Business Terminology

planglobal plan global consulting ltd. Terminology Guide December 2008 For further information contact: Tom West 20, 3515 27th Street N.E. Calgary, AB T1Y 5E4 Tel: +1 403 235-3495 x201 Cell: +1 403 714-7870 Fax: +1 403 235-3671 Skype: twest1960

TERMINOLOGY GUIDE Limitation of Liability Neither the Company, nor any of their respective officers, directors, employees, affiliates or agents makes any representation or warranty, express or im plied, as to the accuracy or completeness of this document or any of its contents, and no legal liability is assumed or is to be implied against any of the aforementioned with respect thereto. Document Version

Version

Date

Contributor

1.0

20081223

Tom West, Manish Bindal

1.01

20081229

Tom West

planglobal plan global consulting ltd.

Notes Feasibility Study, Cost Benefit Analysis

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TERMINOLOGY GUIDE Table of Contents Limitation of Liability .................. ........................... ................... ................... .................. ................... ................... .................. ................... ................... ................ .............. ....... 2 Table of Contents .................. ........................... ................... ................... .................. ................... ................... .................. ................... ................... ................. ................ ............ .... 3 Terminology Terminology ................... ............................ .................. ................... ................... .................. ................... ................... .................. ................... ................... ................. ................. ........... .. 7 A - Alfa .................. ........................... ................... ................... .................. ................... ................... .................. ................... ................... .................. ................ ................. ................... ........... .. 7

Account .................. ........................... ................... ................... .................. ................... ................... .................. ................... ................... .................. .................. .................. ........... .. 7 Acquisitions .................. ........................... .................. ................... ................... .................. .................. ................... ................... .................. .................. ................. ............... ....... 8 Accredited Investor .................. ........................... ................... ................... .................. ................... ................... .................. ................... ................... ................ ........... .... 8 Adjusted Trial Balance ................... ............................ ................... ................... .................. ................... ................... .................. ................... ................... .............. ..... 8 Adjusting Entry (Adjustments) .................. ........................... ................... ................... .................. ................... ................... .................. ................... ............. ... 9 Agile software development....................... development................................. ................... ................... ................... .................. ................... ................... ................... ............ 9 Angel Investor ................... ............................ .................. ................... ................... .................. ................... ................... .................. ................... ................... ................ ....... 10 Anti-Dilution Provisions ................... ............................ ................... ................... ................... ................... .................. ................... ................... .................. ........... .. 10 Assets ................... ............................ .................. ................... ................... .................. .................. ................... ................... .................. .................. ................... ................... ........... 11 B - Bravo....................... Bravo................................. ................... .................. ................... ................... .................. ................... ................... ................... ................... ................... ................. ....... 11

Bad Debts .................. ............................ ................... ................... ................... .................. ................... ................... .................. ................... ................... ................ ............. ...... 11 Business Issue........................... Issue.................................... .................. .................. ................... ................... .................. .................. .................. ................... .................. ........ 13 Business Plan ................... ............................ .................. .................. ................... ................... .................. .................. ................... ................... .................. ................. ........ 13 Business transaction....................... transaction................................ ................... ................... .................. ................... ................... .................. ................... ................... ........... .. 14 C - Charlie...................... Charlie............................... .................. .................. .................. ................... ................... .................. .................. ................... ................... ................ ................. ............ 14

CAPEX ................... ............................ .................. ................... ................... .................. .................. ................... ................... .................. .................. .................. .................. ........... 14 Capital asset .................. ........................... ................... ................... .................. ................... ................... ................... ................... .................. ................... .................. .......... 15 CMLTD......................... CMLTD.................................. .................. ................... ................... .................. .................. ................... ................... .................. .................. ................. ............. ..... 15 Current assets..................... assets.............................. .................. ................... ................... .................. ................... ................... ................... ................... ................. .............. ...... 15 Capital ................... ............................ ................... ................... .................. ................... ................... .................. ................... ................... .................. ................. .................. ............ 16 Capitalization Table .................. ........................... ................... ................... .................. ................... ................... ................... ................... .................. ................. ........ 16 Cash basis accounting....................... accounting................................. ................... .................. ................... ................... .................. ................... ................... ................. ........ 16 Closing the books .................. ............................ ................... .................. ................... ................... .................. ................... ................... .................. ................. ........... ... 17 Convertible Debt ................... ............................ ................... ................... .................. ................... ................... .................. ................... ................... ................. ............ .... 17 Convertible Notes .................. ............................ ................... .................. ................... ................... .................. ................... ................... .................. ................. ........... ... 17 Corporate Governance ................... ............................. ................... .................. ................... ................... .................. ................... ................... .................. ........... .. 17 Corporation .................. ........................... .................. ................... ................... .................. .................. ................... ................... .................. .................. ................. ............. ..... 17 Co-Sale or Tag-Along Rights .................. ........................... ................... ................... ................... ................... ................... ................... .................. ............ ... 19 Cram-Down Financing ................... ............................ ................... ................... .................. ................... ................... .................. ................... ................... ............ ... 19 Cost-benefit analysis.................... analysis............................. .................. ................... ................... .................. ................... ................... .................. ................... ............... ..... 19 Credit................. Credit.......................... .................. ................... ................... .................. ................... ................... ................... ................... .................. ................... ................. ............. ...... 19 Current assets..................... assets.............................. .................. ................... ................... .................. ................... ................... ................... ................... ................. .............. ...... 20 Current Ratio...................... Ratio............................... .................. ................... ................... .................. ................... ................... .................. ................... .................. ............... ....... 20 D - Delta ................... ............................ .................. .................. .................. ................... ................... .................. .................. ................... ................... ................ ................. ................. ....... 20

Debit........................ Debit................................. ................... ................... .................. ................... ................... .................. ................... ................... .................. ................. ................. ......... 20 Debt Ratio ................... ............................ ................... ................... .................. ................... ................... .................. ................... ................... .................. ................. ............. ..... 20 Debt to Equity Ratio .................. ............................ ................... .................. ................... ................... .................. ................... ................... .................. ................. ........ 20 Depreciation........................... Depreciation................. ................... .................. ................... ................... .................. ................... ................... .................. ................... .................. ........... ... 21 Dilution .................. ........................... .................. ................... ................... .................. ................... ................... .................. ................... ................... ................. .................. ............ 21


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TERMINOLOGY GUIDE Direct Expenses......... Expenses .................. .................. ................... ................... .................. ................... ................... .................. ................... ................... .................. .............. ..... 21 Discounted Cash Flow .................. ........................... .................. ................... ................... .................. ................... ................... .................. ................... .............. .... 21 Double Entry Accounting ................... ............................ ................... ................... .................. ................... ................... .................. ................... .................. ........ 21 Down Round ................... ............................ .................. ................... ................... .................. ................... ................... ................... ................... .................. ................ ......... .. 21 Drag-Along Rights.................... Rights............................. ................... ................... .................. ................... ................... .................. ................... ................... ................ ......... .. 21 Due Diligence........................ Diligence.................................. ................... .................. .................. .................. ................... ................... .................. .................. ................. ............. ..... 22 E - Echo ................... ............................ ................... ................... .................. ................... ................... .................. ................... ................... ................... ................. ................ ............... ...... 22

Earnings .................. ........................... .................. ................... ................... .................. ................... ................... .................. ................... ................... ................. ................. ......... 22 EBITDA .................. ........................... ................... ................... .................. ................... ................... .................. ................... ................... .................. ................... .................. ........ 22 EBITDA/Interest .................. ........................... ................... ................... .................. ................... ................... .................. ................... ................... .................. .............. ..... 23 Employee’s Earnings Record ................... ............................ .................. ................... ................... ................... ................... ................... ................... ........... 23 Equity .................. ........................... .................. ................... ................... .................. ................... ................... .................. ................... ................... .................. ................. ............ .... 23 Exit Strategy..................... Strategy.............................. .................. ................... ................... .................. ................... ................... .................. ................... ................... ................. ........ 23 F - Foxtrot.......................... Foxtrot................................... .................. .................. ................... ................... .................. .................. ................... ................... ................. ................. ............... ...... 24

Factoring .................. ............................ ................... .................. ................... ................... .................. ................... ................... .................. ................... ................. ............... ........ 24 Family Trust .................. ........................... .................. ................... ................... .................. ................... ................... .................. ................... ................... ................. ........... ... 24 Feasibility study .................. ........................... ................... ................... .................. ................... ................... .................. ................... ................... ................. .............. ...... 24 Financial statements .................. ........................... ................... ................... .................. .................. ................... ................... .................. .................. ................. ........ 26 Fiscal year...................... year................................ ................... .................. ................... ................... .................. ................... ................... .................. ................... ................... ......... 26 Fixed Assets .................. ............................ ................... .................. ................... ................... .................. ................... ................... ................... ................... ................. .......... 27 Full-Ratchet, Anti-Dilution Protection........................ Protection.................................. ................... ................... ................... ................... ................... ............ ... 27 G - Golf......................... Golf....... ................................... .................................. .................................. .................................. .................................. .................................... ........................... ........ 27

General Journal ................... ............................ .................. ................... ................... .................. ................... ................... .................. ................... ................... ............. .... 27 Goodwill ................... ............................ ................... ................... .................. ................... ................... .................. ................... ................... .................. ................. ................ ........ 27 Governance .................. ........................... ................... ................... .................. ................... ................... .................. ................... ................... .................. ................. ........... ... 27 Gross Profit Margin .................. ........................... ................... ................... .................. ................... ................... .................. ................... ................... .................. ......... 27 H - Hotel .................. ........................... .................. ................... ................... .................. ................... ................... .................. ................... ................... ................ ................. ................. ....... 28

Hostile takeovers ................... ............................ ................... ................... .................. ................... ................... .................. ................... ................... ................. ........... ... 28 I - India .................. ............................ ................... .................. ................... ................... .................. ................... ................... .................. ................... ................. ................ .................. ......... 28

Income ................... ............................ ................... ................... .................. ................... ................... ................... ................... .................. ................... .................. ................. ......... 28 Indirect Expenses .................. ........................... ................... ................... .................. ................... ................... .................. ................... ................... ................. ........... ... 29 Initial Public Offering ................... ............................ .................. ................... ................... .................. ................... ................... .................. ................... ................ ...... 29 Intangible Assets................... Assets............................ ................... ................... .................. ................... ................... .................. ................... ................... ................ ............ ..... 29 Issuer .................. ........................... ................... ................... .................. .................. .................. ................... ................... .................. .................. ................... .................. ............ .... 29 J - Juliet .................. ........................... ................... ................... .................. .................. .................. ................... ................... .................. .................. ................. .................. ................. ....... 29

Journal ................... ............................ .................. ................... ................... .................. ................... ................... .................. ................... ................... ................. ................. ........... 29 K - Kilo .................. ............................ ................... .................. .................. ................... ................... .................. .................. .................. ................... ................. ................. ................... ......... 29

Keiretsu......... Keiretsu ................... ................... ................... ................... .................. ................... ................... .................. ................... ................... .................. ................. ................. ......... 29 L - Lima ................... ............................ .................. ................... ................... .................. ................... ................... .................. ................... ................... ................ ................. ................. ....... 31

Lead Investor .................. ........................... .................. ................... ................... .................. ................... ................... ................... ................... .................. ................. .......... 31 Ledger......... Ledger .................. .................. ................... ................... .................. ................... ................... .................. ................... ................... .................. ................... ................... ........... 32 Liability .................. ........................... .................. ................... ................... .................. ................... ................... .................. ................... ................... ................. .................. ............ 32 Living Dead .................. ........................... ................... ................... .................. ................... ................... .................. ................... ................... .................. ................ ............ ..... 32 planglobal plan global consulting ltd.

