Our Glossary of Business and financial terms is designed to help you better understand the business process. Whether you're starting a business, buying or selling a business, financing a business or operating a business, you have to understand the terms that professionals frequently use. If there is a business term that you've heard that we haven't listed, please let us know, and we'll add it to the Entrepreneur's Place Glossary.

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  Other 

Search by Specific Term:

This Abbreviation is often used in securities research reports, particularly in tables, to identify results that have been previously reported by the company. These are distinguished from those that are estimates (indicated by E).

When applied to a bond as a rating from a bond-rating agency, indicates that the bond is very safe.

Rule in bankruptcy proceedings requiring senior creditors to be paid in full before junior creditors receive any payment.

Any depreciation method that produces larger deductions for depreciation in the early years of an asset's life. Accelerated cost recovery system (ACRS), which is a depreciation schedule allowed for tax purposes, is an example.

A contract stating that the unpaid balance becomes due and payable if specific actions transpire, such as failure to make interests payments on time.

In the context of bookkeeping, refers to the ledger pages upon which various assets, liabilities, income, and expenses are represented.

A letter preceding an audited financial report, written and signed by an independent accountant, describing the scope of the statement and presenting an opinion on the quality of the data presented.

The change in the value of a firm's foreign currency-denominated accounts due to a change in exchange rates.

Money that a company owes to suppliers for goods and services. They are listed as current liabilities on the balance sheet.

An amount owed to a company for products and services provided on credit. These are treated as current assets on a balance sheet.

Analysis of accounts receivables broken down into categories by length of time they've been carried on the books

A short-term financing method in which accounts receivable are collateral for cash advances.

The ratio of net credit sales to average accounts receivable, which is a measure of how quickly customers pay their bills.

A person or institution deemed capable of understanding and affording the financial risks associated with the acquisition of unregistered securities. The SEC recognizes the following parties as accredited:
1. An individual who alone, or together with a spouse, has a net worth of $1 million or more.
2. An individual who alone had income in excess of $200,000 in each of the past two years (or with a spouse, in excess of $300,000 in each of the past two years) and has a reasonable expectation of doing as well in the current year.
3. A financial institution such as bank, broker/dealer, insurance company or private business development company.
4. Any director, officer or general partner of the issuer.
5. A trust or business partnership, with assets in excess of $5 million, that wasn't formed for the specific purpose of acquiring unregistered securities.
6. An entity wholly owned by accredited investors.

An accounting term describing the process of recognizing revenue or expenses at the time the income or expense is incurred, rather than when the cash is received or paid.

A bond on which interest accrues but is not paid to the investor during the time of accrual. The amount of accrued interest is added to the remaining principal of the bond and is paid at maturity.

An approximate measure of the liability of a pension plan in the event of a termination at the date the calculation is performed.

A dividend that a company owes to an investor that has not been paid. Accumulated dividends are recorded on a company's balance sheet as a liability

The accumulated coupon interest, paid to the seller of a bond by the buyer (unless the bond is in default).

Also called the quick ratio, the ratio of current assets minus inventories, accruals, and prepaid items to current liabilities.

The confirmation by a party executing a legal document that this is his signature and voluntary act.

The surplus acquired when a company is purchased in a pooling of interests combination, i.e. the net worth not considered to be capital stock.

A firm that is being acquired.

A firm or individual that is acquiring something.

When a firm buys another firm.

Refers to the price (including the closing costs) to purchase another company or property.

Loans made to finance the purchase of a business.

A merger or consolidation in which an acquirer purchases the selling firm's assets.

A merger or consolidation in which an acquirer purchases the seller's stock.

A test that measures the extent to which the value of an asset is protected from potential loss either through insurance or hedging.

Applies mainly to convertible securities. Refers to an interest rate or dividend that is adjusted periodically, usually according to a standard market rate outside of the control of the parties, such as that prevailing on Treasury bonds or notes. Typically, such issues have a set floor or ceiling, called caps and collars that limit the adjustment.

The value of an asset or security that reflects any deductions taken on or improvements to an asset or security. It is used to compute the gain or loss for tax purposes when the asset or security is sold.

