Business Dictionary

1. voting right Delegable right of a common stock (ordinary share) holder to take part in a firm's decision making process, by voting on matters of policy and to choose members of the board of directors. Such matters include issuance of additional stock, stock splits, and substantial changes in the firm's business. Most common shares have one vote each, and preferred stock (preference share) holders usually also have the right to vote when their dividends remain unpaid for a specified period. voting right is in the Entrepreneurship, Management, & Small Business and Investing subjects. voting right appears in the definitions of the following terms: poison pill, discount for lack of voting rights, extraordinary general meeting, key employee, and capital reorganization. 2. indemnity Undertaking given to compensate for (or to provide protection against) injury, loss, incurred penalties, or from a contingent liability. A shipping company, for example, will ask for a bank's indemnity for releasing a shipment to a consignee who has lost original shipping documents. The bank in turn will require the consignee to sign a counterindemnity before issuing its indemnity to the shipping company. This way the consignee gets the release of shipment in completion of a transaction, and both the shipping company and the bank are protected in case some dispute arises out of that transaction. See also letter of indemnity. Indemnity is in the Agreements & Contracts, Banking, Commerce, Credit, & Finance and Corporate, Commercial, & General Law subjects. Indemnity appears in the definitions of the following terms: quadruple indemnity, dual choice, contingent liability, insurance policy, and yacht insurance. 3. distributor An entity that buys noncompeting products or product lines, warehouses them, and resells them to retailers or direct to the end users or customers. Most distributors provide strong manpower and cash support to the supplier or manufacturer's promotional efforts. They usually also provide a range of services (such as product information, estimates, technical support, after-sales services, credit) to their customers. distributor is in the Advertising, Marketing, & Sales, Corporate, Commercial, & General Law and Distribution & Logistics subjects.

distributor appears in the definitions of the following terms: direct channel, horizontal price restraint, distribution intermediary, economy, and dealer financing. 4. middle class Social class usually comprising of white-collar (non-manual) workers, lower-level managers, and small business owners, often constituting about one-third of the employed population of a country. The income of this class is higher than that of the working-class but lower than that of the upper-middle class (doctors, engineers, lawyers, middle-size business owners) and upper class. middle class is in the Economics, Politics, & Society subject. middle class appears in the definitions of the following terms: social class, upper class, American Recovery And Reinvestment Act, and macro risks. 5. preliminary official statement (POS) Preliminary prospectus on a pending new issue, circulated usually to gauge the level of interest among prospective investors by giving the broad information (but without indicating the price of the issue). Popularly known as red herring because of the notice (printed in red ink) on its first page which expressly states that the document is not an offer but a public disclosure on a forthcoming conditional sale. Also called preliminary prospectus. preliminary official statement (POS) is in the Banking, Commerce, Credit, & Finance, Corporate, Commercial, & General Law, Investing and Securities & Futures Trading subjects. preliminary official statement (POS) appears in the definitions of the following terms: preliminary prospectus and red herring. 6. debenture A promissory note or a corporate bond which (in the US) is backed generally only by the reputation and integrity of the borrower and (in the UK) by the borrower's specific assets. When unsecured, it is called a bare debenture or naked debenture; when secured by a charge on a specific property, it is called a mortgage debenture. debenture is in the Banking, Commerce, Credit, & Finance and Securities & Futures Trading subjects. debenture appears in the definitions of the following terms: convertible debt, unsecured debt, redeemable debenture, shareholder loan, and average life. 7. dividend yield Annual rate of return on common stock (ordinary shares) or preferred stock (preference shares), computed by dividing the annual dividend by the shares' market price. Dividend yield reflects the return on the current 'opportunity value,' and not on the historical cost of the investment. As the price of the shares declines, the dividend yield goes up indicating

