FINANCIAL DICTIONARY - FINANCIAL GLOSSARY

 

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ACCOUNTANT'S OPINION: Is a signed statement regarding the financial status of an entity from an independent public accountant after examination of that entities records and accounts.

ACCOUNTING: Generally when someone says "accounting" they are referring to the department, activity or individuals involved in the application of the accounting equation.

ACCOUNTING EQUATION is a mathematical expression used to describe the relationship between the assets, liabilities and owner's equity of the business model. The basic accounting equation states that assets equal liabilities and owner's equity, but can be modified by operations applied to both sides of the equation, e.g., assets minus liabilities equal owner's equity.

ACCOUNTS PAYABLE-TRADE is open accounts and note obligations due to the trade.

ACCOUNT RECEIVABLE is a current asset representing money due for services performed or merchandise sold on credit.

ACCRUAL BASIS OF ACCOUNTING is wherein revenue and expenses are recorded in the period in which they are earned or incurred regardless of whether cash is received or disbursed in that period. This is the accounting basis that generally is required to be used in order to conform to generally accepted accounting principles (GAAP) in preparing financial statements for external users.

ACCRUED ASSETS are assets from revenues earned but not yet received.

ACCRUED EXPENSES are expenses incurred during an accounting period for which payment is postponed.

ACCRUED INCOME: is income earned during a fiscal period but not paid by the end of the period.

ACCRUED INTEREST is interest earned but not paid since the last due date.

ACCRUED LIABILITY are liabilities which are incurred, but for which payment is not yet made, during a given accounting period. Some examples in a manufacturing environment would be: wages, taxes, suppliers/vendors, etc.

ACID-TEST RATIO is an analysis method used to measure the liquidity of a business by dividing total liquid assets by current liabilities.

ADJUSTED BOOK VALUE: Your MBA performs two types of adjusted book value analysis. Tangible Book Value and Economic Book Value (also known as book value at market).

  • Tangible Book Value is different than book value in that it deducts from asset value intangible assets, which are assets that are not hard (e.g., goodwill, patents, capitalized start-up expenses and deferred financing costs).
  • Economic Book Value allows for a book value analysis that adjusts the assets to their market value. This valuation allows valuation of goodwill, real estate, inventories and other assets at their market value.

ADVISING BANK is a bank in the exporter's country handling a letter of credit.

AICPA is the American Institute [of] Certified Public Accountants

AIR WAYBILL is a bill of lading and contract between the shipper and the airline for delivery of goods to a specified location, and sometimes with specified delivery date/time. Non-negotiable, but serves as receipt from the airline to prove that goods were received.

ALL OTHER CURRENT ASSETS relates to any other current assets. Does not include prepaid items.

ALL OTHER CURRENT LIABILITIES includes any other current liabilities, including bank overdrafts and accrued expenses.

ALL OTHER EXPENSES (NET) includes miscellaneous other income and expenses (net), such as interest expense, miscellaneous expenses not included in general and administrative expenses, netted against recoveries, interest income, dividends received and miscellaneous income.

ALL OTHER NON-CURRENT ASSETS are prepaid items and any other non-current assets.

ALL OTHER NON-CURRENT LIABILITIES means any other non-current liabilities, including subordinated debt, and liability reserves.

ALPHA is the premium an investment earns above a set standard. This is usually measured in terms of the Dow Industrials or the S&P 500. How the stock performs independent of the market.

ALTMAN Z-SCORE predicts whether or not a company is likely to enter into bankruptcy within one or two years. Edward Altman developed the "ALTMAN Z-SCORE" by examining 85 manufacturing companies. Later, additional "Z-Scores" were developed for private manufacturing companies (Z-Score - Model A) and another for general/service firms (Z-Score - Model B). VentureLine selects the "Z-Score" appropriate for each firm based upon the questionnaire input from the listing company. A "Z-Score" is only as valid as the data from which it was derived i.e. if a company has altered or falsified their financial records/books, a "Z-Score" derived from those "cooked books" is of lesser use.

  • ORIGINAL "Z-SCORE" [For Public Manufacturer] If the "Z-Score" is 3.0 or above - bankruptcy is not likely. If the "Z-Score" is 1.8 or less - bankruptcy is likely. A score between 1.8 and 3.0 is the gray area. Probabilities of bankruptcy within the above ranges are 95% for one year and 70% within two years. Obviously, a higher "Z-Score" is desirable.
  • MODEL A "Z-SCORE" [For Private Manufacturer] "Model A" of Altman's Z-Score is appropriate for a private manufacturing firm. "Model A" should not be applied to other companies. A "Z-Score of 2.90 or above indicates that bankruptcy is not likely, but a "Z-Score" of 1.23 or below is a strong indicator that bankruptcy is likely. Probabilities of bankruptcy in the above ranges are 95% for one year and 70% within two years. Obviously, a higher "Z-Score" is desirable.
  • Model B "Z-SCORE" [For Private General Firm] Edward Altman developed this version of the "ALTMAN Z-SCORE" to predict the likelihood of a privately owned non-manufacturing company going bankrupt within one or two years. "Model B" of Altman's "Z-Score" is appropriate for a private general (non-manufacturing) firm. Model B should not be applied to other companies. A "Z-Score" of 1.10 or lower indicates that bankruptcy is likely, while a score of 2.60 or above can be an indicator that bankruptcy is not likely. A score between the two is the gray area. Probabilities of bankruptcy in the above ranges are 95% for one year and 70% within two years. Again, obviously, a higher "Z-Score" is desirable.

