Topics of Assignment New Microsoft Office Word 97 - 2003 Document (5)
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8/3/2019 Topics of Assignment New Microsoft Office Word 97 - 2003 Document (5)
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Account Receivable
Accounts receivable (A/R) is one of a series of accounting transactions dealing with the billing
of customers who owe money to a person, company or organization for goods and services that
have been provided to the customer. In other word A/R is the Claim against a debtor for an
uncollected amount, generally from a completed transaction of sales or services rendered.
Account Payable
An expense that has been incurred but not yet paid. Amount owed to a creditor for delivered
goods or completed servicesAccounts payable is a file or account that contains money that a
person or company owes to suppliers, but has not paid yet (a form ofdebt). When you receive an
invoice you add it to the file, and then you remove it when you pay. Thus, the A/P is a form of
credit that suppliers offer to their purchasers by allowing them to pay for a product orservice
after it has already been received.
Annuity
Simply an annuity can be defined as a contract which provides an income stream in return for
an initial payment.In a more detail form, annuity is a Series ofpayments at fixed intervals,
guaranteed for a fixed number of years or the lifetime of one or more individuals. Similar to
a pension, the money ispaid out of an investmentcontract under which the
annuitant(s) deposit certain sums (in a lump sum or in installments) with an
annuity guarantor(usually a governmentagency or an insurancefirm). The amount paid back
includesprincipaland interest, either or both of which (depending on the local regulations) may
be tax exempt. An annuity is not an insurance policy but a tax-shelter.
Amortization
Simply amortization refers a Gradual repayment of a loan in equal (or nearly equal)
installments which include portions ofinterest and principal amounts. In business
amortization is the distribution of a singlelump-sumcash flow into many smaller cash flow
installments, as determined by an amortization schedule. Unlike other repayment models, each
repayment installment consists of bothprincipal andinterest. Amortization is chiefly used
inloan repayments (a common example being a mortgage loan) and insinking funds. Payments
are divided into equal amounts for the duration of the loan, making it the simplest repayment
model. A greater amount of the payment is applied to interest at the beginning ofthe amortization schedule, while more money is applied to principal at the end.
The amortization calculatorformula is:
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Where: P is the principal amount borrowed, A is the periodic payment, r is the periodic interest
rate divided by 100 (annual interest rate also divided by 12 in case of monthly installments),
and n is the total number of payments (for a 30-year loan with monthly payments n = 30 12 =
360).
Negative amortization (also called deferred interest) occurs if the payments made do not coverthe interest due. The remaining interest owed is added to the outstanding loan balance, making it
larger than the original loan amount.
Balance Sheet
Condensed statement that shows the financial position of an entity on a specified date (usually
the last day of an accounting period). Among otheritems ofinformation, it states (1) what
assets the entity owns, (2) how it paid for them, (3) what it owes(its liabilities), and (4) what is
the amount left after satisfying the liabilities. Balance sheet data is based on a fundamental
accounting equation (assets = liabilities + owners' equity), and is classified under sub-headings
such as current assets, fixed assets ,current liabilities, Long-term Liabilities. With incomestatement and cash flow statement, it comprises the set ofdocuments indispensable in running
a business.
Bond
Written and signedpromise topay a certain sum ofmoney on a certain date, or on fulfillment of
a specified condition. All documented contracts and loan agreements are bonds. Debt which
certifies a contract between the borrower(bond issuer) and the lender(bondholder) as spelled out
in the bond indenture. The issuer (company, government, municipality)pledges to pay the
loanprincipal (par value of the bond) to the bondholder on a fixed date (maturity date) as well as
a fixed rate of interest (paid usually twice a year) for the life of the bond. Alternatively, some
bonds are sold at a price lower than their par value in lieu ofthe periodic interest; on maturity
the full par value is paid to the bondholder. Bonds are issued in multiples of $1,000, usually
forperiods of five to twenty years but some government bonds are issued for only 90 days. Most
bonds are negotiable, and are freely traded overstock exchanges. Investment in bonds offers
two advantages : (1) known amount of interest income and, unlike other securities, (2)
considerable pressure on the company to pay because the penalties fordefault are drastic. The
major disadvantage is that the amount ofincome is fixed and may be eroded by inflation.
Companies use bonds to finance acquisitions orcapital investments. Governments use bonds to
keep their election promises, fundlong-term capital projects, or to raise money forspecialsituations, such as natural calamities or war.
Bond Indenture
Blanket,unconditional contract between thebond issuer and the bondpurchaser(bondholder)
that specifies the terms of the bond. It states the interest rate (called coupon rate), the dates when
the interest will be paid, maturity date(s), and otherterms and conditions of the bond issue.