that the shares are priced cheaply and are a 'good buy.' Such shares usually attract risk averse investors. dividend yield is in the Accounting & Auditing, Banking, Commerce, Credit, & Finance, Investing and Securities & Futures Trading subjects. dividend yield appears in the definitions of the following terms: equity fund, growth investing, fixed income security, value stock, and Garman Kohlhagen model. 8. bureaucracy System of administration distinguished by its (1) clear hierarchy of authority, (2) rigid division of labor, (3) written and inflexible rules, regulations, and procedures, and (4) impersonal relationships. Once instituted, bureaucracies are difficult to dislodge or change. See also Parkinson's Law and Peter Principle. bureaucracy is in the Entrepreneurship, Management, & Small Business subject. bureaucracy appears in the definitions of the following terms: intrapreneurship, doublespeak, technocracy, buying structure, and standards. 9. Margrabe option Futures contract based on exchange of one asset for another, such as in cross currency option. Invented in 1978 by the US risk-management consultant William Margrabe who also devised a formula for determining its price. Also called exchangeable option or outperformance option. See also rainbow option. Margrabe option is in the Commodities & Precious Metals Trading, Currency Trading, Disaster Planning & Risk Management, Investing and Securities & Futures Trading subjects. Margrabe option appears in the definitions of the following terms: cross-currency option, exchangeable option, and rainbow option. 10. Laffer curve Graphical representation of a conceptual relationship between marginal tax rates and total tax collections. Named after the US economics professor Arthur Laffer who proposed that lower taxes encourage additional output (supply) and thus increase aggregate income. Laffer curve is used by the supporters of supply side economics to back their claim that low income tax policies spur non-inflationary growth by encouraging new investment. Laffer curve is in the Economics, Politics, & Society subject. Laffer curve appears in the definition of the following term: supply side economics.

11. pro rata Proportionate allocation or distribution of a quantity (such as costs, income, shares, taxes) on the basis of a common factor. For example, profit is generally divided among several stockholders (shareholders) on the basis of the amount of stock (number of shares) held by each. Latin for, according to the rate. pro rata is in the Accounting & Auditing, Banking, Commerce, Credit, & Finance and Corporate, Commercial, & General Law subjects. pro rata appears in the definitions of the following terms: cancelable insurance, measured day work (MDW), proration, performance of contract, and jointly and severally. 12. special resolution Extraordinary resolution regarding an important decision, such as for altering the terms of the articles of association or the memorandum of association, or making some other major or fundamental changes in an organization. A special resolution typically requires (1) not less than 21 days notice to the members of the intention to propose the resolution, (2) not less than three-fourth of the votes of the members present in person or by proxy for approval, and (3) to be filed with the competent authority (such as the registrar of companies in the UK), within 15 days of being approved. special resolution is in the Corporate, Commercial, & General Law and Entrepreneurship, Management, & Small Business subjects. special resolution appears in the definitions of the following terms: extraordinary resolution, dormant firm, company name, ordinary resolution, and resolution. 13. confidential information Privileged communication shared with only a few people for furthering certain purposes, such as with an attorney for a legal matter, or with a doctor for treatment of a disease. Receiver of confidential information is generally prohibited from using it to take advantage of the giver. Also called privileged information. See also proprietary information. confidential information is in the Corporate, Commercial, & General Law subject. confidential information appears in the definitions of the following terms: unauthorized access, accountant client privilege, trade secret, privileged information, and breach of confidence. 14. combined loan to value ratio

CLTV Ratio. A ratio that indicates the risk of a homeowner going into default if a home purchase is funded by multiple mortgages. It is calculated by dividing the total value of the combined mortgages by the value of the property. High values (75-85%) are usually required by creditors before they extend a second mortgage or refinancing option to a homeowner, although lower values indicate that there is less risk of default (the loan value is a smaller percentage of the overall home value). 15. moral Private conduct based on strict adherence to a sanctioned or accepted code or dogma of what is right or wrong, particularly as proclaimed in a sacred book, or by a non-secular group or sect. Once practically interchangeable with 'ethical,' this term has acquired quasi-religious connotations and has moved closer to 'righteous' following the recent (second half of the 20th century) schism between private morality and public morality. moral is in the Corporate, Commercial, & General Law subject. moral appears in the definitions of the following terms: human rights, moral rights approach, espoused values, Malthusian thesis, and good consideration. 16. C Corporation (C Corp) US business organization structure that provides several non-tax benefits (such as limited liability for the owners) and is popular as a staging base for raising large amount of investment capital by going public. Unlike in a S corporation, however, the entity's income is taxed twice first as corporate income, then as shareholder (dividend) income. C Corporation (C Corp) is in the Corporate, Commercial, & General Law and Entrepreneurship, Management, & Small Business subjects. C Corporation (C Corp) appears in the definition of the following term: tax status election. 17. simple interest Interest computed only on the principal and (unlike compound interest) not on principal plus interest earned or incurred in the previous period(s). Simple interest is used commonly in variable rate consumer lending and in mortgage loans where a borrower pays interest only on funds used. Formula: Principal amount x Annual interest rate x Number of years. simple interest is in the Accounting & Auditing, Banking, Commerce, Credit, & Finance and Investing subjects. simple interest appears in the definitions of the following terms: interest, truth in savings, and compound interest.

