Test

A runs test is a statistical procedure that can be used to decide if a data set is being generated randomly, or if there is some underlying variable that is driving results. If data points are randomly distributed above and below a regression curve, you should be able to predict the number of patterns (runs) you'd expect to see. Read more

Salad Oil Scandal

The Salad Oil Scandal of 1963 was a case of corporate fraud perpetrated by the Allied Crude Vegetable Oil Company, which resulted in serious losses for major banks acting as its creditors. Banks for the Allied Crude Vegetable Oil Company granted it a substantial line of credit demanding its vegetable oil inventory as collateral. Read more

Sales Lead

A sales lead is a prospective customer or information about a prospective customer. For example, Company XYZ sells widgets. Read more

Securities Analyst

A securities analyst gathers and interprets data about securities, companies, corporate strategies, economies or financial markets.Securities analysts are sometimes called financial analysts, equity analysts or investment analysts (although there is a distinction among these titles). Read more

Seller's Market

A seller's market exists when there are more sellers than buyers in the market for a certain good or service. Housing is a common place to find a seller's market. Read more

Settlement Risk

Settlement risk refers to the risk or probability that one party will not uphold their contractual obligation in a transaction or deal. Settlement risk is most often associated with currency trading. Read more

Severance Pay

Severance pay refers to a payment from a company to an employee who is being discharged.  Under certain circumstances, employers compensate an employee who is being discharged with a sum of money called severance pay.The specific amount may be related to the employee's salary and length of time with the company. Read more

Silicon Valley

Silicon Valley is the area around San Jose and San Francisco, California that is home to a number of well-known internet, software, and computer companies. Named for silicon, the element from which computer chips are produced, Silicon Valley is located in the area south of San Francisco and is known for its high-tech computer industry. Read more

Stochastics

This is a momentum indicator that shows the location of the current close relative to the high/low range over a set number of periods.Momentum indicators try to identify turning points by measuring how fast prices are rising or falling. Read more

Strategic Buyout

A strategic buyout is a merger wherein one company acquires another based on the belief that the synergy of their combined operational capabilities will generate higher profits than if the two had remained independent. In many cases, the operating abilities of one company will complement those of an acquiring company in such a way that, if combined, the operational capacity of the two could generate substantially higher profits. Read more

Structured Finance

Structured finance is a complex financial instrument offered to borrowers with unique and sophisticated needs.Generally, a simple loan will not suffice for the borrower so these more complex and risky finance instruments are implemented. Read more

Subordinated Debt

Subordinated debt is any outstanding loan that, should the borrowing company fail, it will be repaid only after all other debt and loans have been settled.It is the opposite of unsubordinated debt. Read more

Suicide Pill

The suicide pill is a takeover defense mechanism whereby a target company takes self-destructive measures to thwart a hostile takeover. If a company becomes the target of a hostile takeover by another company, it may engage in a self-defeating move which renders it no longer attractive to the acquiring company. Read more

Supply Chain Management

Supply chain management (SCM) is the central organization of a company's production resources and materials intended to streamline the production process and reduce costs on a continuing basis. A company's production operation contains material input components, each of which incurs a cost which is recovered in the price of the finished product. Read more

Sweat Equity

 Sweat equity is the time and effort that people contribute to a project. Sweat equity is used to describe the non-financial investment that people contribute to the development of a project such as a start-up business. Read more

SWOT Analysis

SWOT stands for strengths, weaknesses, opportunities, and threats.A SWOT analysis uses internal and external data to evaluate a company's competitive status and risk exposures in strategic planning. Read more

Syndicated Loan

A syndicated loan is a loan made by a group of lenders who share or participate in a specific loan given to a project. A project may require too large a loan for a single lender or require a special type of investor or lender with expertise in a particular asset class. Read more

Synergy

Synergy occurs when two (or more) agents work together to achieve something that one couldn't have achieved on its own.The simplest concept of synergy is the whole being greater than the sum of its parts.  In management, synergies may be created between management teams, resulting in increased capacity and workflow that weren’t possible with independent teams.  Synergy is often a major goal during mergers and acquisitions, specifically because two firms may be able to achieve higher profitability than either firm could achieve on its own.  In this straightforward example of synergy in business, Company ABC may acquire Company XYZ, a similar firm. Read more