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Bonus Share
Free shares ofstockgiven to current shareholders, based upon the number of shares that
a shareholderowns. While this stockaction increases the number of shares owned, it does not
increase the total value. This is due to the fact that since the total number of shares increases,
the ratio of number of shares held to number ofshares outstanding remains constant.
Capital Budget
Plan for raising large and long-term sums forinvestment in plant and machinery, over
a period greater than the period considered under an operating budget. Techniques such
as internal rate of return, net present value, and payback period are employed in creating
capitalbudgets.
Capital Market
Financial market that works as a conduit fordemand and supply of (primarily) long-termdebt and equity capital. It channels the money provided by savers and depository
institutions (banks, credit unions, insurance companies, etc.) toborrowers and investors through
a variety offinancial instruments (bonds,notes, stocks) called securities. A capital market is not
a compactunit, but a highly decentralized system made up of three majorparts: (1) Stock
market, (2) bond market, and (3) market. It also works as
an exchange fortrading existing claims on capital in the form ofshares.
Capital Rationing
Management's approach to allocating available funds among competinginvestment proposals;
only the proposals that maximize the total net present value (NPV) of the investment are
selected.
Cash Flow
Incomings and outgoings ofcash, representing the trading(operating) activities of a firm.
In accounting, cash flow is
the difference in amount of cash available at the beginning of aperiod(opening balance) and the
amount at the end of that period (closingbalance). It is called 'positive' if the closing balance is
higher than the opening balance, otherwise called 'negative.' Cash flow is increased by(1) selling more goods orservices, (2) selling an asset, (3) reducing costs, (4) increasing
the selling price, (5) collecting faster, (6)paying slower, (7) bringing in more equity, or (8)
taking a loan. It is termed the 'life blood' of a firm more firms (including the asset-rich ones) go
out of business due to an anemic cash flow than for any other reason. However, the level of
a firm's cash flow is not a good measure of itsperformance, and vice versa: high levels of cash
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flow do not necessarily mean high or even any profit; and high levels of profit do
not automatically translate into high or evenpositive cash flow.
Corporate Finance
The division of a company that is concerned with the financial operation of the company. Inmost businesses, corporate finance focuses on raising money for variousprojects or ventures.
Forinvestment banks and similarcorporations, corporate finance focuses on the analysis of
corporate acquisitions and otherdecisions.
In a simple sense, corporate finance means finance dealing with the financial decisions of a
corporate firm. Corporate finance consists of answering the following three questions:
1. What long term investments should one take on? i.e., what lines of business will one be in and
what sorts of buildings, machinery and equipment will one need?
2. Where will one get the long term financing to pay for ones investment? Will one bring inother owners or will one borrow the money?
3. How will one manage ones everyday financial activities such as collecting from customers
and paying suppliers?
Cost of Capital
Opportunity cost offunds employed in abusiness; the rate of returninvestors could earn if an
alternative investment avenue (usually time deposit) was chosen. Cost ofdebt and equity
capital acquired from different sources. The cost ofcapital is the cost of a company's funds
(both debt and equity), or, from an investor's point of view "the expected return on a portfolio ofall the company's existing securities". It is used to evaluate new projects of a company as it is the
minimum return that investors expect for providing capital to the company, thus setting a
benchmark that a new project has to meet. For an investment to be worthwhile, the
expected return on capital must be greater than the cost of capital. The cost of capital is the rate
of return that capital could be expected to earn in an alternative investment of equivalent risk. If
a project is of similar risk to a company's average business activities it is reasonable to use the
company's average cost of capital as a basis for the evaluation. A company's securities typically
include both debt and equity; one must therefore calculate both the cost of debt and the cost of
equity to determine a company's cost of capital.
Current Assets
A balance sheet itemwhich 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 company's creditors will often be interested in how
much that company has in current assets, since these assets can be easily liquidated in case the
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company goesbankrupt. In addition, current assets are important to most companies as
a source offunds for day-to-day operations.
Debenture
Unsecured debt backed only by the integrity of theborrower, not by collateral, and documentedby an agreement called an indenture. One example is an unsecured bond. It can also be defined
as follows: Charge, claim, orlien on asset orproperty, usually as a result of a loan ;Promissory
note or a corporate bond which (in the US) is backed generally only by
the reputation and integrity of the borrower and (in the UK) by theborrower's specific assets.
When unsecured, it is called a bare debenture ornaked debenture; when secured by a charge on a
specific property, it is called a mortgage debenture.