18. reserve requirements Minimum amount of cash or cash-equivalents (computed as a percentage of deposits) that banks and other depository institutions (credit unions, insurance companies) are required by law to keep on hand, and which may not be used for lending or investing. Reserve requirements serve as (1) a safeguard against a sudden and inordinate demand for withdrawals (as in a run on a bank), and (2) as a control mechanism for injecting cash (liquidity) into, or withdrawing it from, an economy. reserve requirements is in the Banking, Commerce, Credit, & Finance and Corporate, Commercial, & General Law subjects. reserve requirements appears in the definitions of the following terms: tight monetary policy, interest rate, monetary policy, Federal Reserve System (The Fed), and total reserves. 19. expenditure Payment of cash or cash-equivalent for goods or services, or a charge against available funds in settlement of an obligation as evidenced by an invoice, receipt, voucher, or other such document. See also revenue expenditure, capital expenditure. expenditure is in the Accounting & Auditing and Banking, Commerce, Credit, & Finance subjects. expenditure appears in the definitions of the following terms: surplus reserve, joint return, benefit principle, mirroring and matching, and taxation principles. 20. buyer Party which acquires, or agrees to acquire, ownership (in case of goods), or benefit or usage (in case of services), in exchange for money or other consideration under a contract of sale. Also called purchaser. See also customer. Professional purchaser specializing in a specific group of materials, goods, or services, and experienced in market analysis, purchase negotiations, bulk buying, and delivery coordination. buyer is in the Accounting & Auditing, Corporate, Commercial, & General Law and Purchasing & Procurement subjects. buyer appears in the definitions of the following terms: minimum subscription, Loan Credit Default Swap (LCDS), confirmation, exclusive listing, and assumption fee. 21. reserve

The amount kept by the insurer in order to be able to cover all his or her debts. This term can also refer to an amount earmarked by the insurer for a specific purpose. reserve is related to the following terms: required reserves and eligible reserves reserve appears in the definitions of the following terms: Federal Reserve discount rate, strategic petroleum reserve (SPR), bad debt reserve, revenue reserve, and unearned premium reserve. 22. going concern value Value of a firm as an operating, normally functioning business to a buyer. It results from advantages such as a good reputation, trained workforce, established and successful procedures, tested systems, operational equipment, and necessary licenses and permits. This value is almost always more than the sum of the market (liquidation) value of the firm's assets. The excess value is recorded in accounting as the firm's goodwill. going concern value is in the Accounting & Auditing and Banking, Commerce, Credit, & Finance subjects. 23. scientific management An early 20th century school of management thought concerned primarily with the physical efficiency of an individual worker. Scientific management is based on the work of the US engineer Frederick Winslow Taylor (1856-1915) who in his 1911 book "The Principles Of Scientific Management" laid down the fundamental principles of largescale manufacturing through assembly-line factories. It emphasizes rationalization and standardization of work through division of labor, time and motion studies, work measurement, and piece-rate wages. See also Taylorism. scientific management is in the Entrepreneurship, Management, & Small Business and Information & Knowledge Management subjects. scientific management appears in the definitions of the following terms: Taylorism and Gantt chart. 24. matrix management Multiple command-and-control structure in which some employees have dual responsibilities and dual bosses. These employee report to one boss (a project manager, for example) for day to day operations, and to another boss (the departmental head, for example) for functional responsibilities. This approach is most suited to situations with fluctuating workloads, such as managing large projects or product development processes. See also matrix organization.