Tangible Asset

A tangible asset is anything that has commercial or exchange value and has a physical form. Let’s assume XYZ Company intends to purchase an office building for $10 million. Read more

Tangible Book Value Per Share (TBVPS)

Tangible book value per share (TBVPS) equals a company's net tangible assets divided by its number of shares outstanding.A tangible asset is anything that has commercial or exchange value and has a physical form. Read more

Target Market

A target market is an intended audience for a marketing campaign, product or service. Let's assume Company XYZ manufactures orthopedic shoes. Read more

Tax Free

Tax free means not taxable. For example, many states and municipalities do not charge sales tax on food items. Read more

Tax-Free Spinoff

A tax-free spinoff occurs when a company divests a portion of its business in a manner that qualifies as a tax-free transaction under Section 355 of the Internal Revenue Code and thus does not require the company to pay capital gains tax on the divestiture. Assume Company XYZ has three divisions: the automotive division, the food division and the furniture division. Read more

Taxpayer Identification Number (TIN)

A Taxpayer Identification Number (TIN) is a 9-digit number that is used by the Internal Revenue Service (IRS) for tax purposes. Read more

Texas Ratio

The Texas ratio was developed by RBC Capital Markets' banking analyst Gerard Cassidy as a way to predict bank failures during the state's 1980s recession.The ratio is still widely-used throughout the banking industry. Read more

Times Interest Earned

The times interest earned, also known as interest coverage ratio, is a measure of how well a company can meet its interest-payment obligations.The formula for times interest earned is: Earnings Before Interest and Taxes/ Interest Expense Here is some information about Company XYZ: Net Income    $350,000 Interest Expense    ($400,000) Taxes    ($50,000) Using the formula and the information above, we can calculate that XYZ’s times interest earned is: This means that XYZ Company is able to meet its interest payments two times over. Read more

Trademark

A trademark is any legally-protected abstract or figural representation or slogan associated with a company or product that deliberately differentiates it in the market. A trademark is a marketing device that visually sets a company or product apart from similar items trying to gain market share. Read more

Transaction Risk

Transaction risk is the risk that a company will incur losses in a transaction comprising multiple currencies due to exchange rate movements. Companies often engage in transactions involving more than one currency. Read more

UCC-1 Statement

A UCC-1 statement is a written list and description of assets that serve as collateral for a loan.  Let's say Company XYZ is a restaurant chain. Read more

Unappropriated Retained Earnings

Unappropriated retained earnings are profits that are not set aside for a specific purpose. Let's say Company XYZ makes $1 million in profits this year. Read more

Uncommitted Facility

An uncommitted facility is a borrowing agreement that allows the lender to determine how much it will lend to the borrower at a given time. Let's say Company XYZ needs extra cash once in a while because it has huge payroll expenses every two weeks and less predictable payments from customers. Read more

Undercapitalization

Undercapitalization occurs when a company does not have enough cash to conduct its operations. Let's say Company XYZ is a jewelry company that begins getting huge orders from several national department stores. Read more

Undue Influence

Undue influence occurs when one party to a transaction is able to influence the decisions of another party to the transaction. Anybody who's ever had a pushy girlfriend or boyfriend knows what undue influence feels like. Read more

Unsecured Creditor

An unsecured creditor is a lender or any entity to which a company or individual owes money for services provided.That creditor, however, does not have any collateral from the borrower. Read more

Value Chain

The value chain is the process through which a company turns raw materials and other inputs into a finished product. For example, Company XYZ might take sugar, flour, eggs, baking powder, vanilla and chocolate chips as inputs and add value to these items by mixing them together, applying heat and putting the result in packages. Read more

Value Network

A value network is a system that organizations, departments, operating units or people use to do work, buy or sell products, or create plans that benefit the entire organization. Research and development units, for example, are key components of many companies' value networks. Read more

Value Proposition

A value proposition is a marketing statement that positions a company’s products in the mind of the consumer as the best one for their needs.It clearly, easily, and concisely articulates what the company sells and why it is better to buy this particular product or service (instead of a competitor’s product or service).  While value propositions are meant to be easily remembered, they definitely aren’t easy to create. Read more