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TERMINOLOGY GUIDE Lock-Up Provision.......................... Provision................................... ................... ................... .................. ................... ................... .................. ................... ................... ............ ... 32 Long-term liabilities ................... ............................ .................. ................... ................... ................... ................... .................. ................... ................... ................. ........ 32 M - Mike................... Mike............................ ................... ................... .................. ................... ................... .................. ................... ................... ................... ................ ................ ................. ....... 33

MBO (management buy-out) .................. ............................ ................... .................. ................... ................... ................... ................... .................. ............ ... 33 Mergers and Acquisitions................. Acquisitions........................... ................... .................. ................... ................... .................. ................... ................... .................. ........... 33 Mergers .................. ........................... .................. ................... ................... .................. ................... ................... .................. ................... ................... .................. .................. ......... 33 Mezzanine Financing .................. ........................... ................... ................... .................. ................... ................... .................. ................... ................... ............... ...... 34 N - November .................. ........................... ................... ................... .................. ................... ................... .................. ................... ................... .................. ................ ............... ........ 34

Negative Equity......... Equity .................. .................. ................... ................... .................. ................... ................... .................. ................... ................... .................. ............... ...... 34 Net Present Value (NPV) ................... ............................ ................... ................... .................. ................... ................... .................. ................... .................. ........ 35 Net Profit Margin ................... ............................ ................... ................... .................. ................... ................... .................. ................... ................... ................ ............ ..... 36 Notes payable .................. ........................... .................. ................... ................... .................. ................... ................... ................... ................... .................. ................. ........ 36 No-Shop Requirement .................. ............................ ................... .................. ................... ................... .................. ................... ................... .................. ............. .... 37 O - Oscar.................. Oscar........................... .................. ................... ................... .................. ................... ................... .................. ................... ................... ................. ................. ............... ...... 37

Offering Memorandums ................... ............................ .................. ................... ................... .................. ................... ................... .................. ................... ............ 37 Operating Expenses .................. ........................... .................. .................. ................... ................... .................. .................. ................... ................... ................. ........ 37 Ownership Equity.......................... Equity................................... .................. ................... ................... .................. ................... ................... .................. ................... .............. .... 37 Owner’s equity .................. ............................ ................... ................... ................... .................. ................... ................... .................. ................... ................... ............... ...... 38 P - Papa..................... Papa.... .................................. .................................. .................................. ................................. ................................. ...................................... ............................... .......... 38

Participation Right.......................... Right.................................... ................... .................. ................... ................... .................. ................... ................... ................ ............ ..... 38 Payment In-Kind Dividends ................... ............................ ................... ................... .................. ................... ................... .................. ................... .............. .... 38 Payroll .................. ........................... .................. ................... ................... .................. ................... ................... .................. ................... ................... .................. ................... ............ 38 Periodic inventory method .................. ............................ ................... ................... ................... .................. ................... ................... ................... ................ ...... 38 Perpetual inventory method......... method .................. .................. ................... ................... .................. ................... ................... .................. ................... ............... ..... 38 Petty cash fund .................. ........................... ................... ................... .................. .................. ................... ................... .................. .................. ................... ................ ...... 38 Post-closing Trial Balance ................... ............................ ................... ................... ................... ................... ................... ................... ................... ............... ..... 38 Post-Money Valuation.......................... Valuation................................... .................. ................... ................... .................. ................... ................... .................. ................ ....... 38 Pre-Emptive Rights ................... ............................ .................. .................. ................... ................... .................. .................. .................. ................... ................. ......... .. 38 Preferred Stock .................. ............................ ................... .................. ................... ................... .................. ................... ................... .................. ................... ............... ..... 39 Prepaid Expense.................... Expense............................. .................. ................... ................... .................. ................... ................... .................. ................... .................. ........... ... 39 Pre-Tax Income ................... ............................ ................... ................... .................. ................... ................... .................. ................... ................... .................. ............. .... 39 Private Equity .................. ........................... .................. ................... ................... ................... ................... .................. ................... ................... .................. ................. .......... 39 Private Charitable Foundation ................... ............................ .................. ................... ................... ................... ................... ................... ................... ......... 40 Profit....................... Profit................................ .................. ................... ................... .................. ................... ................... .................. ................... ................... ................ ................. ............ 41 Prospectus ................... ............................ .................. ................... ................... .................. ................... ................... .................. ................... ................... ................ ............ ..... 41 Q - Quebec................ Quebec......................... .................. .................. .................. ................... ................... .................. .................. ................... ................... ................. ................. ............... ...... 41

Quick ratio......... ratio .................. .................. ................... ................... .................. ................... ................... .................. ................... ................... .................. ................. .............. ...... 41 R - Romeo..................... Romeo.............................. ................... ................... .................. .................. ................... ................... .................. .................. ................... ................. ................. ............ 42

Purchases journal .................. ........................... .................. ................... ................... .................. ................... ................... ................... ................... ................. ........... ... 42 Revenue....................... Revenue................................ .................. ................... ................... .................. ................... ................... .................. ................... ................... ................ ............ ..... 42 ROI (Return on Investment)..................... Investment).............................. .................. ................... ................... .................. ................... ................... .................. ............ ... 42 S - Sierra .................. ............................ ................... .................. ................... ................... .................. ................... ................... .................. ................... ................. ................ ............... ...... 42

Sales Discount .................. ............................ ................... .................. ................... ................... ................... ................... .................. ................... ................... ............... ...... 42 Sales journal .................. ........................... ................... ................... .................. ................... ................... .................. ................... ................... .................. .................. ........... 43


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TERMINOLOGY GUIDE Seed Money.......... Money ................... .................. ................... ................... .................. ................... ................... ................... ................... .................. ................... ................. ......... .. 43 SG&A Expenses .................. ............................ ................... .................. ................... ................... .................. ................... ................... .................. ................... ............. ... 43 Shareholder ................... ............................ ................... ................... .................. ................... ................... .................. ................... ................... .................. .................. ........... 43 Shareholder’s Equity......................... Equity................................... ................... .................. ................... ................... .................. ................... ................... ................ ......... .. 44 Subordinated Debt ................... ............................ .................. ................... ................... .................. .................. ................... ................... .................. ................. .......... .. 44 Subsidiary Ledger .................. ............................ ................... .................. ................... ................... .................. ................... ................... .................. ................. ........... ... 45 Synoptic Journal ................... ............................ .................. ................... ................... .................. ................... ................... .................. ................... .................. ............ .... 45 T - Tango............................ Tango........... ................................. ................................. .................................. .................................. .................................. ..................................... ...................... .. 45

T-4 Slip (Form)........ (Form) .................. ................... .................. ................... ................... .................. ................... ................... .................. ................... ................... ................ ....... 45 Term Sheet ................... ............................ .................. ................... ................... .................. ................... ................... .................. ................... ................... ................. ........... ... 45 Tranche .................. ........................... .................. ................... ................... ................... ................... .................. ................... ................... .................. .................. .................. ......... 45 Trial Balance ................... ............................ ................... ................... .................. ................... ................... ................... ................... .................. ................... .................. ........ 45 U - Uniform .................. ........................... .................. .................. .................. ................... ................... .................. .................. ................... ................... ................. ................. ............ ... 46

Unified Modeling Language (UML) ................... ............................. ................... .................. ................... ................... ................... ................... ........... .. 46 Underwriting......... Underwriting ................... ................... .................. ................... ................... .................. ................... ................... .................. ................... ................... ................ .......... ... 46 Unearned revenue ................... ............................ .................. ................... ................... .................. ................... ................... .................. ................... .................. .......... 46 Unlimited liability .................. ........................... .................. ................... ................... .................. .................. ................... ................... .................. ................. .............. ...... 46 V - Victor .................. ........................... ................... ................... .................. ................... ................... .................. ................... ................... .................. ................. ................. ............... ...... 46

Valuation .................. ........................... ................... ................... .................. ................... ................... .................. ................... ................... .................. ................. ................ ........ 46 Venture Capital .................. ........................... .................. ................... ................... .................. ................... ................... ................... ................... .................. ............... ...... 48 Veto Rights .................. ........................... ................... ................... .................. ................... ................... .................. ................... ................... .................. ................ ............ ..... 48 W - Whiskey................ Whiskey......................... .................. .................. ................... ................... .................. .................. .................. ................... ................... ................ ................. .............. .... 48

Waterfall model .................. ........................... .................. ................... ................... .................. ................... ................... .................. ................... ................... ............... ...... 48 Warrants............. Warrants....................... ................... .................. ................... ................... .................. ................... ................... .................. ................... ................... ................ ............ ..... 49 Weighted Average Anti-Dilution Protection............... Protection......................... ................... .................. ................... ................... .................. ............. .... 49 Working capital .................. ........................... ................... ................... .................. ................... ................... .................. ................... ................... .................. ............... ...... 49 Worksheet.......................... Worksheet................................... .................. ................... ................... .................. .................. ................... ................... .................. .................. ................ ....... 49 X - X-ray .................. ........................... ................... ................... .................. .................. .................. ................... ................... .................. .................. ................. .................. ................. ....... 49

XML.......................... XML................................... .................. ................... ................... .................. .................. ................... ................... .................. .................. ................. ................. ......... 49 Y - Yankee.................. Yankee........................... .................. ................... ................... .................. ................... ................... .................. ................... ................... ................ ................. .............. .... 50

Yield .................. ............................ ................... .................. ................... ................... .................. ................... ................... .................. ................... ................... ................ ............. ...... 50 Z - Zulu....................... Zulu................................ .................. ................... ................... .................. ................... ................... .................. ................... ................... ................ ................. .............. .... 50

Zero Coupon Bond..................... Bond.............................. .................. ................... ................... .................. ................... ................... .................. ................... ................. ....... 50


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TERMINOLOGY GUIDE Terminology The following is a list of terms that define some of the services we provide at planglobal. This is a "living document" and will be updated as we get suggestions and questions from colleagues and clients. Many of the entries are from our own writings, Wikipedia (these are accredited with a W ), ), and most recently from the Alberta Business Link (these entries are accredited with with a †). Please use this guide freely and send your suggestions to us at [email protected] [email protected]..

A - Alfa Account Each separate category of asset, liability, equity, revenue or expense for which transactions are recorded separately. An account can have a debit or credit balance. Account records are usually kept as separate pages in a book called a ledger. Accounts are sometimes called ledger accounts. †

Accounting The process of measuring, recording, classifying, summarizing, communicating and interpreting financial data. †

Accounting Equation The span of time covered by an income statement. One year is the accounting period for most financial reports, however financial statements are also prepared by companies for each quarter or each month of the year. †

Accounts Payable Money owed by the business for goods and services provided by its suppliers. An Accounts Payable Ledger contains the individual ledger accounts of all creditors. (A subdivision of current liabilities) †

Accounts Receivable Money owed to the business by someone to whom the business has given goods and services on credit (or on account.) (A subdivision of current assets.) †

Accrual Basis of Accounting Records revenue in the period in which it is earned and expenses in the period in which they are incurred. The effect of events on the business is recognized as services are rendered or consumed rather than when cash is received or paid. †

Accumulated Depreciation A contra-asset account shown as a deduction from the related asset account in the balance sheet. Depreciation taken throughout the useful life of an asset is accumulated in this account. †


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TERMINOLOGY GUIDE Acquisitions An acquisition, also known as a takeover, is the buying of one company (the ‘target’) by another. An acquisition may be friendly or hostile. In the former case, the companies cooperate in negotiations; in the latter case, the takeover target is unwilling to be bought or the target's board has no prior knowledge of the offer. Acquisition usually refers to a purchase of a smaller firm by a larger one. Sometimes, however, a smaller firm will acquire management control of a larger or longer established company and keep its name for the combined entity. This is known as a reverse takeover. The buyer buys the shares, and therefore control, of the target company being purchased. Ownership control of the company in turn conveys effective control over the assets of the company, but since the company is acquired intact as a going business, this form of transaction carries with it all of the liabilities accrued by that business over its past and all of the risks that company faces in its commercial environment. The buyer buys the assets of the target company. The cash the target receives from the sell-off is paid back to its shareholders by dividend or through liquidation. This type of transaction leaves the target company as an empty shell, if the buyer buys out the entire assets. A buyer often structures the transaction as an asset purchase to "cherry-pick" the assets that it wants and leave out the assets and liabilities that it does not. This can be particularly important where foreseeable liabilities may include future, un-quantified damage awards such as those that could arise from litigation over defective products, employee benefits or terminations, or environmental damage. A disadvantage of this structure is the tax that many jurisdictions, particularly outside the United States, impose on transfers of the individual assets, whereas stock transactions can frequently be structured as like-kind exchanges or other arrangements that are tax-free or taxneutral, both to the buyer and to the seller's shareholders. W

Accredited Investor A person or entity that meets certain requirements under the securities laws for investment purposes. For example, a natural person is an accredited investor if he or she has a net worth (with spouse) that exceeds $1 million at the time of the purchase of securities, or has income either individually that exceeds $200,000 in each of the two most recent years or jointly with spouse that exceeds $300,000 for the two most recent years. There have been some rumblings that these figures soon may change.

