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401(k)
Plan
A widely-accepted
savings vehicle where employees contribute a percentage of their
pay to the 401(k) plan on a tax deferred basis through payroll deductions.
Employers may also contribute to the employees's 401(k) by matching
employee contributions, usually up to a percentage of the employees
pay.
A
Accounting
Equation
Assets = Liabilities
+ Owner's Equity
Accounts
Payable
Money the company
owes to vendors who supplied goods or services on credit.
Accounts
Receivable
Money owed to
a company by customers who have purchased goods or services on credit.
Accrual
Basis of Accounting
In the context
of accounting, practice in which expenses and income are accounted
for as if they are earned or incurred, whether or not they have
been received or paid. Contrast with the Cash Basis of Accounting.
Angel
Wealthy investor
who invests in private companies
Annual
Percentage Rate (APR)
The
periodic rate times the number of periods in a year. For example,
a 3% quarterly return has an APR of 12%.
Annual
Percentage Yield (APY)
The effective,
or true, annual rate of return. The APY is the rate actually earned
or paid in one year, taking into account the effect of compounding.
Annual
Rate of Return
There are many
ways of calculating the annual rate of return. If the rate of return
is calculated on a monthly basis, we sometimes multiply this by
12 to express an annual rate of return. This is often called the
annual percentage rate (APR). The annual percentage yield (APY),
includes the effect of compounding interest.
Asset-Based
Loan
Loan where the
borrower pledges assets such as accounts receivable and inventory
as collateral to secure the loan. Usually, lenders loan a percentage
of the assets value and monitor the loan on an on-going basis. Funds
are used to build inventories, cover seasonal expenses, take advantage
of trade discounts, meet payrolls, and solve other cash flow problems.
Asset-based lending is called commercial finance.
B
Balance
Sheet
Statement of company's financial position at a given point in time.
The Balance Sheet summarizes the accounting value of assets, liabilities,
preferred stock, common stock, and retained earnings.
Billing
Cycle
The time elapsed between billing periods for goods sold or services
rendered.
Book
Value
The amount shown in the books or in the accounts for an asset, liability,
or owners equity item. Often used to refer to a company's total
assets minus intangible assets and liabilities, such as debt. A
company's book value might be higher or lower than its market value.
Break-Even
Point
The volume of sales required so that the total revenue and total
costs are equal. A commonly used formula to calculate the Breakeven
Point is Sales Revenue = Total Fixed Costs/Gross Margin.
Budget
Financial projections normally covering one or more years
Business
Plan
Document that details the past, present and intended future of the
company.
C
Capital
Lease
A
lease obligation that has to be capitalized on the balance sheet.
The lease is treated by lessee as both the borrowing of funds and
the acquisition of an asset to be amortized. Both the liability
and the asset are recognized on the balance sheet, Expenses consist
of interest on the debt and amortization of the asset. Contrast
with operating lease.
Cash
Basis of Accounting
A
system of accounting in which revenues are recognized when cash
is received and expenses are recognized as disbursements are made.
Contrast with Accrual Basis of Accounting.
Cash
Budget
A
projection of what you company's checkbook will look like at a given
point in time.
Cash
Flow
The difference between a company's cash receipts and its cash
payments in a given period. It is the money actually available to
make purchases and pay current bills.
Cash
Flow Cycle
How
cash moves through your business operations. Closely follows the
trading cycle.
Cash
Flow Forecast
A
fundamental financial-management tool for planning cash needs and
ensuring adequate liquidity. Projections based on analysis of past
operating experience, payment of obligations, and collection of
receivables.
Cash
Management
Refers
to the efficient management of cash in a business in order to put
the cash to work more quickly and to keep the cash in applications
that produce income, such as the use of lock boxes for payments.
Cash-Flow
Statement
A
summary of a company's cash flow over time.
Chattel
Mortgage
A
loan agreement that grants the lender a lien other than real estate.
Chattel is personal or movable property.
Collateral
An
asset pledged as security for a loan.
Commercial
Mortgage
A loan agreement that grants the lender a lien on real estate used
for commercial purposes.
Common-size
Financial Statements
A
technique for carrying out the financial statement analysis of different
size that starts with the standardization of their financial figures
to a common base. Usually, by defining sales revenues as 100%.
Contribution
Margin
Revenue
from sales less all variable expenses.
Corporation
A
business form that is an entity legally separate from its owners.
Its important features include limited liability, the ability to
own assets, incur debt and sell securities.
Cost
of Goods Sold
The
total cost of buying raw materials, and paying for all the factors
that go into producing finished goods.
Covenant
A
restriction on a borrower imposed by a lender. For example, it could
be a requirement to maintain specific financial ratios in order
to retain the financing.
Creditor
Lender
of money.
Current
Asset
Value
of cash, accounts receivable, inventories, marketable securities
and other assets that could be converted to cash in less than 1
year.
Current
Liability
Amount
owed for salaries, interest, accounts payable and other debts due
within 1 year.
Current
Ratio
Sum
of current assets divided by current liabilities.
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