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Financial Glossary 2

Over capitalisation
when the business had more funds invested in the business than can be profitably employed

Risk management
is the process of identifying and minimising the potential cost of unfavourable events.

Insurance
Is a service offering protection against future possible loss as a result of some unfavourable event in the future.

Budget
is an expression of management plans in financial terms

Profitability
is a financial objective of the business and is concerned with the adequacy of profit

Liquidity
is a financial objective of a business and is concerned with being able to meet all cash obligations when they are due

Growth
is a financial objective and is concerned with increasing the size of the business

Cash budget
is a plan for cash receipts, cash payments and the resultant cash balance at certain points in time

Targeted profit level
should provide a reasonable return on the owners' investment - this means that the return on the capital invested should be equal to the prevailing bank interest rates plus a premium for risk

Fixed Costs (FC)
Are costs which remain constant over a period of time and over a wide range of sales volume

Variable Costs (VC)
Vary in direct proportion to changes in sales volume

Total Costs (TC)
is the sum of fixed cost plus variable cost

Cost-volume-profit (CVP) analysis
is an analysis of the mathematical relationships between costs, volume of sales, and profit over a range of output

Break-even point
is the output level where neither a profit or a loss is made because total costs equals sales

Financial information system
is a system which attempts to provide accurate and timely financial information needed to manage an organisation effectively

Accounting system
consists of those processes, people, and equipment which capture and convert financial information for use in decision making

A Balance Sheet
is a list of all the assets, liabilities and owners equity of an organisation at a point in time

An Income statement
is a report detailing revenue and expenses of a period,and the resultant profit or loss

A Statement of Cash Flows
is a report which shows the cash inflows and cash outflows of an organisation during a particular period, and the resulting cash balances

Comparative financial statements
Are accounting reports which provide figures for at least two consecutive accounting periods

Extraordinary revenue or expenses
items that are not of a reoccurring nature

Financial ratio analysis
is a range of techniques that establish relationships between two or more variables so that meaningful financial comparisons can be made

Financial Controls

Are procedures, methods, tools, and techniques aimed at keeping an organisation moving towards its goals and preventing financial losses.
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