Yield

o         the rate of return on an investment.

[ Y ]

Yield

o         the rate of return on an investment.

Wasting assets

o         assets of a fixed nature but as [...]]]> [ W ]

Wasting assets

o         assets of a fixed nature but as they are being used by the business are physically diminishing in size eg a mine

Working capital

o         the total of current assets less the current liabilities

Work in progress

o         semi-finished goods

Variable overheads

o         indirect expenses that vary directly with output eg power

[ V ]

Variable overheads

o         indirect expenses that vary directly with output eg power

Variances

o         the difference between a budgeted performance and the actual performance achieved.

Understandability

o         Information provided in financial statements has the quality of understandability when is comprehensible to users who have a [...]]]> [ U ]

Understandability

o         Information provided in financial statements has the quality of understandability when is comprehensible to users who have a reasonable knowledge of business and economic activities and accounting and a willingness to study the information with reasonable diligence.

Tangible asset

o a physical asset

Times interest earned

o the number of times that loan interest is covered by profits, ie earnings(profits) before tax and interest divided by the interest charge. It indicates how safe creditors interest charges are.

Thin capitalization

Sale and leaseback transaction

The sale of an asset and the leasing back of the same [...]]]> [ S ]

Sale and leaseback transaction

The sale of an asset and the leasing back of the same asset. The lease payment and the sale price are usually interdependent because they are negotiated as a package.

Sarbanes-Oxley

• The Sarbanes Oxley(SOX) Act of 2002 is a piece of US legislation
• It was introduced in response to high profile financial scandals like the Enron and WorldCom
• It aims to protect shareholders and the general public from accounting errors and fraudulent practises
• it is administered by the Securities and Exchange Commission(SEC)
• The Act defines what company records must be stored and for how long. It set rules for the certification of financial reports by CEOs and CFOs, who are then personally responsible for the statements made, in addition to a number of other provisions.

Solvency

The availability of cash over the longer term to meet financial commitments as they fall due.

Subsidiary

An entity, including an unincorporated entity such as a partnership, that is controlled by another entity (known as the parent).

Substance over form

The principle that transactions and other events are accounted for and presented in accordance with their substance and economic reality and not merely their legal form.

Share capital

o the amount raised from the shareholders of the business

Shareholders’ funds

o the total of ordinary and preference issued capital plus the total of revenue and capital reserves

Share premium

o a capital reserve owned by the shareholders arising when a company issues shares at a price in excess of the nominal value.

Sources and uses of funds

o see funds statement

Standard cost

o a predetermined cost, ie what it ought to cost to produce something.

Standard hour

o a hypothetical hour that measures the amount of work that ought to be carried out in the hour.

Stock turnover

o ratio of cost of sales to stocks. This measures the number of times stocks are turned over in the course of a year.

Swap

• a financial transaction in which two counterparties agree to exchange streams of payment over time according to a predetermined rule. A swap is normally used to transform the market exposure associated with a loan or bond borrowing from one interest rate base(fixed term or floating rate) or currency of denomination to another.

Securization

• often used narrowly to mean the process by which the assets, mainly loans or mortgages of traditinal banks or thrift institutions are converted into negotiable securities which may be purchased either by depository institutions or by non-bank investors.

Realisable value

o         The amount of cash or cash equivalents that could currently be obtained [...]]]> [ R ]

Realisable value

o         The amount of cash or cash equivalents that could currently be obtained by selling an asset in an orderly disposal.

Recognition

o         The process of incorporating in the balance sheet or income statement an item that meets the definition of an element and satisfies the following criteria for recognition:

a.       it is probable that any future economic benefit associated with the item will flow to or from the entity; and

b.       the item has a cost or value that can be measured with reliability.

Relevance

o         Information has the quality of relevance when it influences the economic decisions of users by helping them evaluate past, present or future events or confirming, or correcting, their past evaluations.

