Glossary of terms

Annual Report

An official quarterly or annual financial document published by a public company, showing Profit & Loss Statement, Balance Sheet and the Cash Flow Statement.

Balance Sheet

Quantitative summary of the financial condition of a company at a specific point in time, including assets, liabilities and net worth. The first part of a balance sheet shows all the productive assets a company owns, and the second part shows all the financing methods (such as liabilities and shareholders equity). also called statement of condition. The term balance sheet is derived from the simple purpose of detailing where the money came from, and where it is now. The balance sheet equation is fundamentally: (where the money came from) Capital + Liabilities = Assets (where the money is now). Hence the term double entry - for every change on one side of the balance sheet, so there must be a corresponding change on the other side - it must always balance.

Budget

In a financial planning context the word, budget means an amount of money that is planned to spend on a particularly activity or resource, usually over a trading year, although budgets apply to shorter and longer periods.

Capital Invested

The sum of a corporations long-term debt, stock and retained earnings. also called invested capital.

Carbon Footprint

Carbon Footprint is a measure of the impact human activities have on the environment in terms of the amount of green house gases produced, measured in units of carbon dioxide.

Cash

Currency and coins on hand, bank balances, and negotiable money orders and checks.

Cash Flow

A measure of a companys financial health. Equals cash receipts minus cash payments over a given period of time; or equivalently, net profit plus amounts charged off for depreciation, depletion, and amortization.

Cash Flow Statement

One of the three essential reporting and measurement systems for any company. The Cash Flow statement provides a third perspective alongside the Profit and Loss account and Balance Sheet. The Cash Flow statement shows the movement and availability of cash through and to the business over a given period, certainly for a trading year, and often also monthly and cumulatively. The availability of cash in a company that is necessary to meet payments to suppliers, staff and other creditors is essential for any business to survive, and so the reliable forecasting and reporting of cash movement and availability is crucial.

Cost of Goods Sold (COGS)

The directly attributable costs of products or services sold, (usually materials, labour, and direct production costs). Sales less COGS = gross profit.

Credit Rating

A published ranking, based on detailed financial analysis by a credit bureau, of ones financial history, specifically as it relates to ones ability to meet debt obligations. The highest rating is usually AAA, and the lowest is D. Banks use this information to decide whether to approve a credit.

Credit Repayment

Payment that is used to repay money that has previously borrowed (Credit).

CSR Policy

Corporate Social Responsibility is a concept whereby companies integrate social and environmental concerns into their business operations and in their interaction with their stakeholders, on a voluntary basis.

Current Assets

A balance sheet item which equals the sum of cash and cash equivalents, accounts receivable, inventory, marketable securities, prepaid expenses, and other assets that could be converted to cash in less than one year. A companys creditors will often be interested in how much that company has in current assets, since these assets can be easily liquidated in case the company goes bankrupt. In addition, current assets are important to most companies as a source of funds for day-to-day operations.

Debt (Credit)

A liability or obligation in the form of bonds, loan notes, or mortgages, owed to another person or persons and required to be paid by a specified date (maturity).

Debt Ratio

Debt capital divided by total assets. This will tell you how much the company relies on debt to finance assets. When calculating this ratio, it is conventional to consider both current and non-current debt and assets. In general, the lower the companys reliance on debt for asset formation, the less risky the company is since excessive debt can lead to a very heavy interest and principal repayment burden. However, when a company chooses to forgo debt and rely largely on equity, they are also giving up the tax reduction effect of interest payments. Thus, a company will have to consider both risk and tax issues when deciding on an optimal debt ratio.

EBIT

A financial measure defined as revenues less cost of goods sold and selling, general, and administrative expenses. In other words, operating and nonoperating profit before the deduction of interest and income taxes.

Economies of Scale

Economies of scale refers to the decreased per unit cost as output increases. More clearly, the initial investment of capital is diffused (spread) over an increasing number of units of output, and therefore, the marginal cost of producing a good or service decreases as production increases.

Emissions Trading

Emissions trading is an administrative approach used to control pollution by providing economic incentives for achieving reductions in the emissions of pollutants. The government sets a limit on the amount of a pollutant that can be emitted. Companies or other groups that emit the pollutant are given credits or allowances which represent the right to emit a specific amount. The total amount of credits cannot exceed the cap, limiting total emissions to that level. Companies that pollute beyond their allowances must buy credits from those who pollute less than their allowances or face heavy penalties. This transfer is referred to as a trade.