ANGEL INVESTOR is a private wealthy individual that has no association with a venture capital firm, investment fund, etc. The "angel" invests private money into what he/she believes to be promising opportunities i.e., normally startup companies.

AMORTIZATION 1. is the gradual reduction of a debt by means of equal periodic payments sufficient to meet current interest and liquidate the debt at maturity. When the debt involves real property, often the periodic payments include a sum sufficient to pay taxes and hazard insurance on the property. 2. is the process of spreading the cost of an intangible asset over the expected useful life of the asset. For example: a company pays $100,000 for a patent, they amortize the cost over the 16 year useful life of the patent.

APPRECIATION is the increase in the value of an asset in excess of its depreciable cost, which is due to economic, and other conditions, as distinguished from increases in value due to improvements or additions made to it.

ASEAN (Association of Southeast Asian Nations) is a trading block of countries in SE Asia. Originally formed as an anti-communist military alliance, it is now focused on developing a free trade agreement among member nations.

ASSET is anything owned by an individual or a business, which has commercial or exchange value. Assets may consist of specific property or claims against others, in contrast to obligations due others. (See also Liabilities). Accountant's Equation The equation that is the basis of a balance sheet. It is as follows: Assets = Liabilities + Owners' Equity.

ASSET EARNING POWER is a common profitability measure used to determine the profitability of a business by taking its total earning before taxes and dividing that by total assets.

ASSET TURNOVER RATIO is a general measure of a firm's ability to generate sales in relation to total assets.  It should be used only to compare firms within specific industry groups and in conjunction with other operating ratios to determine the effective employment of assets.

AUDIT BUREAU OF CIRCULATION (ABC) is a third-party organization that verifies the circulation of print media through periodic audits.

AUDIT STRATEGY is a game plan to attack audit issues before they are raised. Reasons and justifications for all positions must be understood and the foundation laid for taking the position.

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BALANCE OF PAYMENTS / BALANCE OF TRADE is the difference between a country's total export dollar value and its total import dollar value, generally or with respect to a particular trading partner. A positive balance means a net inflow of capital, while a negative means capital flows out of the country.

BALANCE SHEET is an itemized statement that lists the total assets and the total liabilities of a given business to portray its net worth at a given moment of time. The amounts shown on a balance sheet are generally the historic cost of items and not their current values.

BANK RECONCILIATION is the verification of a bank statement balance and the depositor’s checkbook balance.

BARTER is a form of trading where the parties are accepting goods as payment rather than cash.

BASIC EARNINGS POWER (EBIT/TA) is useful for comparing firms in different tax situations and with different degrees of financial leverage. Basic Earning Power measures the basic profitability of Assets because it excludes consideration of interest and tax.

BENEFICIAL OWNER is the person who enjoys the benefits of ownership even though title is in another name (often used in risk arbitrage).

BENEFICIARY is the person in whose favor a letter of credit is issued or a draft is drawn.

BILL OF LADING is the contract between the owner of the goods and the cargo carrier to move the goods to a specified destination. A clean bill of lading is issued by the carrier verifying receipt of the merchandise in apparent good condition (without visually apparent damage or defect). Bills of lading can sometimes be made to cover the whole trip, or separate bills of lading can be prepared for each carrier. Ocean shipments generally require two, an Inland Bill of Lading covering land transportation to the port and an Ocean Bill of Lading covering the ship portion. Bills of lading are negotiable while cargo is in transit.

BONDED WAREHOUSE is a warehouse authorized by customs officials for the storage of goods on which payment of duty is deferred until the goods are removed.

BONDING is generally used by service companies as a guarantee to their clients that they have the necessary ability and financial tracking to meet their obligations. Bonds are also used to guarantee payment of duty for U.S. Customs entry.

BOOKING, in import / export, is an arrangement with a shipping company to load and carry a shipment.

BOOK VALUE is an accounting term, which usually refers to a business' historical cost of assets less liabilities. The book value of a stock is determined from a company's records by adding all assets (generally excluding such intangibles as goodwill), then deducting all debts and other liabilities, plus the liquidation price of any preferred stock issued. The sum arrived at is divided by the number of common shares outstanding and the result is the book value per common share. Book value of the assets of a company may have little or no significant relationship to market value.

  • Tangible Book Value is different than Book Value in that it deducts from asset value intangible assets, which are assets that are not hard (e.g., goodwill, patents, capitalized start-up expenses and deferred financing costs).
  • Economic Book Value allows for a Book Value analysis that adjusts the assets to their market value. This valuation allows valuation of goodwill, real estate, inventories and other assets at their market value.

BOOKKEEPING is the art, practice, or labor involved in the systematic recording of the transactions affecting a business.

BREAK-EVEN ANALYSIS is an analysis method used to determine the number of jobs or products that need to be sold to reach a break-even point in a business.

