Accounting - The system of recording, reporting, and summarizing past financial information and
transactions.
Accounts Receivable Turnover (AR Turnover) - An activity ratio found by credit sales divided by
accounts receivable.
Activity Ratios - A category of ratios that measure how well a compa...
D076 Glossary Terms
Accounting - ✔✔✔The system of recording, reporting, and summarizing past financial information and
transactions.
Accounts Receivable Turnover (AR Turnover) - ✔✔✔An activity ratio found by credit sales divided by
accounts receivable.
Activity Ratios - ✔✔✔A category of ratios that measure how well a company uses its assets to
generate sales or cash, showing the firm's operational efficiency and
profitability.
Additional Funds Needed (AFN) - ✔✔✔Another name for the discretionary financing needed or
external financing needed. It represents the additional financing needed given a firm's expectations for
future growth.
Affirmative Covenants - ✔✔✔A bond covenant that describes things the company pledges itself to do
in order to protect bondholders.
Agency Costs - ✔✔✔Costs that are incurred when management does not act in the best interest of
shareholders.
Agency Problem - ✔✔✔When the agent (the management) does not act in the best interest of the
principal (the owners).
Aggressive Assets - ✔✔✔Companies or securities with beta greater than 1.
Annual Percentage Rate - ✔✔✔The annual interest rate that is charged for borrowing money or that is
earned through investment.
,Annuity - ✔✔✔A stream of cash flows of an equal amount paid every consecutive period.
Annuity Due - ✔✔✔A series of equal payments made at the beginning of consecutive periods.
Asset Pricing - ✔✔✔The process of valuing assets.
Auction Market - ✔✔✔A secondary market with a physical location and where prices are determined
by investors' willingness to pay.
Average Collection Period (ACP) - ✔✔✔An activity ratio found by the number of days in a year (365)
divided by AR turnover.
Balance Sheet Forecasting - ✔✔✔Using sales growth and the profit forecast to construct a pro forma
balance sheet to understand the future implications of the sources and uses of finances.
Banks and Credit Unions - ✔✔✔Receive deposits and extend loans to individuals and businesses.
Benchmarking - ✔✔✔The process of completing a financial analysis to compare a firm's financial
performance to that of other similar firms.
Beta - ✔✔✔A variable that describes how the price of a security varies with the market. Is a measure
of systematic risk.
Bid-ask Spread - ✔✔✔The difference between the bid and ask prices that compensate the specialist
for the risk that he or she bears for willingness to provide
liquidity.
, Board of Directors - ✔✔✔A group of people who jointly supervise the activities of an organization.
Bond Indenture - ✔✔✔A legal contract that governs the relationship between a firm and its
bondholders.
Bondholders - ✔✔✔A person who loans a corporation money by buying debt securities.
Business Finance - ✔✔✔An area of finance that deals with sources of funding, the capital structure of
corporations, the actions that managers take to increase the
value of the firm to its owners, and the tools and analysis used to allocate financial resources.
Cannibalization - ✔✔✔The reduction in sales of a company's own products due to introduction of
another similar product.
Capital - ✔✔✔A financial asset that can be used by a firm or individual. Examples of this may be
machinery or cash held by a firm.
Capital Asset Pricing Model (CAPM) - ✔✔✔A model used to determine the risk-return relationship for
an asset.
Capital Budgeting - ✔✔✔The process of evaluation and planning for purchases of long-term assets.
Capital Budgeting Criteria - ✔✔✔Metrics and calculations used to determine whether a project or
asset will add value and be a worthwhile investment.
Capital Investment - ✔✔✔The sum of money invested in a business to purchase long-term assets to
further its objective of maximizing owner wealth.
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