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.
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.
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.
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).
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
Learn how corporate social responsibility benefits companies and communities alike.
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.
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.
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.
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.
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.
The term "eat your own dog food" means a company uses its own products and services. Let's say Company XYZ manufactures laptop computers.
Elasticity is a measure of the change in one variable in response to a change in another.In economics, elasticity generally refers to variables such as supply, demand, income, and price.
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.
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.
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.
The Fortune 1000 is an annual list of the 1,000 largest companies in the United States.Fortune magazine publishes the list.
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.
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.
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.
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.
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.
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.
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.
An identifiable asset is anything that has commercial or exchange value and can provide future economic benefits.Identifiable assets can be tangible or intangible.
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.
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.
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.
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.
The Joseph Effect is a statistical measure that indicates whether certain price movements are part of a long-term trend. The Joseph effect is really a description of the Hurst exponent, which is a measure of how much a series of prices are correlated with each other.
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.
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.
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?
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.
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.
A killer application is software that induces consumers to buy new hardware. Software for 3-D printers is an example of a killer app.
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.
A lease is an agreement, usually in writing, between the owner of an asset and a lessee. There are many kinds of leases.
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.
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.
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.
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.
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.
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.
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.
Liquidity risk can be defined as the risk of companies and individuals not meeting their short-term financial obligations, specifically because they’re unable to convert assets into cash without incurring a loss. When liquidity risk occurs, businesses or individuals hold an asset (such as securities) that they want to sell in order to meet their financial obligations.However, these assets will need to be sold below their market value for a wide variety of reasons, including (but not limited to): Inefficient markets: Assets may not reflect their fair or true market value.Limited cash flow: Limited cash flow can affect a business’ ability to meet its financial obligations.Market structure: Markets can vary in depth, width, and size, directly affecting the ability to sell an asset.Asset type: Different types of assets vary in liquidity, affecting the time it takes to sell.
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.
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.
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.
Malfeasance is the legal term for intentionally doing something that is illegal. Let's say John Doe is Jane Smith's broker.
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.
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.
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.
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.
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.
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.
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.
An operating cost is a day-to-day cost incurred in the normal course of business.These costs appear on the income statement.
Opportunity cost is the return on an investment/opportunity you missed out on, compared to the return on the investment that you chose.To determine what was lost (or gained), opportunity cost may be calculated as a number or a ratio.
Outsourcing is a business strategy that includes transferring work from a company’s employees to an external party.Many companies outsource their services and the creation of goods with the goal of decreasing costs such as employees, overhead, equipment, and technology. Outsourcing work or production to other countries may further decrease costs and allow a company to focus more heavily on its critical operations.
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.
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.
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.
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.
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.
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.
The simplest definition of procurement is the act of a business buying goods and/or services.Buyers and sellers are the two parties involved, but only the purchasing element (not selling) is considered procurement. Often operating on a large scale, this vital process controls quantity, quality, sourcing, and timing elements to ensure the best, most competitive rates for goods and services. Procurement may be a simple purchasing arrangement with a single supplier.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
A Taxpayer Identification Number (TIN) is a 9-digit number that is used by the Internal Revenue Service (IRS) for tax purposes.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.