BREAK-EVEN POINT is the volume point at which revenues and costs are equal; a combination of sales and costs that will yield a no profit/no loss operation.

BUDGET is an itemized listing of the amount of all estimated revenue which a given business anticipates receiving, along with a listing of the amount of all estimated costs and expenses that will be incurred in obtaining the above mentioned income during a given period of time. A budget is typically for one business cycle, such as a year, or for several cycles (such as a five year capital budget).

BUSINESS PLAN is a written plan used to chart a new or ongoing business' strategies, sales projections, and key personnel in order to obtain financing and / or to provide a strategic foundation under which a business can grow.

BUSINESS PUBLICATIONS AUDIT (BPA) is similar to the Audit Bureau of Circulation; the BPA is a third-party organization that verifies the circulation of print media through periodic audits.

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CAPITAL is total amount of money or other resources owned or used to acquire future income or benefits.

CAPITAL BUDGET is the estimated amount planned to be expended for capital items in a given fiscal period. Capital items are fixed assets such as facilities and equipment, the cost of which is normally written off over a number of fiscal periods. The capital budget, however, is limited to the expenditures that will be made within the fiscal year comparable to the related operating budgets.

CAPITAL EXPENDITURES is the amount used during a particular period to acquire or improve long-term assets such as property, plant or equipment

CAPITAL GAIN OR LOSS is the difference between the market or book value at purchase or other acquisition and that realized from the sale or disposition of a capital asset.

CAPITAL IMPROVEMENT is the increase in the total amount of money or other resources owned or capable of being used to acquire future income or benefits.

CAPITALIZATION is the statement of capital within the firm - either in the form of money, common stock, long-term debt, or in some combination of all three. It is possible to have too much capital (in which case the firm is overcapitalized) or too little capital (in which case the firm is undercapitalized).

CAPITAL LEASE is a lease obligation that has to be capitalized on the balance sheet. It is characterized by: it is non-cancelable; the life of lease is less than the life of the asset(s) being leased; and, the lessor does not pay for the upkeep, maintenance, or servicing costs of the asset(s) during the lease period.

CAPITAL STOCK is the ownership shares of a corporation authorized by its articles of incorporation, including preferred and common stock.

CARNET is a customs document which permits you to send or carry merchandise into a country duty and tax free for a short period, for use as samples or as display merchandise in a trade show, for example.

CASH BASIS OF ACCOUNTING is the accounting basis in which revenue and expenses are recorded in the period they are actually received or expended in cash. Use of the cash basis generally is not considered to be in conformity with generally accepted accounting principles (GAAP) and is therefore used only in selected situations, such as for very small businesses and (when permitted) for income tax reporting. See also Accrual Basis.

CASH & EQUIVALENTS means all cash, marketplace securities, and other near-cash items. Excludes sinking funds.

CASH FLOW / CURRENT PORTION OF LONG TERM DEBT is a measure of the firms ability to meet its obligations with internally generated cash.

CASH IN ADVANCE is when full payment is due before the merchandise is shipped. Least risk to seller, most risk to buyer.

CERTIFICATE OF INSPECTION is certification, generally by an independent third party, that the goods were in good condition at the time of shipment.

CERTIFICATE OF ORIGIN is a document that states where the goods were made. This document is legally required for many countries for the importation of merchandise.

CERTIFIED FINANCIAL PLANNER (CFP) is a financial planner who has received a license from the Institute of Certified Financial Planners, indicating that he/she was trained in investments, budgeting, taxes, banking, estate planning and insurance. Some CFPs work on commission for the products they sell, and some work for a flat hourly fee.

C&F (COST & FREIGHT) includes all shipping costs but insurance.  Generally used in statement of terms, stating cost and freight are paid by the exporter from his warehouse to a port in the importer's country. In this case, the buyer is responsible for insurance.

CHART OF ACCOUNTS is a systematic listing of all accounts used by a company.

CHATTEL MORTGAGE CONTRACT is a credit contract used for the purchase of equipment where the purchaser receives title of the equipment upon delivery but the creditor holds a mortgage claim against it.

C&I (COST & INSURANCE), in a price that is quoted “C&I”, means that the cost of the product and insurance are included in the quoted price. In this case, the cost of shipping would be borne by the buyer.

CIF (COST, INSURANCE AND FREIGHT) is a shipment where all shipping costs are paid by the exporter, including insurance.

CLOSELY HELD is a description of a corporation whose voting stock is owned by a very small number of shareholders.

COLLATERAL is assets used as security for the extension of a loan.

COLLECTION PAPERS are those documents specified as necessary for payment to be made, such as the commercial invoice, certificate of inspection, and bill of lading.

COLLECTION PERIOD (Avg. Annual) is used to appraise accounts receivable (AR). This ratio is calculated by dividing Average Accounts Receivable during last year by average daily sales. The result states the average number of days' sales tied up in Receivables during the entire period. See NOTE below.
NOTE: Comparing the two collection period ratios, below and above, may suggest the direction in which AR collections are moving.

COLLECTION PERIOD (This Period) is used to appraise current accounts receivable (AR). This ratio is calculated by dividing accounts receivable at the end of this period by daily sales. The result shows the number of days' sales tied up in Receivables at the end of this period. See NOTE above.