matrix management is in the Decision Making, Problem Solving, & Strategy and Entrepreneurship, Management, & Small Business subjects. 25. transformation In an organizational context, a process of profound and radical change that orients an organization in a new direction and takes it to an entirely different level of effectiveness. Unlike 'turnaround' (which implies incremental progress on the same plane) transformation implies a basic change of character and little or no resemblance with the past configuration or structure. transformation is in the HR, Recruiting, Teams, & Training subject. transformation appears in the definitions of the following terms: raw material, Deming's 14 points, total quality management (TQM), changes, and log-linear least-squares method. 26. corporate citizenship The legal status of a corporation in the jurisdiction in which it was incorporated. A company's role in, or responsibilities towards society. See corporate social responsibility. corporate citizenship is in the Corporate, Commercial, & General Law and Entrepreneurship, Management, & Small Business subjects. corporate citizenship appears in the definition of the following term: corporate social responsibility. 27. externalities Factors whose benefits (called external economies) and costs (called external diseconomies) are not reflected in the market price of goods and services. Externalities are a loss or gain in the welfare of one party resulting from an activity of another party, without there being any compensation for the losing party. Externalities are an important consideration in cost-benefit analysis externalities is in the Decision Making, Problem Solving, & Strategy, Economics, Politics, & Society and Planning & Scheduling subjects. externalities appears in the definitions of the following terms: external economies, pure private good, and external diseconomies. 28. futures contract

Binding contract made on the trading floor of a futures exchange to buy or sell a commodity, financial instrument, or security, on a stated future date at a specified price. These agreements are standardized in terms of quantity, quality, delivery location, and delivery time for each item, and do not normally result in an actual delivery but are settled (traded out) through counter-contracts. Used in hedging, futures contracts help mitigate the risk of wild price fluctuations. In contrast to an option (right to buy or sell an item that lapses if not exercised) a futures contract is an obligation fulfilled only by the completion of the transaction. futures contract is in the Commodities & Precious Metals Trading, Disaster Planning & Risk Management, Investing and Securities & Futures Trading subjects. 29. organizational structure The framework, typically hierarchical, within which an organization arranges its lines of authority and communications, and allocates rights and duties. Organizational structure determines the manner and extent to which roles, power, and responsibilities are delegated, controlled, and coordinated, and how information flows between levels of management. An structure depends entirely on the organization's objectives and the strategy chosen to achieve them. In a centralized structure, the decision making power is concentrated in the top layer of the management and tight control is exercised over departments and divisions. In a decentralized structure, the decision making power is distributed and the departments and divisions have varying degrees of autonomy. An organizational chart illustrates the organizational structure. organizational structure is in the Entrepreneurship, Management, & Small Business subject. organizational structure is related to the following terms: matrix organization, organization chart, and networked design. 30. going short Selling a share, bond, or commodity before actually buying it. This normally happens when an investor or dealer believes the price of the item (on the date of its delivery to the buyer) will be lower than its current price. He or she expects to make a profit by buying the item on or just before its delivery date. See also going long. going short is in the Commodities & Precious Metals Trading, Currency Trading, Disaster Planning & Risk Management, Investing and Securities & Futures Trading subjects. going short appears in the definition of the following term: going long.

31. rationalization Corporate: Selling off or closing down some plants or units to reorganize a firm's operations to be more in line with its core competencies, in the interest of efficiency, or as a cost cutting measure. Often used as a euphemism for firing employees. See also downsizing. Psychological: Attribution of reasonableness or socially acceptable motives to an action, behavior, or decision with plausible explanations, while hiding (or being unconscious of) the true motives. See also defense mechanism. rationalization is in the Entrepreneurship, Management, & Small Business and HR, Recruiting, Teams, & Training subjects. rationalization appears in the definitions of the following terms: downsizing, core product, footprint rationalization, scientific management, and change in accounting principle. 32. interest rate The annualized cost of credit or debt-capital computed as the percentage ratio of interest to the principal. Each bank can determine its own interest rate on loans but, in practice, local rates are about the same from bank to bank. In general, interest rates rise in times of inflation, greater demand for credit, tight money supply, or due to higher reserve requirements for banks. A rise in interest rates for any reason tends to dampen business activity (because credit becomes more expensive) and the stock market (because investors can get better returns from bank deposits or newly issued bonds than from buying shares) interest rate is in the Accounting & Auditing, Banking, Commerce, Credit, & Finance and Investing subjects. interest rate appears in the definitions of the following terms: positive yield curve, disintermediation, monetary policy, loanshark, and secured note. 33. grievance Law: (1) Injury, injustice, or wrong that affords reason for resistance or a formal expression as a complaint. (2) The complaint itself. HR: Specific complaint or formal notice of employee dissatisfaction related to adequacy of pay, job requirements, work conditions, other aspects of employment, or an alleged violation of a collective bargaining agreement. grievance is in the Corporate, Commercial, & General Law and HR, Recruiting, Teams, & Training subjects.