Adjusted Trial Balance A listing of all ledger account balances after the amounts have been changed to include the adjusting entries made at the end of the period. †


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TERMINOLOGY GUIDE Adjusting Entry (Adjustments) The updating of the ledger account balances at the end of the accounting cycle before financial statements are prepared. Adjusting entries serve to apportion transactions properly between the accounting periods affected and to record any revenue earned or expenses incurred that have not been recorded prior to the end of the period. (Adjustment examples are expired or prepaid expenses or revenues such as insurance, apportionment of unrecorded income, bad debts, depreciation, and other items recorded at the end of the accounting period.) †

Agile software development Agile software development refers to a group of software development methodologies that are based on similar principles. Agile methodologies generally promote a project management process that encourages frequent inspection and adaptation, a leadership philosophy that encourages team work, self-organization and accountability, a set of engineering best practices that allow for rapid delivery of high-quality software, and a business approach that aligns development with customer needs and company goals. There are many specific agile development methods. Most promote development iterations,, teamwork, collaboration, and process adaptability throughout the lifeiterations cycle of the project. Agile chooses to do things in small increments with minimal planning, rather than long-term planning. Iterations are short time frames (known as 'timeboxes') which typically last from one to four weeks. Each iteration is worked on by a team through a full software development cycle, including planning, requirements analysis,, design, coding, unit testing, analysis testing, and acceptance testing when a working product is demonstrated to stakeholders. This helps to minimize the overall risk, and allows the project to adapt to changes more quickly. Documentation is produced as required by stakeholders. An iteration may not add enough functionality to warrant releasing the product to market, but the goal is to have an available release (with minimal bugs bugs)) at the end of each iteration. Multiple iterations may be required to release a product or new features. Team composition in an agile project is usually cross-functional and selforganizing without consideration for any existing corporate hierarchy or the corporate roles of team members. Team members normally take responsibility for tasks that deliver the functionality of an iteration. They decide for themselves how they will execute during an iteration. Agile methods emphasize face-to-face communication over written documents. Most agile teams are located in a single open office to facilitate such communication. Team size is typically small (5-9 people) to help make team communication and team collaboration easier. Larger development efforts may be delivered by multiple teams working toward a common goal or different parts of an effort. This may also require a coordination of priorities across teams. planglobal plan global consulting ltd.

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TERMINOLOGY GUIDE No matter what development disciplines are required, each agile team will contain a customer representative. This person is appointed by stakeholders to act on their behalf and makes a personal commitment to being available for developers to answer mid-iteration problem-domain questions. At the end of each iteration, stakeholders and the customer representative review progress and re-evaluate priorities with a view to optimizing the return on investment and ensuring alignment with customer needs and company goals. Most agile methodologies include a routine and formal daily face-to-face communication among team members. This specifically includes the customer representative and any interested stakeholders as observers. In a brief session, team members report to each other what they did yesterday, what they intend to do today, and what their roadblocks are. This standing face-to-face communication prevents problems being hidden. Agile methods emphasize working software as the primary measure of progress. Combined with the preference for face-to-face communication, agile methods usually produce less written documentation than other methods. In an agile project, documentation and other project artifacts all rank equally with working product. Stakeholders are encouraged to prioritize them with other iteration outcomes based exclusively on business value perceived at the beginning of the iteration. Specific tools and techniques such as continuous integration, integration, automated or xUnit test,, pair programming, test programming, test driven development, development, design patterns, patterns, domain-driven design,, code refactoring and other techniques are often used to improve quality design and enhance project agility. W

Angel Investor A wealthy individual (accredited investor) who provides seed or early-stage financing from his or her own funds to entrepreneurs in return for equity. Angel investors sometimes provide industry knowledge and contacts and sometimes play a direct role on the board, but infrequently participate in management. Angels invest either as individuals or in groups.

Anti-Dilution Provisions An adjustment mechanism for preferred stock, options, or convertible securities that provides the holder the right to receive additional securities in the event of a future financing in which securities are sold at a lower price than originally paid by the holder of the right. Typically, anti-dilution provisions come in two types: full ratchet and weighted average. There are typically exceptions for the adjustment mechanism that carve out situations such as the issuance of certain employee options or existing convertible securities.


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TERMINOLOGY GUIDE Assets All of the possessions (physical things and other items of value) owned by the business. These are listed on the left side of the balance sheet. Assets include finished and unfinished inventory, land, building, cash, and money owed to the business by customers. †

Auditing The principal activity of a public accountant. Consists of an independent examination of the accounting records and other evidence relating to a business to support the expression of an impartial expert opinion about the fairness of the financial statements. †

B - Bravo Bad Debts The amounts not paid when a customer fails to pay all or part of what is owed. You make an adjusting entry to record it as an expense. †

Balance Sheet A financial statement that shows the financial condition of a business in terms of assets, liabilities, and owner’s equity as of a certain date. †

Board of Directors A board of directors is a body of elected or appointed persons who jointly oversee the activities of a company or organization organization.. The body sometimes has a different name, such as board of trustees, board of governors, board of managers, or executive board. It is often simply referred to as "the board." A board's activities are determined by the powers, duties, and responsibilities delegated to it or conferred on it by an authority outside itself. These matters are typically detailed in the organization's bylaws bylaws.. The bylaws commonly also specify the number of members of the board, how they are to be chosen, and when they are to meet. In an organization with voting members, e.g. a professional society, the board acts on behalf of, and is subordinate to, the organization's full assembly, which usually chooses the members of the board. In a stock corporation, the board is elected by the stockholders and is the highest authority in the management of the corporation. In a nonstock corporation with no general voting membership, e.g. a university, the board is the supreme governing body of the institution. Typical duties of boards of directors include: •

Governing the organization by establishing broad policies and objectives


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TERMINOLOGY GUIDE •

• • •

Selecting, appointing, supporting and reviewing the performance of the chief executive Ensuring the availability of adequate financial resources Approving annual budgets Accounting to the stakeholders for the organization's performance

The legal responsibilities of boards and board members vary with the nature of the organization, and with the jurisdiction within which it operates. For public corporations, these responsibilities are typically much more rigorous and complex than for those of other types. Typically the board chooses one of its members to be the chair or chairperson of the board of directors, traditionally also called chairman or chairwoman . W

Bookkeeping The recording, sorting and summarizing of transactions that affect the financial condition of a business. This is considered the record-making phase of accounting. †

Book Value The net amount at which an asset is shown in accounting records. For depreciable assets, book value equals cost minus accumulated depreciation. Also called the carrying value. †

Bridge Financing Interim financing used to meet a short-term, cash-flow need until more permanent financing (typically larger amounts) is secured. For example, bridge financing can be used to carry a firm to an initial public offering, a venture round of financing, or long-term debt.

Business entity The concept of a business (an economic units that enters business transactions) as separate from its owner(s). †

Business Intelligence Business intelligence (BI) refers to skills, knowledge, technologies, applications and practices used to help a business to acquire a better understanding of the market behavior and business context. For this purpose it employs collection, integration, analysis, interpretation and presentation of business information information.. In simplified meaning it may refer to the collected information itself or the explicit knowledge developed from the information. The purpose of business intelligence-a term that dates at least to 1958--is to support better business decision making. Thus, BI system is also described as a decision support system (DSS):


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TERMINOLOGY GUIDE BI is sometimes used interchangeably with briefing books, report and query tools and executive information systems. In general, business intelligence systems are data-driven DSS. BI systems provide historical, current, and predictive views of business operations, most often using data that has been gathered into a data warehouse or a data mart and occasionally working from operational data. Software elements support the use of this information by assisting in the extraction, analysis, and reporting of information. Applications tackle sales, production, financial, and many other sources of business data for purposes that include, notably, business performance management. management. Information may be gathered on comparable companies to produce benchmarks benchmarks.. Business intelligence often uses key performance indicators (KPIs) to assess the present state of business and to prescribe a course of action. Examples of KPIs are things such as lead conversion rate (in sales) and inventory turnover (in inventory management). Prior to the widespread adoption of computer and web applications, when information had to be manually input and calculated, performance data was often not available for weeks or months. Recently, banks have tried to make data available at shorter intervals and have reduced delays. The KPI methodology was further expanded with the Chief Performance Officer methodology which incorporated KPIs and root cause analysis into a single methodology. Businesses that face higher operational/ credit credit risk loading, such as credit card companies and "wealth management" services, often make KPI-related data available weekly. In some cases, companies may even offer a daily analysis of data. This fast pace requires analysts to use IT systems to process this large volume of data. W

Business Issue An area that is traditionally negotiated between the clients, rather than lawyers (or in some cases, an area that one or both lawyers don't want to negotiate for whatever reason).

Business Plan A business plan is a formal statement of a set of business goals, the reasons why they are believed attainable, and the plan for reaching those goals. It may also contain background information about the organization or team attempting to reach those goals. The business goals being attempted may be for-profit or non-profit. For-profit business plans typically focus on financial goals. Non-profit and government agency business plans tend to focus on service goals, although non-profits may also focus on maximizing profit. Business plans may also target changes in perception and branding by the customer, client, tax-payer, or larger community. planglobal plan global consulting ltd.

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TERMINOLOGY GUIDE A business plan having changes in perception and branding as its primary goals is called a marketing plan. Business plans may be internally or externally focused. Externally focused plans target goals that are important to external stakeholders, particularly financial stakeholders. They typically have detailed information about the organization or team attempting to reach the goals. With for-profit entities, external stakeholders include investors and customers. External stake-holders of non-profits include donors and the clients of the non-profit's services. For government agencies, external stakeholders include tax-payers, higher-level government agencies, and international lending bodies such as the IMF, the World Bank, various economic agencies of the UN, and development banks. Internally focused business plans target intermediate goals required to reach the external goals. They may cover the development of a new product, a new service, a new IT system, a restructuring of finance, the refurbishing of a factory or a restructuring of the organization. An internal business plan is often developed in conjunction with a balanced scorecard or a list of critical success factors. This allows success of the plan to be measured using non-financial measures. Business plans that identify and target internal goals, but provide only general guidance on how they will be met are called strategic plans. Operational plans describe the goals of an internal organization, working group or department. Project plans, sometimes known as project frameworks, describe the goals of a particular project. They may also address the project's place within the organization's larger strategic goals. W

Business transaction Any event expressed in dollars that is related to a business and affects the assets, liabilities, or owner’s equity of that business. †

C - Charlie CAPEX Capital expenditures (CAPEX or capex) are expenditures creating future benefits. A capital expenditure is incurred when a business spends money either to buy fixed assets or to add to the value of an existing fixed asset with a useful life that extends beyond the taxable year. Capex are used by a company to acquire or upgrade physical assets such as equipment, property, or industrial buildings. In accounting, a capital expenditure is added to an asset account ("capitalized"), thus increasing the asset's basis (the cost or value of an asset as adjusted for tax purposes). Capex is commonly found on the Cash Flow Statement as "Investment in Plant Property and Equipment" or something similar in the Investing subsection.


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TERMINOLOGY GUIDE For tax purposes, capital expenditures are costs that cannot be deducted in the year in which they are paid or incurred, and must be capitalized. The general rule is that if the property acquired has a useful life longer than the taxable year, the cost must be capitalized. The capital expenditure costs are then amortized or depreciated over the life of the asset in question. As stated above, capital expenditures create or add basis to the asset or property, which once adjusted, will determine tax liability in the event of sale or transfer. In the US, Internal Revenue Code §§263 and 263A deal extensively with capitalization requirements and exceptions. Included in capital expenditures are amounts spent on: 1. acquiring fixed assets 2. fixing problems with an asset that existed prior to acquisition 3. preparing an asset to be used in business 4. legal costs of establishing or maintaining one's right of ownership in a piece of property 5. restoring property or adapting it to a new or different use 6. starting a new business An ongoing question of the accounting of any company is whether certain expenses should be capitalized or expensed. Costs that are expensed in a particular month simply appear on the financial statement as a cost that was incurred that month. Costs that are capitalized, however, are amortized over multiple years. Capitalized expenditures show up on the balance sheet. Most ordinary business expenses are clearly either expensable or capitalizable, but some expenses could be treated either way, according to the preference of the company. W

Capital asset Capital asset has two related meanings in the fields of accounting and financial economics. In accounting, a capital asset is an asset that is recorded on a balance sheet as capital - that is, property that creates more property, e.g. a factory that creates shoes, or a forest that yields a quantity of wood. In financial economics, capital assets also include financial assets such as stocks or bonds.