COMMERCIAL ATTACHÉ is a business and trade expert on the staff of a consulate or embassy. They are responsible for promoting exports of their country's goods and are an excellent source of help.

COMMERCIAL LOAN is a short-term business loan usually issued for a term of up to six months.

COMMON SIZE PERCENTAGES - In the Income Statement, each "Common Size %" is the field amount expressed as a percent of "Net Revenues." In the Balance Sheet, each "Common Size %" is the amount in the category as a percent of "Total Assets. "RATIO ANALYSIS" as prepared by VentureLine presents several standard "Key Ratios" to compare this firm to any of several standards. This firm's ratios may be compared to industry standards, to a single other firm of similar (or different) type, or to this firm's past or anticipated performance. In this analysis VentureLine uses industry data based upon the SIC Code of that particular listing (when available).

COMMON STOCK is the most frequently issued class of stock; usually it provides a voting right but is secondary to preferred stock in dividend and liquidation rights.

COMPOUND JOURNAL ENTRY is a journal entry that involves more than one debit or more than one credit or both.

CONDITIONAL SALES CONTRACT is a credit contract used for the purchase of equipment where the purchaser doesn't receive title of the equipment until the amount specified in the contract has been paid in full.

CONSIGNMENT is when goods are offered for sale on behalf of another without the seller actually purchasing or taking title to the goods. Only when there is a subsequent sale does the owner receive any payment.

CONSOLIDATED FINANCIAL STATEMENTS are statements that report the combined operating results, financial position, and cash flows of two or more legally separate but affiliated companies as if they were one economic entity.

CONSULAR DECLARATION is a formal statement to the consul of a foreign country declaring the merchandise to be shipped.

CONVERTIBLE CURRENCY is any national currency that can be easily exchanged for that of another country.

COOPERATIVE ADVERTISING is a joint advertising strategy under which costs are shared; e.g. by a manufacturer and another firm that distributes its products.

CONTRACT REVENUES are the revenues recognized under % of completion method.

COPYRIGHT is a form of legal protection used to safeguard original literary works, performing arts, sound recordings, visual arts, original software code and renewals.

CORPORATION is a type of business organization chartered by a state and given many of the legal rights as a separate entity.

CORRESPONDENT BANK is a bank having communications and business links with the seller's bank.

COST ACCOUNTING is a managerial accounting activity designed to help managers identify, measure, and control operating costs.

COST OF CAPITAL is the required return for a capital budgeting project.

COST OF GOODS SOLD (COGS) is the amount determined by subtracting the value of the ending merchandise inventory from the sum of the beginning merchandise inventory and the net purchases for the fiscal period.

COST-OF-LIVING LEASE is a lease where yearly increases are tied to the cost of living index.

COST PER THOUSAND (CPM) is advertising terminology used in buying media. CPM refers to the cost it takes to reach a thousand people within your target market.

CURRENT ASSETS are those assets of a company that are reasonably expected to be realized in cash, or sold, or consumed during the normal operating cycle of the business (usually one year). Such assets include cash, accounts receivable and money due usually within one year, short-term investments, US government bonds, inventories, and prepaid expenses.

CURRENT DEBT TO TOTAL DEBT shows Current Liabilities as a percent of Total Debt.

CURRENT LIABILITIES are liabilities to be paid within one year of the balance sheet date.

CURRENT MATURITIES-L/T/D is that portion of long term obligations which is due within the next fiscal year.

CURRENT RATIO is a commonly used measure of short-run solvency, the immediate ability of a firm to pay its current debts as they come due.

CUSTOMS are the authorities charged with collecting duty and controlling the entry of merchandise into a country.

CUSTOMS BROKER is an individual or firm licensed to process entry and clear goods into the country for another.

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DATE DRAFT is a payment option draft that matures in a specified number of days after the date issued.

DAYS' INVENTORY shows the average lengths of time items are in inventory.

DBA (doing business as) is a legal entity (sole proprietorship, partnership, corporation) conducting business under any chosen name for which a business license has been issued.

DEBENTURE is a corporate IOU that is not backed by the company's assets and is therefore somewhat riskier than a bond.

DEBT RATIO measures the percent of total funds provided by creditors. Debt includes both current liabilities and long-term debt. Creditors prefer low debt ratios. The lower the ratio, the greater the cushion against creditor's losses in liquidation. Owners may seek high debt ratios, either to magnify earnings or because selling new stock would mean giving up control. Owners want control while "using someone else's money."

DEBT TO EQUITY (also DEBT/WORTH) measures the risk of the firm's capital structure in terms of amounts of capital contributed by creditors and that contributed by owners. It expresses the protection provided by owners for the creditors. In addition, low Debt/Equity ratio implies ability to borrow. While using Debt implies risk (required interest payments must be paid), it also introduces the potential for increased benefits to the firm's owners. When Debt is used successfully (operating earnings exceeding interest charges) the returns to shareholders are magnified through financial leverage.