grievance appears in the definitions of the following terms: trade union, insubordination, duty to bargain, employee relations, and directors and officers (D&O) insurance. 34. waiver General: (1) Expressed or implied voluntary and intentional relinquishment or abandonment of a legal advantage, claim, requirement, or right. (2) Document (instrument) by which a such abandonment or relinquishment is effected. Insurance: Agreement or supplementary clause attached to a policy which (1) excludes certain type of losses, (2) limits the amount of claim to a specified sum, or (3) extends the coverage to include items not included in a standard policy. See also rider. waiver is in the Corporate, Commercial, & General Law and General, Marine, & Life Insurance subjects. waiver appears in the definitions of the following terms: volenti non fit injuria, documents sent on approval, postnuptial agreement, lien waiver, and subrogation waiver. 35. misrepresentation Fraudulent, negligent, or innocent misstatement, or an incomplete statement, of a material fact. If a specific misrepresentation induces the other party to enter into a contract, that party may have the legal right to rescind the contract or seek compensation for damages. The guilty party avail of the defense that the wronged party could have checked the facts and have discovered what was wrong. A misstatement of an intention or opinion is generally not considered a misrepresentation. misrepresentation is in the Corporate, Commercial, & General Law subject. misrepresentation appears in the definitions of the following terms: commercial crime coverage form, affirmation of contract, interstate land sales act, puffery, and contractor fraud. 36. alliance Coming together of two or more firms to create a unique organizational entity (such as a joint venture), in which each firm retains its individual identity and internal control. The purpose of an alliance is to (1) achieve joint strategic goals, (2) reduce risk while increasing rewards and/or, (3) leverage resources. Since an alliance is neither an acquisition nor a merger, it requires new control methods and new management skills. alliance is in the Decision Making, Problem Solving, & Strategy and Entrepreneurship, Management, & Small Business subjects.

alliance appears in the definitions of the following terms: North Atlantic Treaty Organization (NATO), European Union (EU), league, social network, and Hope Now Alliance. 37. barter Trading in which goods or services are exchanged without the use of cash. Resorted-to usually in times of high inflation or tight money, barter is now a common form of trading in deals such as offers to buy surplus goods in exchange for advertising space or time. Advent of internet has transformed bartering from largely person-to-person to mainly business-to-business exchange where items ranging from manufacturing capacity to steel and paper are bartered across international borders on a daily basis. barter is in the International Trade & Relations and Purchasing & Procurement subjects. barter appears in the definitions of the following terms: market, trade out, contra deal, informal economy, and 1099-B. 38. structure Construction or framework of identifiable elements (components, entities, factors, members, parts, steps, etc.) which gives form and stability, and resists stresses and strains. Structures have defined boundaries within which (1) each element is physically or functionally connected to the other elements, and (2) the elements themselves and their interrelationships are taken to be either fixed (permanent) or changing only occasionally or slowly. See also infrastructure, superstructure, and system. structure is in the Economics, Politics, & Society, Entrepreneurship, Management, & Small Business and Systems & Methodologies subjects. structure appears in the definitions of the following terms: affinity diagram, corporeal property, organization, duplex stainless steel, and gestalt theory. 39. strategic business unit (SBU) <p>An autonomous division or organizational unit, small enough to be flexible and large enough to exercise control over most of the factors affecting its long-term performance.</p> <p>Because strategic business units are more agile (and usually have independent missions and objectives), they allow the owning conglomerate to respond quickly to changing economic or market situations.</p> strategic business unit (SBU) is in the Decision Making, Problem Solving, & Strategy and Entrepreneurship, Management, & Small Business subjects.