CMLTD "Current Maturity of Long-Term Debt ("CMLTD") shall mean, for any period, the current scheduled principal or capital lease payments required to be paid during the applicable period.

Current assets Current assets are cash and other assets expected to be converted to cash, sold, or consumed either in a year or in the operating cycle. These assets are


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TERMINOLOGY GUIDE continually turned over in the course of a business during normal business activity. There are 5 major items included into current assets: 1. Cash and cash equivalents — it is the most liquid asset, which includes currency, deposit accounts, and negotiable instruments (e.g., money orders, cheque, bank drafts). 2. Short-term investments — include securities bought and held for sale in the near future to generate income on short-term price differences (trading securities). 3. Receivables — usually reported as net of allowance for uncollectable accounts. 4. Inventory — trading these assets is a normal business of a company. The inventory value reported on the balance sheet is usually the historical cost or fair market value, whichever is lower. This is known as the "lower of cost or market" rule. 5. Prepaid expenses — these are expenses paid in cash and recorded as assets before they are used or consumed (a common example is insurance). See also adjusting entries. The phrase net current assets (also called working capital) is often used and refers to the total of current assets less the total of current liabilities. W

Capital The ownership of the assets of a business by the proprietor(s). See Owner’s equity. †

Capitalization The combined sources of capital, consisting of debt capital (liabilities) and equity capital (capital stock and retained earnings).

Capitalization Capitalization Table Short for capitalization table, it is a summary of a company's issued and outstanding securities.

Cash basis accounting An accounting system that accounts only for cash actually received or disbursed during the accounting period. †

Chart of Accounts A list of the accounts in a ledger, arranged by account number. (These accounts are traditionally set up in the order of the accounting equation.) †

Closing entries Journal entries that usually occur at the end of the accounting period to eliminate


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TERMINOLOGY GUIDE the balances in the temporary capital account and to transfer these balances to the income summary account and eventually to the permanent capital account. †

Closing the books The process of posting closing entries to clear the revenue and expense accounts and to transfer the net income to the Retained Earning account at the end of an accounting year. It is done to ensure that the books are ready to record the next accounting year’s transactions. †

Convertible Debt In finance finance,, a convertible bond (or convertible debenture) is a type of bond that can be converted into shares of stock in the issuing company company,, usually at some pre-announced ratio. It is a hybrid security with debt- and equity-like features. Although it typically has a low coupon rate, the holder is compensated with the ability to convert the bond to common stock, stock, usually at a substantial discount to the stock's market value. From the issuer's perspective, the key benefit of raising money by selling convertible bonds is a reduced cash interest payment. However, in exchange for the benefit of reduced interest payments, the value of shareholder's equity is reduced due to the stock dilution expected when bondholders convert their bonds into new shares shares.. W

Convertible Notes Debt instrument (such as a promissory note) that can be converted to equity (either common stock or preferred stock).

Corporate Governance Corporate governance is the set of processes processes,, customs, policies policies,, laws and institutions affecting the way a corporation is directed, administered or controlled. Corporate governance also includes the relationships among the many stakeholders involved and the goals for which the corporation is governed. The principal stakeholders are the shareholders shareholders,, management and the board of directors.. Other stakeholders include employees, suppliers, customers, banks directors and other lenders, regulators, the environment and the community at large. W

Corporation A corporation is a legal entity separate from the persons that form it. In British tradition it is the term designating a body corporate, corporate, where it can be either a corporation sole (an office held by an individual natural person, which is a legal entity separate from that person) or a corporation aggregate (involving more persons). In American and, increasingly, international usage, the term denotes a body corporate formed to conduct business, and this meaning of corporation is discussed in the remaining part of this entry (the limited company in British usage).


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TERMINOLOGY GUIDE Corporations exist as a product of corporate law, law, and their rules balance the interests of the shareholders that invest their capital and the employees who contribute their labor labor.. People work together in corporations to produce value and generate income income.. In modern times, corporations have become an increasingly dominant part of economic life. People rely on corporations for employment employment,, for their goods and services, for the value of the pensions, for economic growth and social development. The defining feature of a corporation is its legal independence from the people who create it. If a corporation fails, shareholders only stand to lose their investment, and employees will lose their jobs, but neither will be liable for debts that remain owing to the corporation's creditors. This rule is called limited liability, liability, and it is why the names of corporations in the UK end with "Ltd. "Ltd."" (or some variant like "Inc. "Inc."" and "plc "plc"). "). Despite not being natural persons, corporations are recognized by the law to have rights and responsibilities like actual people. Corporations can exercise human rights against real individuals and the state, and they may be responsible for human rights violations. Just as they are "born" into existence through its members obtaining a certificate of incorporation, incorporation, they can "die" when they lose money into insolvency insolvency.. Corporations can even be convicted of criminal offences, such as fraud and manslaughter manslaughter.. Five common characteristics of the modern corporation, according to Harvard University Professors Hansmann and Kraakman are... •

•

•

•

•

delegated management, management, in other words, control of the company placed in the hands of a board of directors limited liability of the shareholders (so that when the company is insolvent, they only owe the money that they subscribed for in shares) investor ownership, ownership, which Hansmann and Kraakman take to mean, ownership by shareholders. separate legal personality of the corporation (the right to sue and be sued in its own name) transferable shares (usually on a listed exchange, such as the London Stock Exchange, Exchange, New York Stock Exchange or Euronext in Paris Paris))

Ownership of a corporation is complicated by increasing social and economic interdependence, as different stakeholders compete to have a say in corporate affairs. In most developed countries excluding the English speaking world, company boards have representatives of both shareholders and employees to "codetermine codetermine"" company strategy. Calls for increasing corporate social responsibility are made by consumer, environmental and human rights activists, and this has led to larger corporations drawing up codes of conduct. In Australia Australia,, Canada,, the United Kingdom and the United States, Canada States, corporate law has not yet stepped into that field, and its building blocks remain the study of corporate governance and corporate finance. finance. W planglobal plan global consulting ltd.

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TERMINOLOGY GUIDE Co-Sale or Tag-Along Rights These enable the holder of the rights to participate in a sale of stock from another investor to a third party, typically in proportion to the number of shares the holder holds in the company. Co-sale rights are usually designed and intended to protect the holder if a founder or a majority shareholder decides to sell his, her, or its interest in the company. The co-sale rights holder can participate in the sale, usually on the same terms and conditions as the founder or majority shareholder.

Cram-Down Financing A financing that results in significant dilution of a non-participating existing shareholder, usually reducing the value of that investor's original investment or the rights held by such investors.

Cost-benefit analysis Cost-benefit analysis is a term that refers both to: •

•

a formal discipline used to help appraise, or assess, the case for a project or proposal, which itself is a process known as project appraisal; and an informal approach to making decisions of any kind.

Under both definitions the process involves, whether explicitly or implicitly, weighing the total expected costs against the total expected benefits of one or more actions in order to choose the best or most profitable option. The formal process is often referred to as either CBA (Cost-Benefit Analysis) or BCA (Benefit-Cost Analysis). A hallmark of CBA is that all benefits and all costs are expressed in money terms, and are adjusted for the time value of money, so that all flows of benefits and flows of project costs over time (which tend to occur at different points in time) are expressed on a common basis in terms of their “present value.” Closely related, but slightly different, formal techniques include Cost-effectiveness analysis, Economic impact analysis, Fiscal impact analysis and Social Return on Investment (SROI) analysis. The latter builds upon the logic of cost-benefit analysis, but differs in that it is explicitly designed to inform the practical decisionmaking of enterprise managers and investors focused on optimizing their social and environmental impacts. W

Credit An entry that signifies a decrease in asset and expense accounts, and an increase in liability, owner’s equity, and revenue accounts. This entry is a positive balance on the right-hand side. Increasing the balance of an account with a normal credit balance is called crediting. †


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TERMINOLOGY GUIDE Current assets Assets which can be converted to case or realized in the ordinary course of business, usually within one year. †

Current Liabilities In accounting, current liabilities are considered liabilities of the business that are to be settled in cash within the fiscal year or the operating cycle, whichever period is longer. For example accounts payable for goods, services or supplies that were purchased for use in the operation of the business and payable within a normal period of time would be current liabilities. Bonds, mortgages and loans that are payable over a term exceeding one year would be fixed liabilities. However the payments due on the long-term loans in the current fiscal year could be considered current liabilities if the amount were material. The proper classification of liabilities is essential when considering a true picture of an organization's fiscal health. W

Current Ratio The current ratio gauges how capable a business is in paying current liabilities by using current assets only. Current ratio is also called the working capital ratio. A general rule of thumb for the current ratio is 2 to 1 (or 2:1 or 2/1). However, an industry average may be a better standard than this rule of thumb. The actual quality and management of assets must also be considered. The formula is: Total Current Assets / Total Current Liabilities W

D - Delta Debit A positive balance on the left-hand side of an account. Increasing the balance of an account which normally has a debit balance is called debiting. †

Debt Ratio A ratio that indicates what proportion of debt a company has relative to its assets. The measure gives an idea to the leverage of the company along with the potential risks the company faces in terms of its debt-load. The formula is: Total Debt / Total Assets

Debt to Equity Ratio Debt to equity is also called debt to net worth. It quantifies the relationship planglobal plan global consulting ltd.

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TERMINOLOGY GUIDE between the capital invested by owners and investors and the funds provided by creditors. The higher the ratio, the greater the risk to a current or future creditor. A lower ratio means your client's company is more financially stable and is probably in a better position to borrow now and in the future. However, an extremely low ratio may indicate that your client is too conservative and is not letting the business realize its potential. The formula is: Total Liabilities (or Debt) / Net Worth (or Total Equity) W

Depreciation Allocation of the cost of a physical asset (such as a piece of equipment) over its useful life. Depreciation transactions debit the depreciation expense account and credit (reduce) the value of the asset.†

Dilution The reduction in the ownership percentage of shareholders caused by the issuance of new securities or the conversion of convertible securities of the issuer, typically with the connotation that the new securities are issued at a lower price than paid in the previous round of financing.

Direct Expenses Are those costs directly related to the principal activity of the business. Examples include the raw materials used to manufacture a product and the labor costs associated with the work performed to produce the product.

Discounted Cash Flow In finance, the discounted cash flow (or DCF) approach describes a method of valuing a project, company, or asset using the concepts of the time value of money. All future cash flows are estimated and discounted to give their present values. The discount rate used is generally the appropriate cost of capital and may incorporate judgments of the uncertainty (riskiness) of the future cash flows. W

Double Entry Accounting An accounting procedure where for everything you do to affect one account, there is an equal dollar effect on another account. †

Down Round A financing in which the new securities are issued at a lower price than the previous round of financing.

Drag-Along Rights Rights that enable a shareholder or group of shareholders (usually those who own a controlling interest in the company) to compel other shareholders to sell


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TERMINOLOGY GUIDE their stock in the event a purchaser desires to purchase more than what the controlling shareholder(s) own(s).