The book value on a company's balance sheet after adjusting assets and liabilities to market value.

A bond issued in exchange for outstanding bonds when a corporation facing bankruptcy is recapitalized.

A pension plan in which funds are set aside in advance of the date of retirement.

Corresponding bank in the beneficiary's country to which an issuing bank sends a letter of credit.

Relationship between two companies when one company owns substantial interest, but less than a majority of the voting stock of another company, or when two companies are both subsidiaries of a third company.

A corporation that is an affiliate to the parent company.

An individual who possesses enough influence and control in a corporation to be able to alter the actions of the corporation.

A bond covenant that specifies certain actions the firm must take.

The ratio of net income to net sales.

The after-tax rate of return minus the inflation rate.

Trading in an IPO subsequent to its offering is called the aftermarket trading.

The price appreciation (or depreciation) in IPOs measured from the offering price going forward.

The decision-maker in a principal-agent relationship.

A table of accounts receivable broken down into age categories (such as 0-30 days, 30-60 days, and 60-90 days), which is used to determine if customer payments are keeping close to schedule.

A meeting of minds.

An outline of the understanding among the parties, including the price and the significant terms of a proposed transaction. Is usually referred to as a Letter of Intent. It is usually subject to due diligence by both parties and subject to the negotiation of a definitive agreement.

Known by various names, such as contract of purchase, purchase agreement, or sales agreement. A contract in which a seller agrees to sell and a buyer agrees to buy, under certain specific terms and conditions spelled out in writing and signed by both parties.

A company incorporated under the laws of a foreign country regardless of where the company conducts its operations.

An arrangement whereby a security issue is cancelled if the underwriter or the issuer is unable to resell the entire issue.

Allocation usually refers to the process of distributing shares in a securities offering when demand exceeds supply, or to the number of shares that an investor receives as a result of that process. The allocation can often be significantly less than investor's indication of interest.

The amount of debt a company expects not to collect. This is subtracted from accounts receivable, so the balance sheet better reflects the company's true economic health.

Certificates issued by a U.S. Depositary Bank that represent foreign shares of foreign-based companies held by the bank that entitle the shareholder to all dividends and capital gains. ADRs allow Americans to buy shares of foreign-based corporations' securities through U.S. stock exchanges instead of having to go to overseas exchanges. The share issued under an American Depositary Receipt agreement, which is actually traded, is an "American Depositary Share" (ADS).

A payment plan that enables the borrower to reduce debt gradually through periodic payments of principal and interest.

A loan to be repaid, interest and principal, by a series of regular payments that are equal or nearly equal.

Individuals providing venture or seed capital.

Mergers or acquisitions that are publicly announced, usually by a press release. The most middle-market deals are unannounced.

Date on which particular news concerning a given company is announced to the public.

The technique in statistics of taking a figure covering a period of less than one year and extrapolating it to cover a full one year period. The process is known as annualizing.

A report that all public companies must file annually with the SEC.

The process of converting an amount that applies to a period of less than a year into the amount that would correspond to the full year. For example, if a company has reported revenues for 3 months, the calculation is to multiply the results by four (12/3).

A series of regular consecutive payments or receipts of equal amounts.

Any transaction that has the effect of increasing earnings per share.

Legislation established by the federal government to prevent the formation of monopolies and to regulate trade.

An expert estimate of the quality or value of an asset, made by an appraiser, as of a given date. Most states require licenses for appraisers.

The signal-to-noise ratio of an analyst's forecasts. The ratio of alpha to residual standard deviation.

A right of shareholders in a merger to demand the payment of a fair price for their shares, as determined independently.

Anything attached to the land or used with it passing to the new owner.

The practice of simultaneously buying and selling the same or equivalent securities to profit from a disparity in prevailing prices in separate markets. This activity usually applies to equivalent securities trading in different markets and includes securities with convertible features, or securities involved in mergers, tender offers or corporate divestitures.

One who profits from the differences in price when the same, or extremely similar, security, currency, or commodity is traded on two or more markets. The Arbitrageur profits by simultaneously purchasing and selling these securities to take advantage of pricing differentials (spreads) created by market conditions.