strategic business unit (SBU) appears in the definitions of the following terms: portfolio planning matrix and category management. 40. World Trade Organization (WTO) UN multilateral trade organization formed on January 1, 1995 (after culmination of the Uruguay Round) as the successor to GATT and the court of final settlement in trade disputes. Its objectives included (1) removal of all barriers to international trade in goods, services, and intellectual property, (2) equitable and speedy resolution of disputes between trading partners, and (3) identification of non-compliance with trade agreements. World Trade Organization (WTO) is in the Economics, Politics, & Society subject. World Trade Organization (WTO) appears in the definitions of the following terms: bound tariff rate, most favored nation (MFN), multi fiber agreement (MFA), export subsidy, and bilateral clearing agreement. 41. white collar Refers to employees whose job entails, largely or entirely, mental or clerical work, such as in an office. The term white collar work used to characterize non-manual workers, but now it refers to employees or professionals whose work is knowledge intensive, nonroutine, and unstructured. Historically, in the West, clerical workers wore white shirt collars but manual workers wore blue. See also blue collar. white collar is in the HR, Recruiting, Teams, & Training subject. white collar appears in the definitions of the following terms: blue collar, middle class, and businessman. 42. blue collar Refers to employees whose job entails (largely or entirely) physical labor, such as in a factory or workshop. For a piece of work to be termed blue collar, it should be directly related to the output generated by the firm, and its end result should be identifiable or tangible. Historically, in the West, manual workers wore blue shirt collars but clerical workers wore white. See also white collar. blue collar is in the HR, Recruiting, Teams, & Training subject. blue collar appears in the definitions of the following terms: white collar and working class. 43. export subsidy

Government help to exporters, generally in two forms (1) Service subsidy: trade information, trade shows, feasibility studies, foreign representation, etc. (2) Cash subsidy: (a) rebate on imported raw materials and duty-free import of manufacturing equipment (called indirect cash subsidy); or (b) drawback as a percentage of the value of exports (called direct cash subsidy). Although World trade Organization (WTO, formerly GATT) recognizes that subsidies hinder fair competition and distort trade practices, it has not been able to define precisely what kind of assistance constitutes a subsidy. export subsidy is in the Banking, Commerce, Credit, & Finance, Economics, Politics, & Society and International Trade & Relations subjects. export subsidy appears in the definitions of the following terms: drawback, Cairns group, trade liberalization, and non tariff barrier (NTB). 44. account party Entity (usually an importer) who applies to a bank to establish a letter of credit (L/C) in favor of another entity (the 'accredited party' or 'beneficiary,' usually an exporter). However, where a finance company applies for a L/C on behalf of an importer, the finance company is usually called the 'applicant' and the importer is called the 'account party.' Also called accountee or applicant. account party is in the Banking, Commerce, Credit, & Finance and International Trade & Relations subjects. account party appears in the definitions of the following terms: soft clause, confirmed irrevocable letter of credit (L/C), assignment under documentary credit, red clause, and accountee. 45. implied-in-law contract Fictional contract imposed by a court as a legal remedy to prevent injustice. It is forced in favor of the wronged party, and against the party that obtains an undue advantage or gains at the expense of the other. The wrongdoer is considered to be under an obligation 'quasi ex contractu' (Latin for, as if from a contract) to make restitution. implied-in-law contract is in the Agreements & Contracts and Corporate, Commercial, & General Law subjects. implied-in-law contract appears in the definitions of the following terms: contract and implied contract. 46. impact fee Industrial: Charge imposed on industrial projects to compensate for their negative social or environmental cost which will eventually be borne by the public.

Real estate: Charge imposed on land developers to cover the cost of infrastructure and related services that will have to be provided by the local or national government. impact fee is in the Environment & Pollution Control and Real Estate & Buildings subjects. 47. blue chip Large, prestigious, prosperous, and stable corporation. Blue chip firms have a solid record of earnings and dividend payments in both good and bad times, and have a strong long-term growth potential. The term comes from the game of poker in which the highest value chip is blue. Called first section in Japan. blue chip is in the Entrepreneurship, Management, & Small Business, Investing and Securities & Futures Trading subjects. blue chip appears in the definitions of the following terms: large capitalization stock, opportunity cost of capital, junk bond, Nikkei stock average, and Dow Jones Industrial Average (DJIA). 48. basis point Smallest measure of quoting the yield on a bond, note, or other debt instrument. One basis point is equal to one hundredth of one percent (0.01%): one percent of a yield equals 100 basis points. For example, an interest rate of 5 percent is 50 basis point higher than the interest rate of 4.5 percent. Similarly, a spread of 50 basis points (between the bid price and offer price of a bond) means the investor must pay 0.5 percent more to buy it than he or she could realize from selling it. basis point is in the Accounting & Auditing, Investing and Securities & Futures Trading subjects. basis point appears in the definitions of the following terms: point, spread duration, DV01, and money market yield. 49. appraisal value Appraiser's opinion (not determination) of the current worth of a property based on factors such as area, location, improvements, and amenities. Generally, this value is arrived at by using one of three methods: (1) Cost approach, (2) Income approach, or (3) Market comparison approach. Not to be confused with assessed value. Also called appraised value. appraisal value is in the Accounting & Auditing, General, Marine, & Life Insurance, Investing and Real Estate & Buildings subjects.