Due Diligence A number of concepts involving either the performance of an investigation of a business or person, or the performance of an act with a certain standard of care. It can be a legal obligation, but the term will more commonly apply to voluntary investigations. A common example of due diligence in various industries is the process through which a potential acquirer evaluates a target company or its assets for acquisition. In business transactions, the due diligence process varies for different types of companies. The relevant areas of concern may include the financial, legal, labor, tax, IT, environment and market/commercial situation of the company. Other areas include intellectual property, real and personal property, insurance and liability coverage, debt instrument review, employee benefits and labor matters, immigration, and international transactions. W

E - Echo Earnings The accumulated total of after-tax profits and losses from operations over the life of the company. Profits add to the total, and losses subtract from it.†

EBITDA Earnings Before Interest, Taxes, Depreciation and Amortization. An approximate measure of a company's operating cash flow based on data from the company's income statement. Calculated by looking at earnings before the deduction of interest expenses, taxes, depreciation, and amortization. This earnings measure is of particular interest in cases where companies have large amounts of fixed assets which are subject to heavy depreciation charges (such as manufacturing companies) or in the case where a company has a large amount of acquired intangible assets on its books and is thus subject to large amortization charges (such as a company that has purchased a brand or a company that has recently made a large acquisition). Since the distortionary accounting and financing effects on company earnings do not factor into EBITDA, it is a good way of comparing companies within and across industries. This measure is also of interest to a company's creditors, since EBITDA is essentially the income that a company has free for interest payments. In general, EBITDA is a useful measure only for large companies with significant assets, and/or for companies with a significant amount of debt financing. It is rarely a useful measure for evaluating a small company with no significant loans. Sometimes also called operational cash flow. W


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TERMINOLOGY GUIDE EBITDA/Interest This assesses the company's ability to meet interest payments. It also evaluates the capacity to take on more debt. The higher the ratio, the greater the company's ability to make its interest payments or perhaps take on more debt. The formula is: Earnings Before Interest Taxes Depreciation and Amortization / Interest Charges W

Employee’s Earnings Record A form used to record an employee’s earnings and deductions.†

Enterprise Resource Planning Enterprise resource planning (ERP) is an enterprise-wide information system designed to coordinate all the resources, information, and activities needed to complete business processes such as order fulfillment or billing. An ERP system supports most of the business system that maintains in a single database the data needed for a variety of business functions such as Manufacturing, Supply Chain Management, Financials, Projects, Human Resources and Customer Relationship Management. An ERP system is based on a common database and a modular software design. The common database can allow every department of a business to store and retrieve information in real-time. The information should be reliable, accessible, and easily shared. The modular software design should mean a business can select the modules they need, mix and match modules from different vendors, and add new modules of their own to improve business performance. Ideally, the data for the various business functions are integrated. In practice the ERP system may comprise a set of discrete applications, each maintaining a discrete data store within one physical database. W

Equity The worth of a business to its owner. It is shown on the right side of the accounting equation. To calculate the owner’s equity, subtract the liabilities from the assets.†

Expenses The cost of doing business. These amounts are those a business spends to provide goods or services to its customers or to carry on its business, excluding amounts spent to acquire assets.†

Exit Strategy The method for enabling shareholders to sell their shares and earn a return on


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TERMINOLOGY GUIDE investment. Typically, it refers to either the sale of the company or a public offering.

F - Foxtrot Factoring Factoring is a financial transaction whereby a business sells its accounts receivable (i.e., invoices) at a discount. Factoring differs from a bank loan in three main ways. First, the emphasis is on the value of the receivables (essentially a financial asset), not the firm’s credit worthiness. Secondly, factoring is not a loan – it is the purchase of a financial asset (the receivable). Finally, a bank loan involves two parties whereas factoring involves three. Factoring is a word often misused synonymously with invoice discounting factoring is the sale of receivables whereas invoice discounting is borrowing where the receivable is used as collateral. The three parties directly involved are: the one who sells the receivable, the debtor, and the factor. The receivable is essentially a financial asset associated with the debtor’s Liability to pay money owed to the seller (usually for work performed or goods sold). The seller then sells one or more of its invoices (the receivables) at a discount to the third party, the specialized financial organization (aka the factor), to obtain cash. The sale of the receivables essentially transfers ownership of the receivables to the factor, indicating the factor obtains all of the rights and risks associated with the receivables. Accordingly, the factor obtains the right to receive the payments made by the debtor for the invoice amount and must bear the loss if the debtor does not pay the invoice amount. Usually, the debtor is notified of the sale of the receivable, and the factor bills the debtor and makes all collections. However, at times, the seller will collect the payments made by the debtor, and will remit them to the factor. The factor usually charges the seller a service charge, as well as interest based on how long the factor must wait to receive payments from the debtor. The seller also estimates the amount that may not be collected due to non-payment, and makes accommodation for this when determining the amount that will be given to the seller. The factor's overall profit is the difference between the price it paid for the invoice and the money received from the debtor, less the amount lost due to non-payment. W

Family Trust A discretionary trust is a legal document to secure a family's assets and to safeguard a family business. The trust is established for asset protection or tax purposes.

Feasibility study A feasibility study is a preliminary study undertaken to determine and document a project's viability or the discipline of planning, organizing, and managing planglobal plan global consulting ltd.

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TERMINOLOGY GUIDE resources to bring about the successful completion of specific project goals and objectives. The term is also used to describe the preliminary analysis of an existing system to see if it is worth upgrading all or a part. Also known as feasibility analysis. The term is also used to refer to the resulting document. The results of this study are used to make a decision whether or not to proceed with the project. If it indeed leads to a project being approved, it will — before the real work of the proposed project starts and be used to ascertain the likelihood of the project's success. It is an analysis of possible alternative solutions to a problem and a recommendation on the best alternative. It can decide, for example, whether order processing can be carried out by a new system more efficiently than the previous one. If a project is seen to be feasible from the results of the study, the next logical step is to proceed with it. The research and information uncovered in the feasibility study will support the detailed planning and reduce the research time.

Types of Feasibility Studies The following sections describe various types of feasibility studies. Market and Real Estate Feasibility

Market Feasibility Study typically involves testing geographic locations for a real estate development project, and usually involves parcels of real estate land. Developers often conduct market studies to determine the best location within a jurisdiction, and to test alternative land uses for a given parcels. Jurisdictions often require developers to complete feasibility studies before they will approve a permit application for retail, commercial, industrial, manufacturing, housing, office or mixed-use project. Technology and System Feasibility

This involves questions such as whether the technology needed for the system exists, how difficult it will be to build, and whether the firm has enough experience using that technology. The assessment is based on an outline design of system requirements in terms of Input, Processes, Output, Fields, Programs, and Procedures. This can be quantified in terms of volumes of data, trends, frequency of updating, etc in order to estimate if the new system will perform adequately or not. Resource Feasibility

This involves questions such as how much time is available to build the new system, when it can be built, whether it interferes with normal business operations, type and amount of resources required, dependencies, etc.


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TERMINOLOGY GUIDE Contingency and mitigation plans should also be stated here so that if the project does over run the company is ready for this eventuality. Cultural Feasibility

In this stage, the project's alternatives are evaluated for their impact on the local and general culture. Further an enterprise's own culture can clash with the results of the project. Operational feasibility

Do the current work practices and procedures support a new system. Also social factors i.e. how the organizational changes will affect the working lives of those affected by the system.. Legal Feasibility

Determines whether the proposed system conflicts with legal requirements, e.g. a Data Processing system must comply with the local Data Protection Acts. When an organization has either internal or external legal counsel, such reviews are typically standard. However, a project may face legal issues after completion if this factor is not considered at this stage.it is about the authorization Marketing and Economic Feasibility

A business plan needs to be based on the market forces that could affect the commercial viability of the business. Internal projects must establish the costeffectiveness of the proposed system i.e. if the benefits do not outweigh the costs then it is not worth going ahead. This includes a cost benefit analysis. Schedule Feasibility

A project will fail if it takes too long to be completed before it is useful. Typically this means estimating how long the system will take to develop, and if it can be completed in a given time period using some methods like payback period W

Financial statements Documents prepared to summarize the effects of business transactions. See Balance Sheet and Income Statement.†

Fiscal year The twelve-month period which a company chooses for accounting purposes. It is not necessarily the same as a calendar year.†


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TERMINOLOGY GUIDE Fixed Assets Assets such as land, buildings, equipment, and trucks that are used in operating the business and which have a long life.†

Full-Ratchet, Full-Ratchet, Anti-Dilution Protection Rights that enable investors to reduce the share price at which they can convert their earlier investment or debt to the lower price per share that the company subsequently sells or issues its shares.

G - Golf General Journal Those transactions that cannot go into one of the special journals (i.e. purchase, sales, cash receipts, cash payment journals.) This includes any payroll entries, adjusting entries or closing entries.†

Goodwill Goodwill is an accounting term used to reflect the portion of the book value of a business entity not directly attributable to its assets and liabilities; it normally arises only in case of an acquisition. It reflects the ability of the entity to make a higher profit than would be derived from selling the tangible assets. Goodwill is also known as an intangible asset. W

Governance Governance relates to decisions that define expectations, grant power power,, or verify performance.. It consists either of a separate process or of a specific part of performance management or leadership processes. Sometimes people set up a government to administer these processes and systems. In the case of a business or of a non-profit organization, organization, governance relates to consistent management, cohesive policies, processes and decision-rights for a given area of responsibility. For example, managing at a corporate level might involve evolving policies on privacy privacy,, on internal investment, and on the use of data. W

Gross Profit Margin Gross profit margin indicates how well the company can generate a return at the gross profit level. It addresses three areas -- inventory control, pricing and production efficiency. The formula is: Gross Profit / Total Sales W


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TERMINOLOGY GUIDE H - Hotel Hostile takeovers If management may not be acting in the best interest of the shareholders (or creditors, in cases of bankrupt firms), a hostile takeover allows a suitor to bypass intransigent management. This enables the shareholders to choose the option that may be best for them, rather than leaving approval solely with management. In this case, a hostile takeover may be beneficial to shareholders, which is contrary to the usual perception that a hostile takeover is "bad." A takeover is considered "hostile" if: • •

The board rejects the offer, but the bidder continues to pursue it, or The bidder makes the offer without informing the board beforehand

A hostile takeover can be conducted in several ways. A tender offer can be made where the acquiring company makes a public offer at a fixed price above the current market price. Tender offers in the USA are regulated with the Williams Act. An acquiring company can also engage in a proxy fight, whereby it tries to persuade enough shareholders, usually a simple majority, to replace the management with a new one which will approve the takeover. Another method involves quietly purchasing enough stock on the open market, known as a creeping tender offer, to effect a change in management. In all of these ways, management resists the acquisition but it is carried out anyway. The main consequence of a bid being considered hostile is practical rather than legal. If the board of the target cooperates, the bidder can conduct extensive due diligence into the affairs of the target company. It can find out exactly what it is taking on before it makes a commitment. But a hostile bidder knows about the target only the information that is publicly available, and so takes a greater risk. Also, banks are less willing to back hostile bids with the loans that are usually needed to finance the takeover.

I - India Income The amount left over after all the revenues for a period are accounted of, and all costs and expenses for the same period are deducted. Income is also called net income, profit, or net profit.†

Income statement A statement which show the revenues, expenses, and the net income for a particular period.†


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TERMINOLOGY GUIDE Indirect Expenses Are those not directly related to the principal activity of the business. Examples include Sales activities, Research and Development activities, and Administrative activities.

Initial Public Offering Initial public offering (IPO), also referred to simply as a "public offering", is when a company issues common stock or shares to the public for the first time. They are often issued by smaller, younger companies seeking capital to expand, but can also be done by large privately-owned companies looking to become publicly traded.

Intangible Assets Intangible assets are defined as identifiable non-monetary assets that cannot be seen, touched or physically measured, which are created through time and/or effort and that are identifiable as a separate asset. There are two primary forms of intangibles - legal intangibles (such as trade secrets (e.g., customer lists), copyrights, patents, trademarks, and goodwill) and competitive intangibles (such as knowledge activities (know-how, knowledge), collaboration activities, leverage activities, and structural activities). Legal intangibles generate g enerate legal property rights defensible in a court of law. Competitive intangibles, whilst legally nonownable, directly impact effectiveness, productivity, wastage, and opportunity costs within an organization - and therefore costs, revenues, customer service, satisfaction, market value, and share price. Human capital is the primary source of competitive intangibles for organizations today. Competitive intangibles are the source from which competitive advantage flows, or is destroyed. The area of finance that deals with intangible assets is known as Intangible Asset Finance. W

Issuer Refers to the company who issued or sold its securities.

J - Juliet Journal A record of all business transactions in daily or chronological order. All transactions are recorded in a journal - this is a book of original or first entries.†

K - Kilo Keiretsu A keiretsu (系列? lit. system or series) is a set of companies with interlocking business relationships and shareholdings. It is a type of business group.


