topics of assignment new microsoft office word 97 - 2003 document (5)

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

6
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8/13

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

8
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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

9
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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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