Skip to main content

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.
Labels:

Comments

Post a Comment

Popular posts from this blog

Money Markets Instruments

Money Market Securities in India The money market includes instruments for raising and investing funds for periods ranging from one day up to one year. Money market securities consist of repos/reverse repos, CBLOs ( collateralized borrowing and lending obligations),certificates of deposits, treasury bills, and commercial paper. All these securities are issued at a discount and redeemed at par, and are zero coupon in structure.  Money markets also include inter-bank call markets that are overnight lending transactions between banks, inter- bank terms markets that  are long term deposits between banks, and interoperate deposits, which are short term lending between companies. These transactions do not involve creation of a debt security and are therefore not included here. The Participants in the money market include banks, primary dealers, financial institutions, mutual funds, provident and pension funds, companies and the government. The purpose of the money market is to e...
Post a Comment
Read more

RISK in Investments

Investment decisions are a trade off between Risk and Return. Risk refers to the possibility that the actual outcome of an investment will differ from its expected outcome. Most investors are concerned about the actual outcome being less than the expected outcome. The wider the range of possible outcomes,the greater the risk. SOURCES OF RISK The three major sources of risk are: Business Risk Interest Rate Risk Market Risk   Business Risk As a holder of corporate securities (equity shares and debentures) you are exposed to risk of poor business performance. This may be caused by a variety of factors like heightened competition, emergence of new technologies, development of substitute products , shifts in consumer preferences, inadequate supply of essential inputs,changes in governmental policies and so on. The principal reason might be inept and incompetent management. Interest Rate Risk The changes in interest rate have a bearing  on the welfare of investo...
Post a Comment
Read more

NPV-Net Present Value :Capital Budgeting Concepts

DEFINITION OF 'NET PRESENT VALUE - NPV' Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows. NPV is used in   capital budgeting   to analyze the profitability of a projected   investment   or project.  The following is the formula for calculating NPV:  where C t  = net cash inflow during the period t C o  = total initial investment costs r =   discount rate , and t = number of time periods  A positive net present value indicates that the projected   earnings   generated by a project or investment (in present dollars) exceeds the anticipated costs (also in present dollars). Generally, an investment with a positive NPV will be a profitable one and one with a negative NPV will result in a   net loss . This concept is the basis for the   Net Present Value Rule , which dictates that the only investments that should be made are th...
Post a Comment
Read more