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TERMINOLOGY GUIDE The prototypical keiretsu are those which appeared in Japan during the "economic miracle" following World War II. Before Japan's surrender, Japanese industry was controlled by large family-controlled vertical monopolies called zaibatsu. During the occupation of Japan, under the Supreme Commander of the Allied Powers, General Douglas MacArthur, a partially successful attempt was made to dissolve the zaibatsu in the late 1940s. Sixteen zaibatsu were targeted for complete dissolution, and twenty six more for reorganization after dissolution. However, the companies formed from the dismantling of the zaibatsu were later reintegrated. The dispersed corporations were re-interlinked through share purchases to form horizontally-integrated alliances across many industries. Where possible, keiretsu companies would also supply one another, making the alliances vertically integrated as well. In this period, official government policy promoted the creation of robust trade corporations which could withstand heavy pressures from intensified world trade competition.[1] The major keiretsu were each centered around one bank, which lent money to the keiretsu's member companies and held equity positions in the companies. Each bank had great control over the companies in the keiretsu and acted as a monitoring entity and as an emergency bail-out entity. One effect of this structure was to minimize the presence of hostile takeovers in Japan, because no entities could challenge the power of the banks. There are two types of keiretsu: vertical and horizontal. Vertical keiretsu illustrates the organization and relationships within a company (for example all factors of production of a certain product will be connected), while a horizontal keiretsu shows relationships between entities and industries, normally centered around a bank and trading company. Both are complexly woven together and self-sustain each other. Although the divisions between them have blurred in recent years, there are six major postwar keiretsu: Mitsubishi, Mitsui, Sumitomo, Fuyo, Dai-Ichi Kang yo, Sanwa, with Toyota is considered the biggest of the "vertically-integrated" keiretsu groups.[2] The Japanese recession in the 1990s had profound effects on the keiretsu. Many of the largest banks were hit hard by bad loan portfolios and forced to merge or go out of business. This had the effect of blurring the lines between the keiretsu: Sumitomo Bank and Mitsui Bank, for instance, became Sumitomo Mitsui Banking Corporation in 2001, while Sanwa Bank (the banker for the Hankyu-Toho Group) became part of Bank of Tokyo-Mitsubishi UFJ. Additionally, many companies from outside the keiretsu system, such as Sony, began outperforming their counterparts within the system.


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TERMINOLOGY GUIDE Generally, these causes gave rise to a strong notion in the business community that the old keiretsu system was not an effective business model, and led to an overall loosening of keiretsu alliances. While the keiretsu still exist, they are not as centralized or integrated as they were before the 1990s. This, in turn, has led to a growing corporate acquisition industry in Japan, as companies are no longer able to be easily "bailed out" by their banks, as well as rising derivative litigation by more independent shareholders. Keiretsu outside Japan The keiretsu model has not appeared outside Japan, but many non-Japanese businesses are described as keiretsu such as the Virgin Group (UK), Tata Group (India) and Cisco Systems (USA). Airline alliances such as Oneworld and the Star Alliance have also been described as keiretsu. Generally, these groups exhibit more top-down management, centralized control or (in the case of airline alliances) looser equity ownership connections than do "true" keiretsu. Banks cited as being central to keiretsu-like systems include Deutsche Bank and the early years of JP Morgan and Mellon Financial in the United States. One economic group, the Colombian Grupo Empresarial Antioqueño, is often described as such. The venture capital firm of Kleiner, Perkins, Caufield & Byers (KPCB), a major player in the dot.com boom, describes its investment portfolio as a keiretsu.[citation needed] Like the Japanese keiretsu of the postwar period, KPCB has invested in independent companies covering a number of business sectors, and encouraged business connections between those companies, making its portfolio one of the closest analogues to a keiretsu outside Japan. A form of keiretsu can also be found in the cross-shareholdings of the largest U.S. media companies—see Columbia Journalism Review's "Who Owns What" website or They Rule. There is an angel investor organization called Keiretsu Forum in America, which describes itself as the largest network of angel investors in the world. South Korean conglomerates, called chaebol, are often compared to keiretsu, but the chaebol conglomerations are much more similar to a Western conglomerate like General Electric or a pre-World War II zaibatsu. W

L - Lima Lead Investor The investor who manages the negotiation, documentation, and closing of a round of financing, and typically makes the largest investment in such round.


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TERMINOLOGY GUIDE Ledger This is a book of second or final entries of transactions in which each page contains the records of one account, thus a ledger consists of a group of accounts. A ledger may be a computer printout, a bound book, or a loose-leaf type book.†

Liability In financial accounting, accounting, a liability is defined as an obligation of an entity arising from past transactions or events, the settlement of which may result in the transfer or use of assets assets,, provision of services or other yielding of economic benefits in the future. Individual or group must adopt corporate charter and file it with the state. •

•

•

They embody a duty or responsibility to others that entails settlement by future transfer or use of assets, provision of services or other yielding of economic benefits, at a specified or determinable date, on occurrence of a specified event, or on demand; The duty or responsibility obligates the entity leaving it little or no discretion to avoid it; and, The transaction or event obligating the entity has already occurred.

Liabilities in financial accounting need not be legally enforceable; but can be based on equitable obligations or constructive obligations. An equitable obligation is a duty based on ethical or moral considerations. A constructive obligation is an obligation that can be inferred from a set of facts in a particular situation as opposed to a contractually based obligation. W

Living Dead Refers to investors who go through a few down rounds of financing, are unwilling or unable to invest any more, and for whose interests in the company there is no liquidation event on the horizon. When the term is applied to a company, it means that the company continues to operate, even though the company is insolvent or has little chance of thriving.

Lock-Up Provision A contractual requirement that for a period of time, (such as 180 days) a shareholder is restricted from selling such shareholder's securities following a public offering.

Long-term liabilities Long-term liabilities are liabilities with a future benefit over one year, such as notes payable that mature greater than one year. In accounting, the long-term liabilities are shown on the right wing of the balance-sheet representing the sources of funds, which are generally bounded in form of capital assets.


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TERMINOLOGY GUIDE Examples of long-term liabilities are debentures, mortgage loans and other bank loans (note: not all bank loans are long term as not all are paid over a period greater than a year, the example is bridging loan.) By convention, the portion of long-term liabilities that must be paid in the coming 12-month period are classified as current liabilities. For example, a loan for which two payments of $1000 are due, one in the next twelve months and the other after that date, would be 'split' into two: $1000 would be classified as a current liability, and $1000 as a long-term liability (note this example is simplified, and does not take into account any interest or discounting effects, which may be required depending on the accounting rules). W

M - Mike MBO (management buy-out) Management buyouts are similar in all major legal aspects to any other acquisition of a company. The particular nature of the MBO lies in the position of the buyers as managers of the company, and the practical consequences that follow from that. In particular, the due diligence process is likely to be limited as the buyers already have full knowledge of the company available to them. The seller is also unlikely to give any but the most basic warranties to the management, on the basis that the management know more about the company than the sellers do and therefore the sellers should not have to warrant the state of the company. The purpose of such a buyout from the managers' point of view may be to save their jobs, either if the business has been scheduled for closure or if an outside purchaser would bring in its own management team. team. They may also want to maximize the financial benefits they receive from the success they bring to the company by taking the profits for themselves. This is often a way to ward off aggressive buyers. W

Mergers and Acquisitions The phrase mergers and acquisitions (abbreviated M&A) refers to the aspect of corporate strategy, corporate finance and management dealing with the buying, selling and combining of different companies that can aid, finance, or help a growing company in a given industry grow rapidly without having to create another business entity. W

Mergers A merger is a tool used by companies for the purpose of expanding their operations often aiming at an increase of their long term profitability. There are 15 different types of actions that a company can take when deciding to move forward using M&A. Usually mergers occur in a consensual (occurring by mutual consent) setting where executives from the target company help those from the planglobal plan global consulting ltd.

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TERMINOLOGY GUIDE purchaser in a due diligence process to ensure that the deal is beneficial to both parties. Acquisitions can also happen through a hostile takeover by purchasing the majority of outstanding shares of a company in the open market against the wishes of the target's board. In the United States, business laws vary from state to state whereby some companies have limited protection against hostile takeovers. One form of protection against a hostile takeover is the shareholder rights plan, otherwise known as the "poison pill". In business or economics a merger is a combination of two companies into one larger company. Such actions are commonly voluntary and involve stock swap or cash payment to the target. Stock swap is often used as it allows the shareholders of the two companies to share the risk involved in the deal. A merger can resemble a takeover but result in a new company name (often combining the names of the original companies) and in new branding; in some cases, terming the combination a "merger" rather than an acquisition is done purely for political or marketing reasons. W

Mezzanine Financing Typically a hybrid of debt and equity financing that is used to finance the expansion of an existing company. It is generally subordinated to debt provided by senior lenders such as banks. Mezzanine capital often is a more expensive financing source for a company than secured debt or senior debt. debt. The higher cost of capital associated with mezzanine financings is the result of its location as an unsecured, subordinated (or junior) obligation in a company's capital structure (i.e., in the event of default default,, the mezzanine financing is less likely to be repaid in full after all senior obligations have been satisfied). Additionally, mezzanine financings, which are usually private placements are also often used by smaller companies and may also involve greater overall leverage levels than issuers in the High Yield market and as such involve additional risk. In compensation for the increased risk, mezzanine debt holders will require a higher returns for their investment than secured or other more senior lenders. W

N - November Negative Equity A term used to refer to when the value of an asset used to secure a loan is less than the outstanding balance on the loan. A person holding negative equity is said to be upside down. This can occur when the value of the asset stays fixed but the loan balance increases because loan payments are less than the interest, a situation known as negative amortization. amortization. The typical assets securing such loans are real property - commercial, office and residential. The typical loan is one secured when the property owner mortgages the property to secure the loan.


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TERMINOLOGY GUIDE When the loan is nonrecourse the lender can only look to the security, that is, the real property when the borrower fails to repay the loan. W

Net Present Value (NPV) Net present value (NPV) or net present worth (NPW) is defined as the total present value (PV) of a time series of cash flows. It is a standard method for using the time value of money to appraise long-term projects. Used for capital budgeting, and widely throughout economics, it measures the excess or shortfall of cash flows, in present value terms, once financing charges are met. The discounted cash flow is very similar. Each cash inflow/outflow is discounted back to its present value (PV). Then they are summed. Therefore NPV is the sum of all terms

, where

t - the time of the cash flow i - the discount rate (the rate of return that could be earned on an investment in the financial markets with similar risk.) Rt - the net cash flow (the amount of cash, inflow minus outflow) at time t (for educational purposes, C 0 is commonly placed to the left of the sum to emphasize its role as investment). The discount rate

The rate used to discount future cash flows to their present values is a key variable of this process. A firm's weighted average cost of capital (after tax) is often used, but many people believe that it is appropriate to use higher discount rates to adjust for risk for riskier projects or other factors. A variable discount rate with higher rates applied to cash flows occurring further along the time span might be used to reflect the yield curve premium for long-term debt. Another approach to choosing the discount rate factor is to decide the rate which the capital needed for the project could return if invested in an alternative venture. If, for example, the capital required for Project A can earn five percent elsewhere, use this discount rate in the NPV calculation to allow a direct comparison to be made between Project A and the alternative. Related to this concept is to use the firm's Reinvestment Rate. Reinvestment rate can be defined as the rate of return for the firm's investments on average. When analyzing projects in a capital constrained environment, it may be appropriate to use the reinvestment rate rather than the firm's weighted average cost of capital as the discount factor. It reflects opportunity cost of investment, rather than the possibly lower cost of capital.


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TERMINOLOGY GUIDE A NPV amount obtained using variable discount rates (if they are known for the duration of the investment) better reflects the real situation than that calculated from a constant discount rate for the entire investment duration. For some professional investors, their investment funds are committed to target a specified rate of return. In such cases, that rate of return should be selected as the discount rate for the NPV calculation. In this way, a direct comparison can be made between the profitability of the project and the desired rate of return. To some extent, the selection of the discount rate is dependent on the use to which it will be put. If the intent is simply to determine whether a project will add value to the company, using the firm's weighted average cost of capital may be appropriate. If trying to decide between alternative investments in order to maximize the value of the firm, the corporate reinvestment rate would probably be a better choice. Using variable rates over time, or discounting "guaranteed" cash flows different from "at risk" cash flows may be a superior methodology, but is seldom used in practice. Using the discount rate to adjust for risk is often difficult to do in practice (especially internationally), and is really difficult to do well. An alternative to using discount factor to adjust for risk is to explicitly correct the cash flows for the risk elements, then discount at the firm's rate. What NPV Means

NPV is an indicator of how much value an investment or project adds to the value of the firm. With a particular project, if Ct is a positive value, the project is in the status of discounted cash inflow in the time of t. If Ct is a negative value, the project is in the status of discounted cash outflow in the time of t. Appropriately risked projects with a positive NPV could be accepted. This does not necessarily mean that they should be undertaken since NPV at the cost of capital may not account for opportunity cost, i.e. comparison with other available investments. In financial theory, if there is a choice between two mutually exclusive alternatives, the one yielding the higher NPV should be selected. W

Net Profit Margin Net profit margin shows how much net profit is derived from every dollar of total sales. It indicates how well the business has managed its operating expenses. It also can indicate whether the business is generating enough sales volume to cover minimum fixed costs and still leave an acceptable profit. The formula is: Net Profit / Total Sales W

Notes payable A subdivision of liabilities that refers to money the business owes to a creditor as


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TERMINOLOGY GUIDE seen by an actual note.†

Notes receivable A subdivision of assets that refers to money owed to the business as seen by actual note.†

No-Shop Requirement A contractual requirement that prevents a company from soliciting or negotiating offers to purchase its securities for a specified period of time while it is exclusively negotiating with a particular investor or group of investors.

