Home | News | Help | FAQ | Site Map | Terminology
Terminology ::..

A  B  C  D  E  F  G  H  I  J  K  L  M  N  O  P  Q  R  S  T  U  V  W  X  Y  Z 

A Terminology
.....................................................................................................................................................................................................
Accounts Payable
Amounts due to the business from customers for merchandise or services purchased on credit. The business does not receive payment for these amounts immediately, and the delay before payment is measured by Days Sales Outstanding (DSO).

Accrued Expenses
The total amount of depreciation expense recorded to date for the company's fixed assets. On the balance sheet, this value is subtracted from the gross value of Property, Plant and Equipment to derive a net figure.

Acquisition Cost
Financial statements describing the actual operations of the business. Actuals often pertain to the "historical" period before the start of the forecast period, but as time goes on, additional imported Actuals will generally overlap with the forecast.

Additional Paid-in Capital
Another term for net income.

Amortization
Anything that has future economic value. In addition to items such as cash and equipment, assets can include intangibles such as goodwill.

Average Annual Return
A method of inventory valuation whereby the total cost of all units bought or produced is divided by the number of units.

B Terminology
.....................................................................................................................................................................................................
Bad Debt Expense
A financial statement that lists the assets, liabilities, and equity of a company at a certain point in time.

Benefits
The value of an asset for accounting purposes. For assets where depreciation is taken or reserves booked, this is often expressed as a net book value. The book value of a company is the excess of assets over liabilities, which is equivalent to total owner's equity.

Breakeven Analysis
The sales level at which revenues equal expenses (fixed and variable).

Budgeting
A long-term lease of property, plant, or equipment in which the lessee acquires essentially all the risks and benefits associated with the ownership of the leased item. Because it most closely resembles the financing of an asset purchase, a capital lease is treated as a long-term debt rather than as a rental.

C Terminology
.....................................................................................................................................................................................................
Cash & Equivalents
A financial report that expresses a company's performance in terms of cash generated and used.

Chart of Accounts
A term used to refer to a financial statement in which all items are expressed as percentages of another item in the statement. For example, a common-sized balance sheet might show all values as a percentage of total assets.

Common Stock Equivalents
Accounts, such as Accumulated Depreciation, that offset a related account, usually an asset. The contra account is subtracted from the related account to arrive at the net book value.

Contributed Capital
The difference between revenue and the associated variable costs. This is an important concept in breakeven analysis.

Cost
Another term for cost of sales.

Cost of Sales/Services (COS)
A set of conditions agreed to in a formal debt agreement and designed to protect the lender's interests. Covenants may include restrictions on debt/equity ratio, working capital, or dividend payments. See also management goals.

Current Assets
Obligations that will come due within a year from the current date. These usually include accounts payable, accrued expenses, and the portion of long-term obligations due within one year. See also non-current liabilities.

Current Ratio
The number of days a business takes to pay its accounts payable, on average.

D Terminology
.....................................................................................................................................................................................................
Days Sales Outstanding (DSO)
A form of liability that represents money borrowed from banks or other institutions.

Debt to Equity Ratio
The ratio of total debt to tangible equity, used as a measure of leverage and solvency. Typical values for this ratio vary from one industry to another. Lower values for the ratio represent a better financial condition.

Deferred Revenue
An entity defined for reporting purposes.

Depreciation
Expenses, such as labor, overhead, and materials, that vary in direct proportion to units produced or services rendered.

Direct Labor
A method of recording accelerated depreciation. Also called the 200 percent declining balance method, this system applies twice the annual straight-line rate to the undepreciated balance of the asset's depreciable cost each year of the asset's useful life. For example, if the asset has a depreciable value of $1,000,000 and a useful life of five years, the double-declining balance method would record $400,000 of depreciation the first year, $240,000 the second year, $131,429 the third year, $114,286 the fourth year, and $114,285 the fifth year. See also straight-line method and sum of the years' digits.

E Terminology
.....................................................................................................................................................................................................
Earnings Before Interest and Taxes (EBIT)
Net income divided by the number of outstanding shares of common stock and equivalents.

EBIT
See earnings before interest, taxes, depreciation, and amortization.

Economic Indicators
A general term for various technical measures of profit in which adjustments are made to the traditional accounting definition of Net Income. Such adjustments are typically made in order to better estimate the future value of a business.

Equity
All purchases made by a business, whether in cash or on credit; not equivalent to expenses. Also known as costs.

Expenses
See first in, first out.

F Terminology
.....................................................................................................................................................................................................
Finished Goods
A method of inventory valuation whereby the goods first purchased or manufactured are considered the first ones sold. During periods of inflation, the FIFO method shows inflated profits compared to the last in, first out (LIFO) method.

Fiscal Year
The last month of a company's fiscal year.

Fixed Assets
The ratio of net Property, Plant and Equipment book value to tangible equity, used as a type of efficiency ratio. Typical values for this ratio vary from one industry to another. Higher values for the ratio represent a more capital-intensive company, which may be good or bad depending on the industry and how well the assets are being used to generate revenues.