DECLINING-BALANCE DEPRECIATION METHOD is an accelerated depreciation method in which an asset's book value is multiplied by a constant depreciation rate (such as double the straight-line percentage, in the case of double-declining-balance.). This depreciation method is allowed by the U.S. tax code and gives a larger depreciation in the early years of an asset. Unlike the straight line and the sum of the digits methods, both of which use the original basis to calculate the depreciation each year, the double declining balance uses a fixed percentage of the prior year's basis to calculate depreciation. The percentage rate is 2/N where N is the life of the asset. With this method, the basis never becomes zero. Consequently, it is standard practice to switch to another depreciation method as the basis decreases. Usually the taxpayer will convert to the straight line method when the annual depreciation from the declining balance becomes less than the straight line.

DEFERRED PAYMENT CREDIT is a type of a letter of credit where payment is made at a specified interval after collection papers are submitted.

DEFERRED TAXES refers to all deferred taxes.

DELINQUENCY RATIO is the ratio of past-due loans to total number of loans serviced.

DEMOGRAPHICS are the attributes such as income, age, and occupation that best describe your target market.

DEPLETION is the process of cost allocation that assigns the original cost of a natural resource to the periods benefited. For example: a mining company purchases mineral rights to a deposit for $5 million for a period of ten years. The cost of the natural resource, $5 million, will be depleted over the ten years of the benefit.

DEPRECIATION is the amount of expense charged against earnings by a company to write off the cost of a plant or machine over its useful live, giving consideration to wear and tear, obsolescence, and salvage value. If the expense is assumed to be incurred in equal amounts in each business period over the life of the asset, the depreciation method used is straight line (SL). If the expense is assumed to be incurred in decreasing amounts in each business period over the life of the asset, the method used is said to be accelerated. Two commonly used variations of the accelerated method of depreciating an asset are the sum-of-years digits (SYD) and the double-declining balance (DDB) methods. Frequently, accelerated depreciation is chosen for a business' tax expense but straight line is chosen for its financial reporting purposes.

DEVALUATION, in economics, is the lowering in value of one currency in relation to other currencies.

DILUTED EARNINGS PER SHARE are earnings per share, including common stock, preferred stock, unexercised stock options, and some convertible debt. Diluted earnings per share are usually a more accurate reflection of the company's real earning power.

DILUTION is the diminution in the proportion of income to which each share is entitled.

DISABILITY INSURANCE, in the United States, is a payroll tax required in some states that is deducted from employee paychecks to insure income during periods where an employee is unable to work due to an injury or illness.

DISCLOSURE DOCUMENT PROGRAM, in the United States, is a form of legal protection that safeguards intellectual property while it is in its development stages.

DISCOUNTED CASH FLOW is a valuation method best used to evaluate a business established for the purpose of fulfilling a specific project, in certain startup and other companies where cash flow is more important than net income, and when a certain time frame is set where an investor wishes to see his investment returned over a specific period of time. In discounted cash flow, the present value of liabilities is subtracted from the combined present value of cash flow and tangible assets, which determines the value of the business.

DISCOUNTED EARNINGS determines the value of a business based upon the present value of projected future earnings, discounted by the required rate of return (capitalization rate). Usually, the question is how well earnings are projected.

DISCOUNT RATE is the interest rate that the Federal Reserve of the U.S. Government charges a U.S. bank to borrow funds when a bank is temporarily short of funds. Collateral is necessary to borrow, and such borrowing is quite limited because the Fed views it as a privilege to be used to meet short-term liquidity needs, and not a device to increase earnings.

DISCREPANCY, in import / export, is a situation relating to official documents that are presented that do not conform to what is required within the Letter of Credit.

DISCRETIONARY means it is not mandatory, it is up to the individual or company.

DISCRETIONARY ACCRUAL is a non-mandatory expense/asset that is recorded within the accounting system that has yet to be realized. An example of this would be management bonus'.

DISCRETIONARY INCOME means the amount of a company's income available for spending after the essentials have been met.

DISTRIBUTIONS are payments from fund or corporate cash flow. May include dividends from earnings, capital gains from sale of portfolio holdings and return of capital. Fund distributions can be made by check or by investing in additional shares. Funds are required to distribute capital gains (if any) to shareholders at least once per year. Some corporations offer Dividend Reinvestment Plans (D.R.P.).

DIVIDEND is that portion of a corporation's earnings which is paid to the stockholders.

DIVIDEND CAPITALIZATION: Since most closely held companies do not pay dividends, when using dividend capitalization valuators must first determine dividend paying capacity of a business. Dividend paying capacity based on average net income and on average cash flow are used. To determine dividend paying capacity, near term capital needs, expansion plans, debt repayment, operation cushion, contractual requirements, past dividend paying history of a business and dividends of a comparable company should be investigated. After analyzing these factors, percent of average net income and of average cash flow that can be used for the payment of dividends can be estimated. What also must be determined is the dividend yield, which can best be determined by analyzing comparable companies. As with the price earnings ratio method, this usually produces a subjective result.

DOCK RECEIPT is a document issued by the ocean carrier of a shipment acknowledging receipt of the goods to be shipped.

DOCUMENTARY CREDIT is an arrangement by banks for settling international business transactions. A letter of credit is a form of documentary credit.

DOLLAR CONTROL SYSTEMS are systems used in inventory management that reveals the cost and gross profit margin on individual inventory items.