One method of settling disputes. The parties choose a third party to settle their disagreement. This is called binding arbitration when the parties also agree to abide by the arbitrator's decision.

The price at which a willing buyer and a willing unrelated seller would freely agree to transact.

Refers to the amount by which interest on bonds or dividends on cumulative preferred stock is due and unpaid.

The lowest price at which someone is willing to sell a security.

Categories of assets, such as stocks, bonds, real estate, and foreign securities.

A type of transaction in which the buyer purchases assets from the target company as opposed to a Stock Purchase in which the buyer purchases the shares of the target company. The entity itself does not transfer in an asset purchase.

A corporate raider (company A) that takes over a target company (company B) in order to sell large assets of company B to repay debt. Company A calculates that the net selling of the assets and paying off the debt, will leave the raider with assets that are worth more than what it paid for company B.

The ratio of net sales to total assets.

These ratios measure the speed at which the firm is turns over or utilizes its assets. Such measurements include inventory turnover, fixed-asset turnover, total asset turnover, and the average account receivable collection time.

The net market value of a corporation's assets on a per-share basis, not the market value of the shares. A company is undervalued in the market when asset value exceeds market value.

A valuation method, which utilizes the fair market value, rather than book value, of items on a company's balance sheet. This method is often used to value asset-intensive companies.

A bond indenture restriction that permits additional borrowing if the ratio of assets to debt does not fall below a specified minimum.

The ratio of total assets to stockholder equity.

Anything a company owns, including buildings, land, trucks, inventories, equipment, cash, trademarks, patents, and goodwill. Assets may be tangible, as in the case of buildings or equipment; or intangible, such as patents or goodwill.

A common element of a financial plan that describes projected capital spending and the proposed uses of net working capital.

Assets that an owner retains after selling a business.

Property in which a firm has already invested.

To transfer interest.

One who receives an assignment or transfer of rights or obligations.

The one who assigns to another person.

The agreement between buyer and seller where the buyer takes over the payments on an existing loan from the seller. Assuming a loan can usually save the buyer money since this is an existing debt, unlike a new debt where closing cost and new, possibly higher, market-rate interest charges will apply.

Seizure of property through Court process to repay a debt.

Seizure of property through Court process to repay a debt.

An agency relationship where one person holds a power of attorney allowing him to execute legal documents on behalf of another. Decisions made by the attorney in fact are binding on the principal.

An of agency relationship where one person holds a power of attorney allowing him to execute legal documents on behalf of another. Decisions made by the attorney in fact are binding on the principal.

A process for selling a business under which the seller extends an invitation for bids on a business or a security by a specified date.

Markets in which the prevailing price is determined through the free interaction of prospective buyers and sellers, as on the floor of the stock exchange.

An audit is a review of a company's or individual's financial statements by an outside certified public accountant. The accountants examine evidence supporting the amounts and disclosures in the statements, assess the accounting principles used and evaluate the overall financial statement presentation. The examiners usually issue an opinion letter about the financial statements following the audit. Audits are designed to establish that the financial statements are not misleading and follow "generally accepted auditing standards". An audited statement represents a higher level of accountant's examination and verification than a review statement or a compilation statement.

Resolves the validity of an accounting entry by a step-by-step record by which accounting data can be traced to their source.

A qualified individual or firm that examines and verifies a company's financial and accounting records and supporting documents.

An unsophisticated investor.

Number of shares authorized for issuance by a firm's corporate charter.

The restricting of liability holders from collection efforts related to collateral seizure, which is automatically imposed when a firm files for bankruptcy under Chapter 11.

Using previous data to predict future data.

An arithmetic mean

The weighted-average age of all the firm's outstanding invoices.

The ratio of accounts receivables to sales, or the total amount of credit extended per dollar of daily sales (average AR/sales 365).

Also referred to as the weighted-average life (WAL). The average number of years that each dollar of unpaid principal due on the mortgage remains outstanding. Average life is computed as the weighted-average time to the receipt of all future cash flows, using as the weights the dollar amounts of the principal pay downs.