Fixed Costs
The period of time for which a business is modeled. Depending on the forecast start month, the first year of the forecast period may not be a complete forecast year. See also Forecast Year.

Forecast Start Date
Most people choose the forecast year to coincide with either the January-December calendar year or the fiscal year of the business, but this is not a requirement. Depending on the forecast start month, the first year of the forecast period may cover less than 12 months. In this case, assumption values that are entered for the first forecast year should represent the correct fraction of the 12-month totals.

Forecasting
An acronym for Generally Accepted Accounting Principles. Accountants follow GAAP standards, conventions, and rules in recording and summarizing financial transactions, and in preparing financial statements. GAAP standards are issued by the American Institute of Certified Public Accountants.

G Terminology
.....................................................................................................................................................................................................
Goodwill
Net Sales less cost of sales (including both fixed and variable costs), often expressed as a percentage of sales. Also referred to as gross profit.

Gross Sales
Another term for net income.

I Terminology
.....................................................................................................................................................................................................
Income Statement
Levies on the income of a business imposed by federal and state governments. This expense appears on the income statement simply as Taxes.

Intangible Asset
The interest rate, such as prime or LIBOR, that is used as a reference point for quoting borrowing rates. For example, using the prime rate as the interest basis, a loan might be offered at prime plus one percent. See also Prime Rate and London Interbank Offered Rate.

Interest Expense
Money received by a business in exchange for the use of capital for a specified time period. On the income statement, "Interest Expense (Income)" is a single account that is the net amount of interest income and interest expense.

Interest Rate
Goods purchased or manufactured by a business and held for production or sale. Inventory is often subdivided into raw materials, work in progress, and finished goods. See also Inventory Targets.

Inventory Targets
The ratio of annual cost of sales to inventory, commonly used as a rough measure of inventory management efficiency. Also known as inventory turnover ratio or simply turns.

Investment
Another term for direct labor. See also salaries and benefits.

L Terminology
.....................................................................................................................................................................................................
Last In, First Out (LIFO)
A long-term contract granting use of real estate, equipment or other fixed assets in exchange for payment. All leases entered in the Property, Plant and Equipment Detail are considered capital leases; operating leases should be entered as expenses in the Expenses Detail. See also mortgage.

Leverage
Obligations used to fund the operations of a business, including bank loans, accounts payable, and accrued expenses.

LIBOR
See London Interbank Offered Rate.

LIFO
The amount of short-term credit available to a business from banks.

Liquidity
The interest rate used among the most creditworthy international banks for large loans in eurodollars. LIBOR is an important reference number, because loans to businesses can be tied to it on a percentage basis. See also prime rate and interest basis.

Long-Term Asset
Liabilities that represent money borrowed from banks or other lenders to fund the ongoing operations of a business and that will not come due within one year.

M Terminology
.....................................................................................................................................................................................................
Management Goals
The price at which an asset would pass from an informed and willing seller to an informed and willing buyer, assuming that goodwill played no role in the transaction.

Marketable Securities
The physical inputs to manufacturing, treated as part of cost of sales. Also known as raw materials.

Miscellaneous Current Assets
An account for current liabilities that do not fall into any of the categories already defined. Examples of predefined categories are accounts payable, accrued expenses, and short-term notes payable.

Miscellaneous Expenses
An account for assets not including current assets, property, plant and equipment, intangibles, deposits, and loans made.

Miscellaneous Non-Current Liabilities
A long-term debt instrument for the purchase of property by which the borrower uses the property itself for collateral.

N Terminology
.....................................................................................................................................................................................................
Net Book Value
On a cash flow statement, net income plus non-cash transactions and the net amount of changes in operating assets and liabilities.

Net Income Before Taxes
The excess of business expenses over income in a given tax year.

Net Operating Loss (NOL) Carryforward
A measure of a project's future value in current dollars. Future income and expenses are summed and then discounted using a required rate of return to adjust for the time value of money. Net present value is, theoretically, the best method for evaluating projects.

Net Property, Plant and Equipment
Sales revenue less sales discounts and credit card fees.

Non-Current Assets
Obligations that will not come due within one year of the current date. See also current liabilities.

Non-Operating Expense
Income not related to the ongoing operations of a company; for example, interest income and sale of fixed assets.

O Terminology
.....................................................................................................................................................................................................
Operating Expenses
Sales revenue minus cost of sales and operating expenses. Similar to earnings before interest and taxes, operating income is eFinancial Imagingd when the earnings of the core business are analyzed. Also referred to as operating profit, operating earnings, and income from operations.

Operating Lease
Another term for operating income.

Other Assets
Expenses due to activities outside the normal operations of the business, for example, loss from foreign exchange and loss from investments.

Other Income
Liabilities other than debt, line of credit, and accounts payable, for example, deferred taxes, accrued expenses, and customer deposits.

Overhead
Another term for equity.

P Terminology
.....................................................................................................................................................................................................
Par Value
Another term for accounts payable.