DOLLAR-WEIGHTED RATE OF RETURN is also called the internal rate of return; the interest rate that makes the present value of the cash flows from all the sub-periods in an evaluation period plus the terminal market value of the portfolio equal to the initial market value of the portfolio.

DOUBLE-ENTRY ACCOUNTING is a system of recording transactions in a way that maintains the equality of the accounting equation. The accounting technique records each transaction as both a credit and a debit.

DR, in accounting, is an acronym for Debit Record.

DRAFT, in import / export, is a contract between buyer and seller that the buyer will pay a certain amount of money, within a specified period of time, for the goods purchased.

DRAFT, DEMAND OR SIGHT, in import / export, is a draft payable upon presentation to the drawee. It may be used when the exporter wishes to retain control of the shipment for credit or title retention reasons. The buyer must pay the bank before receiving the documents to take custody of the goods. A COD shipment is similar.

DRAWEE is the buyer of a draft instrument.

DUMPING is the selling of merchandise in a foreign country at below cost in order to seize market share.

DUN & BRADSTREET is a United States based for profit agency that furnishes subscribers with marketing statistics and the financial standings and credit ratings of businesses.

DUTY is a tax imposed by a customs authority on imported goods. Often used interchangeably with the term "tariff."

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EARNINGS PER SHARE (EPS) is the amount of net income (earnings) related to each share of stock; computed by dividing net income by the number of shares of common stock outstanding during the period.

EBITDA means Earnings Before Interest, Taxes, Depreciation and Amortization, but after all product / service, sales and overhead (SG&A) costs are accounted for. Sometimes referred to as Operating Profit.

E.C. (EUROPEAN COMMUNITY or EUROPEAN COMMON MARKET) is a trading block of countries in Europe that have agreed on common regulations on cross-border trade.

ECONOMIC BOOK VALUE allows for a book value analysis that adjusts the assets to their market value. This valuation allows valuation of goodwill, real estate, inventories and other assets at their market value.

ECONOMIC VALUE (EV) is the value of an asset deriving from its ability to generate income.

ECONOMIC VALUE ADDED (EVA) measures the difference between the return on a companies capital and the cost of that capital. A positive EVA indicates that value has been created for shareholders; a negative EVA signifies value destruction.

EMC (EXPORT MANAGEMENT COMPANY) is a private company that serves as the export agent for manufacturers, being paid by commission or retainer. Merchandise is not normally purchased by the EMC.

ENTERPRISE VALUE is the market value of a corporation's total capitalization: equity plus debt, less the value of assets peripheral to the firm's core businesses.

ENTERPRISE ZONE is a depressed neighborhood, usually in an urban area, where businesses are given tax incentives and are not subject to some government regulations. These advantages are designed to attract new business in the zone.

ENTREPRENEUR is the person who assumes the financial risk of the initiation, operation and management of a given business or undertaking. He/She is primarily a financial and/or professional risk taker almost to the extreme.

EPS (earnings per share) is the amount of net income (earnings) related to each share of stock; computed by dividing net income by the number of shares of common stock outstanding during the period.

EQUIPMENT LOAN is a loan used for the purchase of capital equipment.

EQUITY is, normally, ownership or percentage of ownership in a company or items of value.

EQUITY CAPITAL is a form of financing where equity in a business is sold to private investors.

EQUITY MULTIPLIER (TA/Equity) (or, Financial Leverage) is a measure of the Assets owned by the company divided by the Claims of the Owners (Equity). The Equity Multiplier shows the amount of assets owned by the firm for each dollar of Owner Claims held by Stockholders. The Equity Multiplier is also called Financial Leverage. The Equity Multiplier shows the amount of assets owned by the firm for each dollar of Owner Claims held by Stockholders.

ESTATE is the entire group of assets owned by an individual at the time of his or her death. The estate includes all funds, personal effects, interests in business enterprises, titles to property-real estate and chattels, and evidences of ownership such as stocks, bonds and mortgages owned, notes receivable, etc. All claims against an estate must be duly filed with the Executor or Administrator of the estate, and approved by the court of law under which the will is being probated or the line of heritage is being determined before the indebtedness may be satisfied.

ESTATE TAXES are the Federal taxes levied on the transfer of property from the deceased to his or her heirs, legatees or devisees.

ETC (EXPORT TRADING COMPANY) is a private company that usually purchases items from domestic manufacturers, then sells them to foreign markets. The difference between an EMC and an ETC is sometimes insignificant, i.e., an EMC may occasionally take title of goods, while an ETC may sometimes work strictly on commission without purchasing the goods. The difference is what the company normally does.

EV (economic value) is the value of an asset deriving from its ability to generate income.

EVENT RISK is the risk that the ability of an issuer to make interest and principal payments will change because of rare, discontinuous, and very large, unanticipated changes in the market environment such as (1) a natural or industrial accident or some regulatory change or (2) a takeover or corporate restructuring.

EXECUTOR is a legal entity, frequently an individual, known before death to a testator, who is named in the testator's will to carry out the desires of the deceased after his death as designated in the will. Executors must be approved by the court of law probating the will. An executor pays all indebtedness as claimed by creditors of the estate, with the approval of the court of law, and then carries out or executes the will according to the terms set forth by the testator.