Reliability

o         Information has the quality of reliability when it is free from material error and bias and can be depended upon by users to represent faithfully that which it either purports to represent or could reasonably be expected to represent.

Revenue

o         The gross inflow of economic benefits during the period arising in the course of the ordinary activities of an entity when those inflows result in increases in equity, other than increases relating to contributions from equity participants.

Reserves

o         these represent the build-up of undistributed profits and consist either of revenue or of capital reserves

Retained profits

o         see ploughed-back profits

Revenue reserves

o         these trading profits are distributable as dividend to the shareholders in a restricted manner, ie basically by the issue of fully-paid bonus shares.

Risk Premium

•  The difference between the rate of return on a risk-free asset and on an asset with risk attached. The rate of return is higher if more risk is taken on.

Rights issue

o         an issue of shares for cash to existing holders of share capital in the company. Normally the issue is at a price lower than the current market price acting as an inducement to existing holders to take up the shares.

Quick assets

o         see liquid [...]]]> [ Q ]

Quick assets

o         see liquid assets

Quick ratio

o         the ratio of liquid assets to current liabilities . A test of liquidity:1 is the general norm

Parent

o         An entity that has one or more subsidiaries.

[ P ]

Parent

o         An entity that has one or more subsidiaries.

Profit

o         The residual amount that remains after expenses (including capital maintenance adjustments, where appropriate) have been deducted from income. Any amount over and above that required to maintain the capital at the beginning of the period is profit.

Profit or loss for the period

o         A separate line item on the face of the income statement in which all items of income and expense recognised in a period are included unless a Standard or Interpretation requires otherwise.

Property, plant and equipment

o         Tangible items that:

a.       are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes; and

b.       are expected to be used during more than one period.

Provision

o         A liability of uncertain timing or amount

Prudence

o         The inclusion of a degree of caution in the exercise of the judgements needed in making the estimates required under conditions of uncertainty, such that assets or income are not overstated and liabilities or expenses are not understated.

Paid-up capital

o         a “ fully-paid” share is one where the nominal value has been fully subscribed; whereas a share of,say, nominal value of $1, if only 50 cent has been subscribed per share, is described as “ partly paid”

Par value

o         when issued “at part” the issue price is equal to the nominal value. When issued at a “premium” the issue price is in excess of the nominal value, and when at a “discount” below the nominal value.

Ploughed-back profits

o         profits retained in the business

Preference shares

o         that part of the share capital preferred to the remainder of the ordinary share capital for the payment of dividend and/or for the repayment of capital on a winding up.

Price earning (P/E)

o         current market price of the share divided by the last reported earnings attributable to the share.

Prime costs

o         the total of direct materials, labor and expenses

Private company

o         a company whose Articles of Association restrict the transfer of its shares, limit its members to fifty and prohibit public advertisements for capital

Profit/volume ratio (P/V)

o         the rate at which profits change with a change in output

Provision

o         a charge against profit that provides for the reduction in value of an asset or a liability whose value is uncertain eg provision for depreciation, provision for doubtful debt

Public company

o         a company that is not a private company

Operating activities

o The principal revenue-producing activities of an entity and other activities that are not investing or [...]]]> [ O ]

Operating activities

o The principal revenue-producing activities of an entity and other activities that are not investing or financing activities

Operating cycle

o The time between the acquisition of assets for processing and their realisation in cash or cash equivalents.

Ordinary share

An equity instrument that is subordinate to all other classes of equity instruments.

Ordinary shareholders’ fund

o the total of issued ordinary share capital plus the total of the revenue and capital reserves

Ordinary shares

o the part of the share capital subscribed for by shareholders not entitled to a fixed rate of dividend and not entitled to any preference for repayment of capital in the event of the winding up of the company

Option

o the contractual right but not the obligation to buy or sell a specified amount of a given financial instrument at a fixed price before or at a designated future date. A “call option” confers on the holder the right to buy the financial instrument. A “put option” involves the rights to sell the financial instrument.