O - Oscar Offering Memorandums Offering memorandum (“OM”) is a legal document stating the objectives, risks and terms of investment involved with a private placement. This includes items such as the financial statements, management biographies, detailed description of the business, etc. An offering memorandum serves to provide buyers with information on the offering and to protect the sellers from the liability associated with selling unregistered securities.

Operating Expenses An operating expense, operating expenditure, operational expense, operational expenditure or OPEX is an on-going cost for running a product, business, or system. Its counterpart, a capital expenditure (CAPEX), is the cost of developing or providing non-consumable parts for the product or system. For example, the purchase of a photocopier is the CAPEX, and the annual paper and toner cost is the OPEX. For larger systems like businesses, OPEX may also include the cost of workers and facility expenses such as rent and utilities. In business, an operating expense is a day-to-day expense such as sales and administration, or research & development, as opposed to Production, costs, and pricing. In short, this is the money the business spends in order to turn inventory into throughput. Operating expenses also include depreciation of plants and machinery which are used in the production process. On an income statement, "operating expenses" is the sum of a business's operating expenses for a period of time, such as a month or year. W

Ownership Equity In accounting terms, after all liabilities are paid, ownership equity is the remaining interest in assets assets.. If valuations placed on assets do not exceed liabilities, negative equity exists.†

Owner’s capital account


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TERMINOLOGY GUIDE An account that lists the increases and decreases in capital that an owner has invested in the business.†

Owner’s equity The owner’s claim against the assets of the business after liabilities have been deducted. Also called capital, proprietorship, or net worth.†

P - Papa Participation Right A right that enables the holder to purchase the holder's pro-rata percentage of the company's equity securities in future rounds, enabling the holder to maintain his, her or its percentage ownership in the company.

Payment In-Kind Dividends A dividend paid in equity rather than cash.

Payroll A list of all employees and their respective salaries for a given period.†

Periodic inventory method The taking of a physical count of the merchandise on hand at the end of an accounting period.†

Perpetual inventory method The continuous taking of a physical count of the goods available for sale. †

Petty cash fund A fund kept by business from which employees may obtain small amounts of case (on approval) for every day use on insignificant expenditures for which a check would not be accepted or appropriate. Posting The process of transferring debits and credits from the five journals to the applicable ledger account.†

Post-closing Trial Balance A trial balance that is prepared after closing the ledger.†

Post-Money Valuation The value of the company after investors invest in a given round of financing.

Pre-Emptive Rights The right of an existing shareholder to purchase such shareholder's pro rata share of any new stock that is being issued by the company prior to that stock being offered to new investors. They are similar to participation rights.


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TERMINOLOGY GUIDE Preferred Shares Shares that gives its holders certain rights, preferences, and privileges over holders of common shares in certain instances.

Preferred Stock Preferred stock, also called preferred shares or preference shares, is typically a higher ranking stock than voting shares, and its terms are negotiated between the corporation and the investor. Preferred stock usually carry no voting rights, but may carry superior priority over common stock in the payment of dividends and upon liquidation. Preferred stock may carry a dividend that is paid out prior to any dividends to common stock holders. Preferred stock may have a convertibility feature into common stock. Preferred stockholders will be paid out in assets before common stockholders and after debt holders in bankruptcy. Terms of the preferred stock are stated in a "Certificate of Designation". W

Prepaid Expense An asset account. It is an item that has been paid in advance yet is normally considered an expense, at such a time as the asset is used up, an adjusting entry will convert this prepaid expense (asset) to an actual expense. (An example is insurance on buildings, etc.)†

Pre-Tax Income The amount earned from a business or investment before deducting income taxes.

Private Equity In finance, private equity is an asset class consisting of equity securities in operating companies that are not publicly traded on a stock exchange. Private equity investments can be divided into the following categories: •

•

Leveraged buyout, LBO or simply Buyout: refers to a strategy of making equity investments as part of a transaction in which a company, business unit or business assets is acquired from the current shareholders typically with the use of financial leverage. The companies involved in these transactions are typically more mature and generate operating cash flows. Venture capital: a broad subcategory of private equity that refers to equity investments made, typically in less mature companies, for the launch, early development, or expansion of a business. Venture capital is often sub-divided by the stage of development of the company ranging from early stage capital used for the launch of start-up companies to late stage and growth capital that is often used to fund expansion of existing


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TERMINOLOGY GUIDE business that are generating revenue but may not yet be profitable or generating cash flow to fund future growth. •

Growth capital: refers to equity investments, inves tments, most often minority investments, in more mature companies that are looking for capital to expand or restructure operations, enter new markets or finance a major acquisition without a change of control of the business. W

Private Charitable Foundation A foundation is a legal categorization of nonprofit organizations. Foundations may also and often have charitable purposes. This type of nonprofit organization may either donate funds and support to other organizations, or provide the sole source of funding for their own charitable activities. One of the characteristics of the legal entities existing under the status of "Foundations", is a wide diversity of structures and purposes. Nevertheless, there are some common structural elements that are the first observed under legal scrutiny or classification. * Legal requirements followed for establishment * Purpose of the foundation * Economic activity * Supervision and management provisions * Accountability and Auditing provisions * Provisions for the amendment of the statutes or articles of incorporation * Provisions for the dissolution of the entity * Tax status of corporate and private donors * Tax status of the foundation Some of the above must be, in most jurisdictions, expressed in the document of establishment. Others may be provided by the supervising authority at each particular jurisdiction. Foundations in civil law The term "foundation," in general, is used to describe a distinct legal entity. Foundations as legal structures (legal entities) and/or legal persons (legal personality), may have a diversity of forms and may follow diverse regulations depending on the jurisdiction where they are created. In some jurisdictions, a foundation may acquire its legal personality when it is entered in a public registry, while in other countries a foundation may acquire legal personality by the mere action of creation through a required document. Unlike a company, foundations have no shareholders, though they may have a board, an assembly and voting members. A foundation may hold assets in its planglobal plan global consulting ltd.

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TERMINOLOGY GUIDE own name for the purposes set out in its constitutive documents, and its administration and operation are carried out in accordance with its statutes or articles of association rather than fiduciary principles. The foundation has a distinct patrimony independent of its founder. Foundations are often set up for charitable purposes, family patrimony and collective purposes.

Profit The amount left over after all the revenues for a period are accounted for, and all costs and expenses for the same period are deducted. Profit is also called net profit, income, or net income.†

Prospectus A prospectus is a legal document that institutions and businesses use to describe the securities they are offering for participants and buyers. A prospectus commonly provides investors with material information about mutual funds, stocks, bonds and other investments, such as a description of the company's business, financial statements, biographies of officers and directors, detailed information about their compensation, any litigation that is taking place, a list of material properties and any other material information. In the context of an individual securities offering, such as an initial public offering, a prospectus is distributed by underwriters or brokerages to potential investors.

Q - Quebec Quick ratio In finance, the Acid-test or quick ratio or liquid ratio measures the ability of a company to use its near cash or quick assets to immediately extinguish or retire its current liabilities. Quick assets include those current assets that presumably can be quickly converted to cash at close to their book values. Such items are cash, cash equivalents such as marketable securities, and some accounts receivable. This ratio indicates a firm's capacity to maintain operations as usual with current cash or near cash reserves in bad periods. As such, this ratio implies a liquidation approach and does not recognize the revolving nature of current assets and liabilities. The ratio compares a company's cash and short-term investments to the financial liabilities the company is expected to incur within a year's time.

Generally, the acid test ratio should be 1:1 or better, however this varies widely by industry . W


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TERMINOLOGY GUIDE R - Romeo Purchases journal A journal that records all purchases made on credit.† Rapid application development (RAD) Rapid application development (RAD) is a software development methodology, methodology, which involves iterative development and the construction of prototypes prototypes..

Rapid application development is a software development methodology, methodology, which involves iterative development and the construction of prototypes prototypes.. It is a merger of various structured techniques, techniques, especially the data driven Information Engineering with prototyping techniques to accelerate software systems development. RAD calls for the interactive use of structured techniques and prototyping to define user's requirements and design the final system. Using structured techniques the developer first builds preliminary data models and business process models of the business requirements requirements.. Prototyping then helps the analyst and users to verify those requirements and to formally refine the data and process models. The cycle of models, then prototypes, then models, then prototypes and so forth on, ultimately results in a combined business requirements and technical design statement to be used for constructing new systems. RAD approaches may entail compromises in functionality and performance in exchange for enabling faster development and facilitating application maintenance. W

Revenue The amounts that a business earns through sales of products or services.†

ROI (Return on Investment) In finance, rate of return (ROR), also known as return on investment (ROI), rate of profit or sometimes just return, is the ratio of money gained or lost (realized or unrealized) on an investment relative to the amount of money invested. The amount of money gained or lost may be referred to as interest, profit/loss, gain/loss, or net income/loss. The money invested may be referred to as the asset, capital, principal, or the cost basis of the investment. ROI is usually expressed as a percentage rather than a fraction. W

S - Sierra Sales Discount A reduction of sales price offered by a seller to a buyer. The difference between planglobal plan global consulting ltd.

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TERMINOLOGY GUIDE the amount owed by the customer and the amount of cash received is known as the sales discount.†

Sales journal A journal used to record all sales of goods and services on credit.†

Seed Money A seed round, sometimes known as a friends and family round or seed funding, is a securities offering whereby one or more parties that have some connection to a new enterprise invest the funds necessary to start the business so that it has enough funds to sustain itself for a period of development until it reaches either a state where it is able to continue funding itself, or has created something in value so that it is worthy of future rounds of funding. Seed money refers to the money so invested.

SG&A Expenses Selling, General and Administrative Expenses. Income statement item which combines salaries, commissions, and travel expenses for executives and salespeople, advertising costs, and payroll expenses.

Shareholder A mutual shareholder or stockholder is an individual or company (including a corporation)) that legally owns one or more shares of stock in a joint corporation a joint stock company.. A company's shareholders collectively own that company. Thus, such company companies strive to enhance shareholder value. value. Stockholders are granted special privileges depending on the class of stock, including the right to vote (usually one vote per share owned, but sometimes this is not the case) on matters such as elections to the board of directors, directors, the right to propose shareholder resolutions, resolutions, the right to share in distributions of the company's income, the right to purchase new shares issued by the company, and the right to a company's assets during a liquidation of the company. However, stockholder's rights to a company's assets are subordinate to the rights of the company's creditors. This means that stockholders typically receive nothing if a company is liquidated after bankruptcy (if the company had had enough to pay its creditors, it would not have entered bankruptcy), although a stock may have value after a bankruptcy if there is the possibility that the debts of the company will be restructured. Stockholders or shareholders are considered by some to be a partial subset of stakeholders,, which may include anyone who has a direct or indirect equity stakeholders interest in the business entity or someone with even a non-pecuniary interest in a non-profit organization. organization. Thus it might be common to call volunteer contributors to an association stakeholders, even though they are not shareholders.