Dividend
Dividends are payments made by a corporation to its shareholdermembers. It is the portion of
corporate profits paid out to stockholders. When a corporation earns a profit or surplus, that
money can be put to two uses: it can either be re-invested in the business (called retained
earnings), or it can be paid to the shareholders as a dividend. Many corporations retain a portion
of their earnings and pay the remainder as a dividend. For ajoint stock company, a dividend is
allocated as a fixed amount per share. Therefore, a shareholder receives a dividend in proportion
to their shareholding. Public companies usually pay dividends on a fixed schedule, but may
declare a dividend at any time, sometimes called a special dividend to distinguish it from a
regular one.
Earnings per Share
EPS means Total earnings divided by the number ofshares outstanding. Companies often use a
weighted average ofsharesoutstanding over the reporting term. EPS can be calculated for the
previous year ("trailing EPS"), for the current year ("current EPS"), or for the coming year
("forward EPS"). The last year's EPS would be actual, while current year and forward year EPS
would be estimates.
Financial Market
A market for the exchange ofcapital and credit, including the money markets and the capital
markets.In economics, a financial market is a mechanism that allows people to buy and sell
(trade) financial securities (such as stocks and bonds), commodities (such as precious metals or
agricultural goods), and otherfungible items of value at low transaction costs and at prices that
reflect the efficient-market hypothesis.
3. In finance, financial markets facilitate:The raising ofcapital (in the capital markets), The
transfer ofrisk(in the derivatives markets), International trade (in thecurrency markets)
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And are used to match those who wantcapital to those who have it.
Typically a borrower issues a receipt to the lender promising to pay back the capital. These
receipts aresecurities which may be freely bought or sold. In return for lending money to the
borrower, the lender will expect some compensation in the form of interestordividends.
Hybrid Share
Hybrid capital instruments, including preference shares, are securities reflecting equity and debt
characteristics. Recent hybrid issuances by financial institutions differ greatly, with instruments
individually tailored to reflect a different combination of features depending on the objectives of
the issuer, drawing on the traditional building blocks of debt and equity finance. Hybrid
instruments can be perpetual or limited life, cumulative or non-cumulative, redeemable or
irredeemable, convertible or nonconvertible, and can involve step-ups. Terms and conditions
regarding when and under what circumstances an issuer is obliged to pay, and how a security is
defined to rank in liquidation, vary on an issue-by-issue basis. Central to rating assessments is an
analysis of prudential regulations and their application in an issuer's market.
Internal Financing
Surplusfunds generated through a firm'soperations and available forcapital investment. These
funds are shown as retained-earnings and depreciation in the firm's financial statements.
Internal Rate of Return
IRR is the rate of return that would make the present valueof future cash flowsplus the
final market value of an investment orbusiness opportunity equal the current market price of the
investment oropportunity. The internal rate ofreturn is an important calculation used frequentlyto determine if a given investment is worthwhile. An investment is generally considered
worthwhile if the internal rate of return is greater than the return of an average similar investment
opportunity, or if it is greater than the cost of capital of the opportunity. Also called dollar-
weighted rate of return.
Investment Company
Firm that invests the pooled funds ofretail investors for a fee. By aggregating the funds of a
large number ofsmall investors into a specific investments (in line with the objectives of
the investors), an investment company gives individual investors access to awiderrange ofsecurities than the investors themselves would have been able to access.
Also, individual investors should be able to save on trading costs since the investment company
is able to gaineconomies of scale in operations. There are two types of investment companies:
open-end (mutual funds) and closed-end (investment trusts). Also called investment fund.
Lease
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management of investment portfolios. Merchant banks also advise on (and invest
ownfunds in) acquisitions, mergers, and takeovers. In the US, a merchant account provideris
sometimes called a merchant bank.
Money Market
Networkofbanks, discount houses, institutional investors, and money dealers who borrow and
lend among themselves for the short-term (typically 90 days). Money markets also trade
in highly liquidfinancial instruments with maturities less than 90 days to one year (such
as bankers' acceptance, certificates ofdeposit, and commercial paper), and government
securities with maturities less than three years (such as treasury bills), foreign exchange, and
billion. Unlike organized markets (such as stock exchanges) money markets are largely
unregulated and informal where most transactions are conducted over phone, fax,
oronline. Long-term borrowing and lending markets are called capital markets.
Net Worth
Value of a firm's to its owners (stockholders/shareholders) as shown on itsbalance sheet. It is
the sum of the issued share capital, retained earnings, and capital gains. Also called net value.In
business, net worth (sometimes called net liabilities) is the total assets minus total
outside liabilities of an individual or a company. For a company, this is called shareholders'
preference and may be referred to asbook value. Net worth is stated as at a particular year in
time. In the case of an individual, the term estate is used in relation to deceased individuals
in probate. For businesses, the term is used in the context of fraudulent law and on the
dissolution of the company.In personal finance, net worth (orwealth) refers to an individual's
net economic position; similarly, it uses the value of all assets (long term assets) minus the valueof all liabilities.