Payroll
A term for expenses recorded in the period in which they occur regardless of whether or not they pertain to a prior or later period. R&D and advertising expenditures are examples of costs that benefit future periods but must be treated as period expenses according to Generally Accepted Accounting Principles (GAAP).

Periodicity
Discrete intervals of time. The word period generally refers either to the interval of the entire forecast (as in forecast period) or the granularity of data in financial statements (as in periodicity).

Plan Period
See Property, Plant & Equipment.

Precision
Services, goods, and intangibles paid for prior to the period in which they provide benefit. Prepaid expenses are accounted for as assets until their benefit is realized.

Price List
The market value of a company's stock divided by net income.

Prime Rate
A set of financial statements and other schedules that show projected results for a future period. They are called pro-forma financial statements because they have the form of financial statements, but are not prepared from actual operating results. The three major financial statements are the Income Statement, Balance Sheet, and Cash Flow Statement. For external reporting, these statements must conform to Generally Accepted Accounting Principles (GAAP).

Profit
Another term for the income statement.

Prompt Payment Discounts
Assets used in the operations of a business that have a useful life greater than one year, including land, buildings, machinery, equipment, and furniture. Also known as fixed assets. See also depreciation.

Purchases of PP&E
Current assets, excluding inventory and prepaid expenses, divided by current liabilities. Also known as the acid test ratio. Like the current ratio, the quick ratio is used as a measure of a company's liquidity. It helps estimate a company's ability to meet its current obligations using assets that can easily be converted into cash. Although typical ratios vary from one industry and company size to another, financial authorities recommend that the Quick Ratio should be 1.0 or greater.

R Terminology
.....................................................................................................................................................................................................
Ratio
Another term for materials.

Receivables
Net profits kept within a business in the Owners' Equity account after stock dividends are paid.

Retired Liabilities
The repayment of a non-current liability.

Return on Assets (ROA)
Net income for a time period divided by tangible equity. This ratio is sometimes used to measure profitability or the efficiency with which the owners' financial investments are being employed. The value of intangible assets such as goodwill is excluded from this ratio in order to better reflect actual operating profitability. Higher values for this ratio indicate better financial performance. The specific value obtained for a business should be evaluated in relation to the returns that can be obtained from alternative investments of capital. An alternate form of this ratio can also be computed using pre-tax income instead of net income.

Return on Equity (ROE)
The total income received in exchange for goods or services during a specific accounting period. Revenue can be recorded using either the cash basis (as received), or the accrual basis (as earned). Also referred to as sales or sales revenue.

S Terminology
.....................................................................................................................................................................................................
Salaries
Another term for revenue.

Salvage Value
Another term for equity.

Short-Term Borrowing
The four-digit code prescribed by the Standard Industrial Classification System to categorize businesses according to the types of activities they perform.

Solvency
A target or average cost that can be used either to value inventory or as a basis of comparison with actual costs. Standard costs can often be used to calculate cost of sales, in which case standard cost refers to the average amount of materials, direct labor and overhead required to produce a single product or service unit.

Standard Costs Plus Variances
Another term for cash flow statement.

Stockholders' Equity
The simplest form of depreciation, in which an equal expense is recorded in each year of an asset's useful life. For example, if the asset has a purchase price of $1,200,000, a useful life of four years and a salvage value of $200,000, straight-line depreciation would record $250,000 of depreciation each year. See also sum of the years' digits and double-declining balance.

Sum of the Years' Digits (SYD)
An asset that represents a physical object such as land, furniture, and buildings. Under accounting rules, a tangible asset must have a useful life greater than one year, and must be used in business operations rather than being held for resale. The following types of assets are not considered to be tangible assets: items held for resale, which are considered to be inventory, cash and other liquid assets which are considered as current assets, and abstract assets such as goodwill, which are intangible assets. See also tangible equity.

T Terminology
.....................................................................................................................................................................................................
Tangible Equity
Levies on the annual income of a business imposed by federal and state governments. On the income statement, this figure does not include property taxes, which are considered an operating expense.

Treasury Stock
Another term for inventory turns.

Typical Collection Pattern
A method used to calculate accounts payable. It allows the user to break down payables into categories that indicate what percentage of the total is paid within specified lengths of time from the purchase date. See also days payable outstanding.

U Terminology
.....................................................................................................................................................................................................
Useful Life
Expenditures that change in proportion to increases or decreases in sales or production volumes. See also fixed costs.

V Terminology
.....................................................................................................................................................................................................
Variance
The net amount of current assets and current liabilities. This is equivalent to a company's liquid assets.

Z Terminology
.....................................................................................................................................................................................................
Z-Score
A bankruptcy predictor based on the formula derived by Dr. Edward Altman. According to the Altman model, a Z-Score of 3.0 or higher indicates that the company is most likely safe based on the financial data; a score below 1.8 means that the firm is probably headed for bankruptcy. In studies, the Z-Score has been shown to have 90% accuracy of prediction of bankruptcy in the first year of the forecast, and 80% accuracy in the second year.