EX-FACTORY is where a seller's responsibility ends when the buyer at point of origin, i.e., factory, accepts merchandise. This can also be written as Ex-Warehouse, Ex-works, etc.

EXPLORATORY RESEARCH is a method used when gathering primary information for a market survey where targeted consumers / customers are asked very general questions geared toward eliciting a lengthy answer.

EXPORT BROKER is an entity that brings together foreign buyers with domestic manufacturers for a fee, generally providing little other services. An EMC, who is also a middleman, often provides extensive services to complete the transaction as well.

EXPORT DECLARATION is the official paperwork required of exporters so trade transactions and goods can be tracked.

EXPORT LICENSE is the governmentally issued legal permit to export merchandise. In the U.S., it is either a general license requiring no additional paperwork or a validated license for certain federally controlled items.

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FACTORING is the practice of buying debt at a discount, e.g., if somebody owes you $10,000 payable within a year, a factoring lender may pay you $9,000 for the debt. You receive $9,000 cash quickly, but at the cost of the $1,000 discount.

FAIR LABOR STANDARDS ACT is a U.S. federal law that enforces a group of minimum standards that employers must abide by when hiring employees.

FAIR MARKET VALUE is the price at which a willing seller will sell and a willing buyer will buy, in an arms- length transaction, when neither is under compulsion to sell or buy and both have reasonable knowledge of relevant facts.

F.A.S. (FREE ALONG SIDE), e.g. “F.A.S. New York”, means that, for instance, if goods are shipped from the State of Nevada in the U.S. to Madrid, Spain, no charges for shipment are made to the importer until the goods are "free alongside the vessel" in New York. After this point, charges may be applied to the importer.

FASB is the Financial Accounting Standards Board

FCIA (FOREIGN CREDIT INSURANCE ACT) is an ExImBank program that offers credit insurance against losses due to political conflict or buyer default.

FICA (FEDERAL INSURANCE CONTRIBUTIONS ACT) is the U.S. law requiring U.S. employers to match the amount of Social Security tax deducted from an employee's paycheck.

FICTITIOUS NAME is often referred to as a DBA, "Doing Business As," a fictitious name is frequently used by sole proprietors or partnerships to provide a name, other than those of the owners or partners, under which the business will operate.

FFO - FUNDS FROM OPERATIONS: Is used by real estate and other investment trusts to present the cash flow from trust operations i.e., earnings plus depreciation and amortization.

FIFO (first-in, first-out): An inventory cost flow whereby the first goods purchased are assumed to be the first goods sold so that the ending inventory consists of the most recently purchased goods.

FINANCIAL RESULTS usually refers to the summary financial results provided in compliance to the GAAP guidelines. They can cover any period(s), but usually cover either: single month, quarter, or annual periods.

FISCAL YEAR is an accounting period of exactly twelve months that does not necessarily coincide with the calendar year.

FIXED ASSETS are those assets of a permanent nature required for the normal conduct of a business, and which will not normally be converted into cash during the ensuring fiscal period. For example, furniture, fixtures, land, and buildings are all fixed assets. However, accounts receivable and inventory are not.

FIXED ASSETS (NET) is all property, plant, leasehold improvements and equipment, net of accumulated depreciation or depletion.

FIXED ASSETS (NET) / NET WORTH measures the extent to which the owner's equity has been invested in plant and equipment (net fixed assets). A lower ratio indicates proportionately smaller investment and a better "cushion" for creditors in case of liquidation. This may be important if the fixed assets are not easily used in other businesses. The presence of substantial leased fixed assets (not shown on the balance sheet) may deceptively lower this ratio. This ratio is also referred to as FIXED/WORTH.

FIXED ASSET TURNOVER measures management's ability to generate revenues from investments in fixed assets. Fixed Asset Turnover considers only the firm's investment in property, plant and equipment and is extremely important in high asset firms such as manufactures. Generally, the higher this ratio, the smaller the investment required to generate sales, thus the more profitable the firm.

FIXED COSTS are operating expenses that are incurred to provide facilities and organization that are kept in readiness to do business without regard to actual volumes of production and sales. Fixed costs remain relatively constant until changed by managerial decision. Within general limits they do not vary with business volume. Examples of fixed costs consist of rent, property taxes, and interest expense.

FIXED EXPENSES are those expenses that must be paid each month and do not fluctuate with the sales volume.

FLAT LEASE is a lease where the cost is fixed for a specific period of time.

F.O.B. (FREE ON BOARD), e.g. “F.O.B New York”, is where the importer would pay all costs for shipping from one point (New York) on to the final destination.

F.O.R. (FREE ON RAILROAD) is where goods will be delivered by the exporter to a railway station. The importer is responsible from this point on.

FOREIGN SALES AGENT or REPRESENTATIVE is an entity that works to sell your merchandise in a foreign country. Equivalent to the “Manufacturer's Representative” in the U.S.

FREE TRADE AGREEMENT is an agreement between countries that will result, over an agreed period of time, in an elimination of duties for goods flowing between the signatories.