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TERMINOLOGY GUIDE Although directors and officers of a company are bound by fiduciary duties to act in the best interest of the shareholders, the shareholders themselves normally do not have such duties towards each other. However, in a few unusual cases, some courts have been willing to imply such a duty between shareholders. For example, in California, majority shareholders of closely held corporations have a duty to not destroy the value of the shares held by minority shareholders. The largest shareholders (in terms of percentage owned of companies) are often mutual funds, especially passively managed exchange-traded funds. funds. Shareholders play an important role in raising capital for organizations. So these figures pose a great opportunity for all those who are looking for a lucrative option to invest money. Companies typically provide all the necessary proofs to shareholders to show that they are investing at a right place. For example, fair and reliable audit figures from income statement and balance sheet are used as evidence of overall performance for the benefit of shareholders. W

Shareholder’s Shareholder’s Equity In accounting terms, after all liabilities are paid, ownership equity is the remaining interest in assets. If valuations placed on assets do not exceed liabilities, negative equity exists. Shareholders' equity (or stockholders' equity, shareholders' funds, shareholders' capital employed) is this interest in remaining assets, spread among individual shareholders of common or preferred stock. At the start of a business, owners put some funding into the business to finance assets. Businesses can be considered to be, for accounting purposes, sums of liabilities and assets; this is the accounting equation. After liabilities have been accounted for, the positive remainder is deemed the owner's interest in the business. W

Subordinated Debt Also known as subordinated loan, subordinated bond, subordinated debenture or junior debt is debt which ranks after other debts should a company fall into receivership or be closed. Such debt is referred to as subordinate, because the debt providers (the lenders) have subordinate status in relationship to the normal debt. A typical example for this would be when a promoter of a company invests money in the form of debt, rather than in the form of stock. In the case of liquidation (e.g. the company winds up its affairs and dissolves) the promoter would be paid just before


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TERMINOLOGY GUIDE stockholders -- assuming there are assets to distribute after all other liabilities and debt has been paid. Subordinated debt has a lower priority than other bonds of the issuer in case of liquidation during bankruptcy, below the liquidator, government tax authorities and senior debt holders in the hierarchy of creditors. Because subordinated debt is repayable after other debts have been paid, they are more risky for the lender of the money. It is unsecured and has lesser priority than that of an additional debt claim on the same asset. W

Subsidiary Ledger A detailed record of individual customer or creditor accounts which when totaled equal the control account in the general ledger.†

Synoptic Journal This journal’s meaning is derived from the Greek meaning “see everything at once.” This ledger is sometimes called a combined journal or combined/ledger journal.†

T - Tango T-4 Slip (Form) A document indicating an employee’s total earnings during the calendar year and also the total taxes withheld from his or her salary. (Used for individual’s personal income tax return.)†

Term Sheet The document that outlines most of the key terms of an investment between an investor and a company. The term sheet is typically non-binding, except for certain provisions.

Tranche The literal French translation is portion or slice. In the world of finance and lending a tranche is a portion of a loan that is part of the entire loan. For example if a person is requesting a total loan amount of $1,000,000 and the loan is made up of 10 smaller loans of $100,000 each, the smaller loans are each called a tranche.

Trial Balance A record that may be prepared at any moment in time to prove the accuracy of the ledger. (i.e. the equality of the debts and credits.)†


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TERMINOLOGY GUIDE U - Uniform Unified Modeling Language (UML) The Unified Modeling Language (UML) is a graphical language for visualizing, specifying and constructing the artifacts of a software-intensive system. The Unified Modeling Language offers a standard way to write a system's blueprints, including conceptual things such as business processes and system functions as well as concrete things such as programming language statements, database schemas, and reusable software components. components. UML combines the best practice from data modeling concepts such as entity relationship diagrams, diagrams, business modeling (work flow), object modeling and component modeling. It can be used with all processes, throughout the software development life cycle, cycle, and across different implementation technologies. W

Underwriting Underwriting refers to the process that a large financial service provider (bank, insurer, investment house) uses to assess the eligibility of a customer to receive their products (equity capital, insurance, mortgage or credit). The name derives from the Lloyd's of London insurance market. Financial bankers, who would accept some of the risk on a given venture (historically a sea voyage with associated risks of shipwreck) in exchange for a premium, would literally write their names under the risk information which was written on a Lloyd's slip created for this purpose. W

Unearned revenue An advance payment for services that still must be performed. Unearned revenue represents a liability or obligation of the business receiving the payment for a service not yet rendered.†

Unlimited liability A characteristic of a sole proprietorship or partnership organization that allows creditors to settle their debt by claiming the personal property of the owners of the business when business assets are inadequate to settle the obligation.†

V - Victor Valuation In finance, valuation is the process of estimating the market value of a financial asset or liability. Valuations can be done on assets (for example, investments in marketable securities such as stocks, options, business enterprises, or intangible assets such as patents and trademarks) or on liabilities (e.g., Bonds issued by a company). Valuations are required in many contexts including investment analysis, capital budgeting, merger and acquisition transactions, financial reporting, taxable events to determine the proper tax liability, and in litigation.


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TERMINOLOGY GUIDE Valuation of financial assets is done using one or more of these types of models: 1. Relative value models determine the value based on the market prices of similar assets. 2. Absolute value models determine the value by estimating the expected future earnings from owning the asset discounted to their present value. 3. Option pricing models are used for certain types of financial assets (e.g., warrants, put options, call options, employee stock options, investments with embedded options such as a callable bond) and are a complex present value model. The most common option pricing models are the Black-Scholes-Merton models and lattice models. Common terms for the value of an asset or liability are fair market value, fair value, and intrinsic value. The meanings of these terms differ. The most common term is fair market value defined as the cash price an item would sell for between a willing buyer and willing seller assuming they both have knowledge of the relevant facts and they have no compulsion to buy or sell. Fair value is used in different contexts and has multiple meanings. Some people use the term to mean the same thing as fair market value. Fair value is also a term used in accounting and law. It is used in generally accepted accounting principles (GAAP) for financial reporting and in law in shareholder rights legal statutes. In these cases, fair value is defined in the accounting literature or the law, respectively. Fair value may be different from fair market value in the accounting and legal contexts. Intrinsic value is an asset's true value regardless of the market price. When an analyst determines a stock's intrinsic value is greater than its market price, the analyst issues a "buy" recommendation and vice versa. The determination of intrinsic value may be subject to personal opinion and vary among individual analysts. Businesses or fractional interests in businesses may be valued for various purposes such as mergers and acquisitions, sale of securities, and taxable events. An accurate valuation of privately owned companies largely depends on the reliability of the company's financial information. Public company financial statements are audited by Certified Ce rtified Public Accountants (US), Chartered Certified Accountants (ACCA) or Chartered Accountants (UK and Canada) and overseen by a government regulator. Private companies do not have government oversight and are generally not required to have their financial statements audited. Private company financial statements are commonly prepared to minimize taxes by lowering taxable income and the financial information may not be accurate. Public companies tend to want higher earnings to increase their share prices. Inaccurate financial information can lead to over- and undervaluation. In an acquisition, due diligence is commonly performed by the buyer to validate the representations made by the seller. W


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TERMINOLOGY GUIDE Venture Capital Venture capital (also known as VC or Venture) is a type of private equity capital typically provided to early-stage, high-potential, growth companies in the interest of generating a return through an eventual realization event such as an IPO or trade sale of the company. Venture capital investments are generally made as cash in exchange for shares in the invested company. Venture capital typically comes from institutional investors and high net worth individuals and is pooled together by dedicated investment firms.

Veto Rights Negotiated rights that enable the holder to prevent a company from taking certain actions or cause it to take certain actions.

W - Whiskey Waterfall model The waterfall model is a sequential development process, in which development is seen as flowing steadily downwards (like a waterfall) through the phases of requirements analysis, design, implementation, testing (validation), integration, and maintenance. The first formal description of the waterfall model is often cited to be an article published in 1970 by Winston W. Royce (1929–1995), although Royce did not use the term "waterfall" in this article. Ironically, Royce was presenting this model as an example of a flawed, non-working model (Royce 1970). This is in fact the way the term has generally been used in writing about software development - as a way to criticize a commonly used software practice. In Royce's original waterfall model, the following phases are followed in order: 1. 2. 3. 4. 5. 6. 7.

Requirements specification Design Construction (AKA implementation or coding) Integration Testing and debugging (AKA Validation) Installation Maintenance

To follow the waterfall model, one proceeds from one phase to the next in a purely sequential manner. For example, one first completes requirements specification, which are set in stone. When the requirements are fully completed, one proceeds to design. The software in question is designed and a blueprint is drawn for implementers (coders) to follow — this design should be a plan for implementing the requirements given. When the design is fully completed, an implementation of that design is made by coders. Towards the later stages of this planglobal plan global consulting ltd.

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TERMINOLOGY GUIDE implementation phase, disparate software components produced are combined to introduce new functionality and remove errors. Thus the waterfall model maintains that one should move to a phase only when its preceding phase is completed and perfected. However, there are various modified waterfall models (including Royce's final model) that may include slight or major variations upon this process. W

Warrants A derivative security that gives the holder the right to purchase securities (usually common shares) from the issuer at a specific price within a certain time frame.

Weighted Average Anti-Dilution Protection Adjusts the investor's conversion price downward based on a weighted average formula reflecting the number of new shares sold and the new price per share at which the additional shares were issued. Compare to full-ratchet anti-dilution protection.

Working capital Also known as net working capital is a financial metric which represents operating liquidity available to a business. Along with fixed assets such as plant and equipment, working capital is considered a part of operating capital. It is calculated as current assets minus current liabilities. If current assets are less than current liabilities, an entity has a working capital deficiency, also called a working capital deficit. A company can be endowed with assets and profitability but short of liquidity if its assets cannot readily be converted into cash. Positive working capital is required to ensure that a firm is able to continue its operations and that it has sufficient funds to satisfy both maturing short-term debt and upcoming operational expenses. The management of working capital involves managing inventories, accounts receivable and payable and cash. W

Worksheet An expanded trial balance which consists of a list of all the accounts in the ledger, used to work out the balance sheet and income statement in a manual accounting system. The purpose of the worksheet is to enable the accountant to prepare easily the adjusting entries as well as various financial statements.†

X - X-ray XML XML is an acronym for Extensible Markup Language and it is a markup language much like HTML, but XML is used to carry carry data, where as HTML is used to display data. When you use XML you define your own tags so that you can use the data later to output or refer to. For instance if the XML is used in a letter it planglobal plan global consulting ltd.

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TERMINOLOGY GUIDE would describe the who the letter is from, who it is to, the greeting, address lines, phone numbers, and all other data points.

Y - Yankee Yield In finance, yield is a percentage that measures the cash returns to the owners of a security. Normally it does not include the price variations, at the difference of the total return. Yield applies to various stated rates of return on stocks (common and preferred, and convertible), fixed income (bonds, notes, bills, strips, zero coupon), and some other investment type insurance products (e.g. annuities). The term is used in different situations to mean different things. It can be calculated as a ratio or as an internal rate of return (IRR). It may be used to state the owner's total return, or just a portion of income, or exceed the income. W

Z - Zulu Zero Coupon Bond A Zero coupon bond (also called a discount bond or deep discount bond) is a bond bought at a price lower than its face value, with the face value repaid at the time of maturity.[1] It does not make periodic interest payments, or so-called "coupons," hence the term zero-coupon bond. Investors earn return from the compounded interest all paid at maturity plus the difference between the discounted price of the bond and its par (or redemption) value. Examples of zerocoupon bonds include U.S. Treasury bills, U.S. savings bonds, long-term zerocoupon bonds,[1], and any type of coupon bond that has been stripped of its coupons. In contrast, an investor who has a regular bond receives income from coupon payments, which are usually made semi-annually. The investor also receives the principal or face value of the investment when the bond matures. Some zero coupon bonds are inflation indexed, so the amount of money that will be paid to the bond holder is calculated to have a set amount of purchasing power rather than a set amount of money, but the majority of zero coupon bonds pay a set amount of money known as the face value of the bond. Zero coupon bonds may be long or short term investments. Long-term zero coupon maturity dates typically start at ten to fifteen years. The bonds can be held until maturity or sold on secondary bond markets. Short-term zero coupon bonds generally have maturities of less than one year and are called bills. The U.S. Treasury bill market is the most active and liquid debt market in the world. W


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TERMINOLOGY GUIDE † Thanks to The Business Link© for Link© for entries with the † symbol. W Thanks to Wikipedia for entries with the W symbol


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TERMINOLOGY GUIDE

For further information contact: Tom West 20, 3515 27th Street N.E. Calgary, AB T1Y 5E4 Tel: +1 403 235-3495 x201 Cell: +1 403 714-7870 Fax: +1 403 235-3671 Skype: twest1960


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Business Terminology

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