Equity (Wealth)

Ownership interest in a corporation in the form of common stock or preferred stock. It is the risk-bearing part of the companys capital and contrasts with debt capital which is usually secured and has priority over shareholders if the company becomes insolvent and its assets are distributed.

Global Warming (Climate Change)

Global warming is the observed increase in the average temperature of the Earths near-surface air temperature, which rose by 0.74 °C (1.3 °F) during the last century.

Greenhouse gases (GHG)

Greenhouse gases (GHG) are components of the atmosphere that contribute to the Greenhouse effect. Some greenhouse gases occur naturally in the atmosphere, while others result from human activities such as burning of fossil fuel and coal. Greenhouse gases include water vapor, carbon dioxide, methane, nitrous oxide, and ozone.

Gross Profit

Pre-tax net sales minus cost of sales. also called gross income.

Gross Profit Margin

Gross profit divided by sales, expressed as a percentage.

Interest Cost

The fee charged by a lender to a borrower for the use of borrowed money, usually expressed as an annual percentage of the principal; the rate is dependent upon the time value of money, the credit risk of the borrower, and the inflation rate. Here, interest per year divided by principal amount, expressed as a percentage. also called interest rate.

Interest Rate

A rate which is charged or paid for the use of money. An interest rate is often expressed as an annual percentage of the principal. It is calculated by dividing the amount of interest by the amount of principal. Interest rates often change as a result of inflation and Federal Reserve policies. For example, if a bank charges a customer M$90 in a year on a credit of M$1000, then the interest rate would be 90/1000 *100% = 9%.

Long-Term Assets

On a balance sheet, the value of a companys property, equipment and other capital assets expected to be useable for more than one year, minus depreciation.

Net Income

Sales minus taxes, interest, depreciation, and other expenses. Net Income is one of the most important measures of a companys performance, since the pursuit of income is the primary reason companies exist. Sometimes Net Income includes one-time and extraordinary items, and sometimes it does not. Also called net earnings or bottom line.

Profit & Loss Statement

An official quarterly or annual financial document published by a public company, showing earnings, expenses, and net profit. also called income statement or earnings report. The P&L typically shows sales revenues, cost of sales/cost of goods sold, generally a gross profit margin (sometimes called contribution), fixed overheads and or operating expenses, and then a profit before tax figure (PBT). Basically the P&L shows how well the company has performed in its business activities.

Profit Before Tax

P&L position that shows the profit on ordinary activities before taxation.

Retained Earnings

Accounting earnings that are retained by the firm for reinvestment in its operations; earnings that are not paid out as dividends.

Return on Equity (ROE)

Return on Equity. A measure of how well a company used reinvested earnings to generate additional earnings, equal to a fiscal years Net Income divided by Equity, expressed as a percentage. It is used as a general indication of the companys efficiency; in other words, how much profit it is able to generate given the resources provided by its stockholders. investors usually look for companies with returns on equity that are high and growing.

Return on Investment (ROI)

A measure of a corporations profitability, equal to a fiscal years income divided by Long-Term Assets. ROI measures how effectively the firm uses its capital to generate profit; the higher the ROI, the better.

Sales (Revenues)

The final amount of sales, determined by subtracting the amount of sales returns and allowances and sales discount from the total amount of sales, for a fiscal period.

Stock (Balance Sheet)

A companys merchandise, raw materials, and finished and unfinished products which have not yet been sold. These are considered liquid assets, since they can be converted into cash quite easily. There are various means of valuing these assets, but to be conservative the lowest value is usually used in financial statements.

Synergy

Arrangements which are mutually beneficial to the parties involved. Corporate synergy occurs when corporations interact congruently. A cost synergy refers to the opportunity of a combined corporate entity to reduce or eliminate expenses associated with running a business. Cost synergies are realized by eliminating positions that are viewed as duplicate within the merged entity. Examples include the head quarters office of one of the predecessor companies, certain executives, the human resources department, or other employees of the predecessor companies.

Takeover

Acquiring control of a corporation, called a target, by stock purchase or exchange, either hostile (against the wishes of the target companys management) or friendly (supported by the management of the target company).

Taxes

Taxes are compulsory, unrequited payments, in cash or in kind, made by institutional units to government units; they are described as unrequited because the government provides nothing in return to the individual unit making the payment, although governments may use the funds raised in taxes to provide goods or services to other units, either individually or collectively, or to the community as a whole.

Total Assets

The sum of current and long-term assets owned by a person, company, or other entity.

Total Equity & Debt

The sum of Equity and Liabilities owned by a person, company, or other entity.