FREE TRADE ZONE (FTZ) is an area, usually a port of entry, designated by the country for duty-free entry of goods. As long as the goods do not go into the country from the FTZ, no duty is assessed. While in the FTZ, goods may be processed, packaged, serviced or displayed.

FREIGHT FORWARDER is an individual or firm that provides for the packing and shipping of merchandise. Generally they also assist with export and other documentation.

FREQUENCY, in advertising, is the number of times you hope to reach your target audience through your advertising campaign.

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GASB is the Governmental Accounting Standards Board

GATT (GENERAL AGREEMENT ON TARIFFS AND TRADE) is a multilateral treaty that aims to reduce trade barriers and increase trade. The GATT was an interim treaty process that has now culminated in the World Trade Organization (WTO).

GLOBAL CUSTODY is a term used within the investment banking industry in defining securities/monetary instruments that are traded internationally by Global Custodians. Those securities would be held in "Global Custody". Chase Bank originated the concept of providing Global Custody trading services for institutional investors trading in foreign markets in 1974. Banks recognized as Global Custodians provide their customers with Global Custody services in respect to securities traded and settled not only in the country in which the Global Custodian is located but also in numerous other countries throughout the world.

GOODWILL is that intangible possession which enables a business to continue to earn a profit that is in excess of the normal or basic rate of profit earned by other businesses of similar type. The goodwill of a business may be due to a particularly favorable location, its reputation in the community, or the quality of its employer and employees. The evidence that goodwill exists is the proven ability to earn excess profits. Goodwill is created on the books of a newly purchased company to the extent that the purchase price of the company is greater than the value of its net tangible assets.

GROSS PROFIT is net sales minus cost of sales.

GROSS PROFIT MARGIN ON SALES shows the relationship between sales and the direct cost of products/services sold. It measures the ability of both to control costs and to pass along price increases through sales to customers.

GROSS WEIGHT is the weight of a shipment including packing material.

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HARMONIZED SYSTEM is an internationally agreed upon classification system for trade. It provides code numbers to specify a goods classification; thereby making customs duty determination more predictable.

HEAD OF HOUSEHOLD is a US income tax filing status that can be used by an unmarried person who maintains a home for a dependent (or nondependent relative) during the tax year.

HISTORICAL COST is an accounting principle requiring all financial statement items to be based on original cost. It is usually based upon the dollar amount originally exchanged in an arm's-length transaction; an amount
assumed to reflect the fair market value of an item at the transaction date.

HYBRID INSTRUMENT is a package containing two or more different kinds of risk management instruments that are usually interactive.

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IMPUTED COSTS refer to the cost of an asset, service, or company that is not physically recorded in any accounts but is implicit in the product.

INCOME TAXES PAYABLE is income taxes due including current portion of deferred taxes.

INCOME CAPITALIZATION: First you must determine the capitalization rate - a rate of return required to take on the risk of operating the business (the riskier the business, the higher the required return). Earnings are then divided by that capitalization rate. The earnings figure to be capitalized should be one that reflects the true nature of the business, such as the last three years average, current year or projected year. When determining a capitalization rate you should compare with rates available to similarly risky investments.

INDENTURE is an agreement between lender and borrower which details specific terms of the bond issuance. Specifies legal obligations of bond issuer and rights of bondholders. There is usually a indenture document spelling out the specific terms of a bond as well as the rights and responsibilities of both the issuer of the security and the holder.

INDUSTRIAL REVENUE BOND (I.R.B.) is a bond issued by local government agencies in favor of corporations.

INFLATION is an increase in the general price level of goods and services; alternatively, a decrease in the purchasing power of the dollar or other currency.

INSTALLMENT SALE is selling property and receiving the sales price over a series of payments, instead of all at once at the close of the sale, is an installment sale. Unless you elect out, you will report the gain on that transaction as you receive it through the series of payments.

INTANGIBLES (NET) are intangible assets, including goodwill, trademarks, patents, catalogs, brands, copyrights, formulas, franchises, and mailing lists, net of accumulated amortization.

INTERNAL RATE OF RETURN (IRR) is also called the dollar-weighted rate of return; the interest rate that makes the present value of the cash flows from all the sub-periods in an evaluation period plus the terminal market value of the portfolio equal to the initial market value of the portfolio.

INVENTORY is anything constituting inventory for the firm.

INVENTORY LOAN is loan that is extended based upon the, usually, discounted / factored value of a business' inventory.

INVENTORY TURNS (Avg. Annual) measures the average efficiency of the firm in managing and selling inventories (INV) during the last period. Turns must balance efficiency needs with service levels by the number of times the firm can fulfill customer orders using current inventory.

INVESTMENT TAX CREDIT is a tax credit in the United States that allows businesses to write-off a portion of the cost of purchasing equipment for business use.

INVESTMENT TURNOVER is a profitability measure used to calculate the number of times per year an investment or assets revolve.

INVOICE is an itemized list of goods shipped usually specifying the price and the terms of sale.

INVOICE, COMMERCIAL is a legal document that functions internationally as a bill of sale. It usually contains the exporting company, contents of the shipment, amount charged, name of carrying vessel, order number and payment terms.

INVOICE, CONSULAR is an invoice stamped or endorsed by the consulate of the country requiring such.

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