Portfolio
Pool ofinvestments,collection ofsamples of an artist or other creative person, orgroup of
complementary or supplementary products marketed together. In finance, a portfolio is an
appropriate mix or collection of investments held by an institution or an individual.Holding a
portfolio is a part of an investment and risk-limiting strategy called diversification. By owning
several assets, certain types of risk (in particular specific risk) can be reduced. The assets in the
portfolio could includestocks, bonds,options, warrants, gold certificates, real estate, futures
contracts, production facilities, or any other item that is expected to retain its value.In building
up an investment portfolio a financial institution will typically conduct its own investment
analysis, whilst a private individual may make use of the services of a financial advisor or a
financial institution which offers portfolio management services.
Primary Market
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The primary market is that part of the capital markets that deals with the issuance of
new securities. Companies, governments or public sector institutions can obtain funding through
the sale of a new stockorbond issue. This is typically done through a syndicate of securities
dealers. The process of selling new issues to investors is called underwriting. In the case of a
new stock issue, this sale is an initial public offering (IPO). Dealers earn a commission that is
built into the price of the security offering, though it can be found in the prospectus.
Retained Earnings
Profits generated by a firm that are not distributed to stockholders(shareholders) as dividends but
are either reinvested in the business or kept as a reserve for specific objectives (such as to pay off
a debt orpurchase a capital asset). Balance sheet figure shown under the heading retained
earnings is the sum of all profits retained since the firm'sinception. Retained earnings are
reduced by losses, and are also called accumulated earnings, accumulated profit, accumulated
income,accumulated surplus, earned surplus, Undistributed Earning, orundivided profits.
Return
Proceeds generated by a sale. Yield generated by an investment, expressed usually as a
percentage of the amount invested
Return On Equity
ROE is a measure of how well a company used reinvested earnings to generate additional
earnings, equal to a fiscal year'safter-tax income (after preferred stockdividends but before
common stock dividends) divided by book value, expressed as apercentage. It is used as a
general indication of the company's efficiency; in otherwords, how much profit it is able togenerate 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)
ROI is a measure of a corporation'sprofitability, equal to a fiscal year'sincome divided
by common stockandpreferred stockequityplus long-term debt. ROI measures how effectively
the firm uses its capital to generate profit; the higher the ROI, the better. More generally, the
income that an investmentprovides in a year.
Right Share
A security giving stockholders entitlement to purchase new shares issued by the corporation at a
predetermined price (normally less than the current market price) in proportion to the number of
shares already owned. Rights are issued only for a short period of time, after which they expire.
Right shares are the shares which are offered by the company to the existing shareholders.
Simply stated the existing shareholders have a right to subscribe for the shares which are offered
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8/3/2019 Topics of Assignment New Microsoft Office Word 97 - 2003 Document (5)
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by the company after initial allotment until some special right is reserved for any other person by
special resolution in this respect.
Secondary Market
Financial market where previously issued securities (suchbonds, notes, shares) and financialinstruments (such asbills ofexchange and certificates ofdeposit) are bought and sold.
All commodity and stock exchanges, and over-the-countermarkets, serve as secondary markets
which (by providing an avenue forresale) help in reducing the riskofinvestment and in
maintaining liquidity in the financial system. Alternative term forafter market.
Salvage Value
Estimated residual value of a depreciable asset orproperty at the end of its economical oruseful
life. In all methods for determining depreciation (except the double declining balance
depreciation method) salvage value is deducted from the asset's purchaseprice. When the cost of
an asset less its accumulated depreciation equals its salvage value, no more depreciation may be
taken.
Sinking Fund
Simply, sinking fund is a fund accumulated regularly in a separate account and used to redeem
debt securities or it may be defined as Reserved created by periodically setting aside
certain sums in a custodial account (as cash or investment in marketable securities) for
future replacement of an asset or repayment of a liability.
Share
Evidence ofownership that represents an equal proportion of a firm'scapital. It entitles
its holder(the shareholder) to an equal claim on the firm'sprofits and an equal obligation for the
firm's debts and losses. Two majortypes of shares are (1) ordinary shares (common stock),
which entitle the shareholder to share in the earnings of the firm as and when they occur, and to
vote at the firm's annual general meetings and otherofficial meetings, and (2) preference
shares (preference stock) which entitle the shareholder to a fixed periodic income (interest) but
generally do not give him or hervoting rights.
Stock
Equity capital raised through sale of shares. Proportional part of a firm's equity capital
represented by fullypaid up shares.
Stock Dividend
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