Value-Added Reseller

A value-added reseller (VAR) is an entity that adds features or services to a product and resells the combination as a package. For example, let's say Company XYZ installs accounting software for companies. Read more

Venn Diagram

A Venn diagram is an illustration of common characteristics. Named after John Venn, a Venn diagram is often little more than two or more overlapping circles (you can use other shapes, too). Read more

Vertical Integration

Vertical integration describes a company's control over several or all of the production and/or distribution steps involved in the creation of its product or service. Let's assume XYZ Company, which manufactures frozen french fries, wants to vertically integrate. Read more

Vertical Market

A vertical market is a niche market in which a company supplies goods or services to a very specific type of customer.Its goods or services do not have broad appeal or application. Read more

Vested Interest

A vested interest is a right of ownership which is not dependent on something else. When a possession, ownership interest or the use of tangible property is present and unencumbered by any conditions, it is known as a vested interest. Read more

Vittorio Mincato

Vittorio Mincato was the former CEO of Italian oil and gas company Eni. Born in 1936, Mincato is an accountant on paper. Read more

Waiver of Notice

A waiver of notice is an agreement that allows people to conduct certain legal procedures without giving formal notification that he or she is going to do so. For example, let's assume that John Doe dies and his estate goes to a probate court so that the judge can dole out the assets to heirs and beneficiaries. Read more

War Chest

A war chest is the cash set aside to deal with unexpected changes in a business environment or to take advantage of a sudden opportunity. Uncertainties, unexpected events and opportunities occur regularly in business environments. Read more

Wash

A wash occurs when two actions cancel each other out (such as a gain and an equal loss), effectively creating a break-even situation. Let's assume XYZ Company sells $1,000 worth of products. Read more

Wasting Trust

A wasting trust holds the assets of qualified plans when the qualified plans are frozen. Let's say Company XYZ has a pension plan for its employees. Read more

Weighted Average Cost of Capital (WACC)

In investing terms, WACC shows the average rate that companies pay to finance their overall operations.WACC is calculated by incorporating equity investments from the sale of stock, as well as any operational debt they incur (with respect to the firm’s enterprise value).  WACC shows how much a company must earn on its existing assets to satisfy the interests of both its investors and debtors. Read more

Wide Economic Moat

A wide economic moat is a significant competitive advantage that is extremely difficult to copy or emulate, thereby creating a barrier to entry for competing firms. Castles were traditionally part city and part defensive fortress. Read more

Williams %R

Often combined with stochastics to detect overbought and oversold conditions, Williams %R -- or %R for short -- is a momentum indicator developed by Larry Williams. While stochastics compares the close of a security/index to its lowest low over a specific time period, Williams %R compares the close to its highest high over a specified period. Read more

Work in Process (WIP)

Work in process refers to items in a manufacturing plant that are in the stages between raw materials and finished goods (or inventory).In-process goods are expected to be finished and moved into inventory soon, but they aren’t quite complete yet. Read more

Working Capital Loan

A working capital loan is a loan used by companies to cover day-to-day operational expenses. In many cases, companies are unable to generate the revenue needed to meet expenses incurred by day-to-day business operations. Read more

Working Ratio

A company's working ratio measures its ability to cover its annual expenses. A company's working ratio indicates whether or not it is capable of at least breaking even by dividing its annual expenses by its annual revenues as shown: Working Ratio = Yearly Expenses – (Debt + Depreciation) / Yearly Gross Revenue A company with a ratio of 1 or less is capable of covering its expenses. Read more

X-Efficiency

X-efficiency describes a company's inability to get the maximum output for its inputs due to a lack of competitive pressure. Economist Harvey Leibenstein, a Harvard professor who studied the psychological aspects of economics, first used the term. Read more

Z-Score

The Z-score is a financial statistic that measures the probability of bankruptcy.  The Z-score is used to predict the likelihood that a company will go bankrupt.A company's Z-score is calculated based on basic indicators found on its financial statements (e.g. Read more

Zero Layoff Policy

A zero-layoff policy is a company policy that prohibits laying off employees. Let's assume Company XYZ is an organic grocery chain that has a zero layoff policy. Read more