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Glossary of Business Terms for Future CEOs

Future business leaders will need to be up to speed on terminology. Here is a list of the most basic terms that a CEO has to know.

Future business leaders need to be up to speed on terminology.  Here is a list of the most basic terms that a CEO has to know.

10K – more detailed version of the annual report

Annual Report – yearly record of a publicly held company’s financial condition that includes description of the firm’s balance sheet and income statement; must be distributed to all shareholders

Articles of incorporation – legal document establishing a corporation, its structure and purpose

Assets – the entire property of a corporation applicable or subject to the payment of debts

Audit – a formal examination of an organization’s accounts and financial situation

Balance sheet – a summary of assets, liabilities, and owners’ equity ; also called the statement of financial condition

Bankruptcy – state of being unable to pay debts; ownership of the firm’s assets is transferred from the stockholders to the bondholders

Budget – a detailed schedule of financial activity, such as an advertising budget, sales budget or a capital budget

Buyout – purchase of a controlling interest (or percent of shares) of a company’s stock; a leveraged buyout is done with borrowed money

Capital expenditures – amount used during a particular period to acquire or improve long-term assets such as property, plant and equipment

Capitalization – the debt and/or equity mix that fund a firm’s assets

Cash – the value of assets that can be converted to cash immediately; usually includes bank accounts and marketable securities; cash equivalents on balance sheets include securities that mature within 90 days

Cash budget – forecasted summary of a firm’s expected cash inflows and cash outflows as well as its expected cash and loan balances

Cash flow – represents earnings before depreciation, amortization and non-cash charges

Collaboration – to work jointly with others or together especially in an intellectual endeavor

Commodity – food, metal or another physical substance that investors buy or sell, usually via futures contracts

Common stock – securities that represent equity ownership in a company; investors vote on such matters as the election of directors; they also give the holder a share in a company’s profits via dividend payments or the capital appreciation of the security

Consolidation – the combining of two or more firms to form an entirely new entity

Controller – the corporate manager responsible for the firm’s accounting activities

Corporate financial management – the application of financial principles within a corporation to create and maintain value through decision making and proper resource management

Credit – the provision of money, goods, or services with the expectation of future payment

Debit – to take money from an account

Debt – the common-law action for the recovery of money held to be due

Debt/equity ratio – indicator of financial leverage; compares assets provided by creditors to assets provided by shareholders; determined by dividing long-term debt by common stockholder equity

Dividend – an individual share of profits distributed to stockholders

Earnings – net income for the company during the period

Earnings per share (EPS) – a company’s profit divided by its number of outstanding shares

Emerging Markets – the financial markets of developing countries (i.e. BRIC: Brazil, Russia, India, and China)

Equity – represents ownership interest in a firm; the common stock of a corporation

Fixed cost – a cost that is fixed in total for a given period of time and for given production levels

Free cash flow – cash not required for operations or reinvestment; often defined as earnings before interest less capital expenditures less the change in working capital

Globalization – tendency toward a worldwide investment environment, and the integration of national capital markets

Governance – the way that a company is controlled by the people who run it

Human capital – the unique capabilities and expertise of individuals

Indemnity – security against hurt, loss, or damage; exemption from incurred penalties or liabilities

Industry – the category describing a company’s primary business activity; this category is usually determined by the largest portion of revenue

Inflation – a continuing rise in the general price level usually attributed to an increase in the volume of money and credit relative to available goods and services

Initial public offering (IPO) – a company’s first sale of stock to the public; securities offered in an IPO are often small companies seeking outside equity

Innovation – a new idea, method or device

Insolvent – a firm that is unable to pay debts (liabilities are greater than assets)

Interest – price paid for borrowing money expressed as a percentage rate over a period of time and reflects the rate of exchange of present consumption for future consumption; a share or title in property

Investment bank – financial intermediaries who perform a variety of services, including aiding in the sale of securities, facilitating mergers and other corporate reorganizations, acting as brokers to both individual and institutional clients and trading for their own accounts; underwriters

Lease – a long-term rental agreement and a form of secured long-term debt

Leverage – the use of debt financing

Liabilities – the quality of being liable (obligated according to law or equity)

Lien – a charge upon real or personal property for the satisfaction of some debt or duty ordinarily arising by operation of law

Liquidity – a consisting of or capable or ready conversion into cash; capable of covering current liabilities quickly with current assets

Managerial decisions – decisions concerning the operation of the firm, such as the choice of firm size, firm growth rates and employee compensation

Marketing – the process or technique of promoting, selling, and distributing a product or service

Merger – acquisition in which all assets and liabilities are absorbed by the buyer; any combination of two companies

Mortgage – a loan secured by the collateral of some specified real estate property which obliges the borrower to make a predetermined series of payments

Opportunity costs – the difference in the performance of an actual investment and a desired investment adjusted for fixed costs and execution costs; most valuable alternative that is being given up

Perquisites – personal benefits such as the use of a firm car or expense account for personal business

Preferred stock - a security that shows ownership in a corporation and gives the holder a claim prior to the claim of common stockholders on earnings and also generally on assets in the event of liquidation; usually pays a fixed dividend prior to the common stock dividend; does not usually carry voting rights

Proxy – authority or power to act for another; a document giving such authority specifically a power of attorney authorizing a specified person to vote corporate stock

Public offering – sale of registered securities by the issuer (or its underwriters) in the public market

Quick assets – assets minus inventories

Return on assets (ROA) – indicator of profitability determined by dividing net income for the past 12 months by total average assets

Return on equity (ROE) – indicator of profitability determined by dividing net income for past 12 months by common stockholder equity (adjusted for stock splits); used to measure how a company is using its money

ROI – return on investment, book income as a proportion of net book value

Security – piece of paper that process ownership of stocks, bonds and other investments

Shares – certificates or book entries representing ownership in a corporation or similar entity

Stakeholder – one that has a stake in an enterprise

Stock – the proprietorship element in a corporation usually divided into shares and represented by transferrable certificates; a portion of such stock of one or more companies

Stock market – market for trading equities

Stockholder – holder of equity shares in a firm

Succession – one person takes the place of another in the enjoyment of or liability for rights or duties or both, CEO succession plans provide for the future of leadership should the CEO be forced to step down

Takeover – transfer of control of a firm from one group’s shareholders to another group of shareholders

Treasurer – the corporate officer responsible for designing and implementing many of the firm’s financing and investing activities

Underwrite – to guarantee, as to guarantee the issuer of securities a specified price by entering into a purchase and sale agreement; to bring securities to market

Unemployment rate – the ratio of the number of people classified as unemployed to the total labor force

Venture capital – an investment in a start-up business that is perceived to have excellent growth prospects but does not have access to capital markets

Voting rights – the right to vote on matters that are put to a vote of security holders

Working capital – defined as the difference in current assets and current liabilities (excluding short-term debt); current assets may or may not include cash and cash equivalents

Definitions from The New York Times Glossary of Financial and Business Terms and Merriam-Webster

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