appraisal value appears in the definitions of the following terms: appraisal, market approach, appraised value, Housing and Economic Recovery Act (HERA), and income approach. 50. inventory value Determination of the cost of unsold inventory at the end of an accounting period. Inventory is valued usually at cost or at the market value, whichever is lower. The four common valuation methods are first-in, first-out (FIFO), last-in, first-out (LIFO), average cost (AVCO), and specific identification. inventory value is in the Accounting & Auditing, Banking, Commerce, Credit, & Finance and Inventory Control & Storage subjects. inventory value appears in the definitions of the following terms: turnover ratios, inventory cost, Pareto principle, acid test ratio, and inventory carrying cost. 51. money market Network of banks, discount houses, institutional investors, and money dealers who borrow and lend among themselves for the short-term (typically 90 days). Money markets also trade in highly liquid financial instruments with maturities less than 90 days to one year (such as bankers' acceptance, certificates of deposit, and commercial paper), and government securities with maturities less than three years (such as treasury bills), foreign exchange, and bullion. Unlike organized markets (such as stock exchanges) money markets are largely unregulated and informal where most transactions are conducted over phone, fax, or online. Long-term borrowing and lending markets are called capital markets. money market is in the Banking, Commerce, Credit, & Finance, Economics, Politics, & Society and Investing subjects. money market appears in the definitions of the following terms: money market deposit account, interbank dealings, official cash rate, money center banks, and capital IQ. 52. electronic commerce (E-Commerce) Business conducted through the use of computers, telephones, fax machines, barcode readers, credit cards, automated teller machines (ATM) or other electronic appliances (whether or not using the internet) without the exchange of paper-based documents. It includes activities such as procurement, order entry, transaction processing, payment, authentication and non-repudiation, inventory control, order fulfillment, and customer support. When a buyer pays with a bank card swiped through a magnetic-stripe-reader, he or she is participating in e-commerce.

electronic commerce (E-Commerce) is in the Banking, Commerce, Credit, & Finance, ECommerce and Internet & World Wide Web subjects. electronic commerce (E-Commerce) appears in the definitions of the following terms: authentication key, social commerce, Rivest Shami Adleman (RSA) method, Open Financial Exchange (OPX), and electronic hub. 53. seed capital Comparatively small amount of capital contributed in the very beginning by a firm's founder(s). It is rarely provided by lenders or institutional investors because startup is the riskiest stage in a firm's life cycle with the highest chance of failure. Also called front end money, front money, or startup capital. seed capital is in the Accounting & Auditing and Banking, Commerce, Credit, & Finance subjects. seed capital appears in the definitions of the following terms: front money, front end money, and microbusiness. 54. distribution channel A path through which goods and services flow in one direction (from vendor to the consumer), and the payments generated by them that flow in the opposite direction (from consumer to the vendor). A marketing channel can be as short as being direct from the vendor to the consumer or may include several interconnected intermediaries such as wholesalers, distributors, agents, retailers. Each intermediary receives the item at one pricing point and moves it to the next higher pricing point until it reaches the final buyer. Also called channel of distribution or marketing channel. distribution channel is in the Advertising, Marketing, & Sales and Distribution & Logistics subjects. distribution channel appears in the definitions of the following terms: push promotional strategy, channel width, distribution, node, and marketing channel. 55. debt A duty or obligation to pay money, deliver goods, or render service under an express or implied agreement. One who owes, is a debtor or debitor; one to whom it is owed, is a debtee, creditor, or lender.</p> <p>Use of debt in an organization's financial structure creates financial leverage that can multiply yield on investment provided returns generated by debt exceed its cost. Because the interest paid on debt can be written off as an expense, debt is normally the cheapest type of long-term financing.</p>

debt is in the Accounting & Auditing and Banking, Commerce, Credit, & Finance subjects. debt appears in the definitions of the following terms: factoring, cash flows from financing activities, agency cost view, sinking fund provision, and risk-based pricing. 56. appeal Request, usually by a party losing a case in a lower court to a higher (appellate) court, to reverse or modify the lower court's decision. Appellate courts, in general, deal with a appeal by notionally rehearing the case through the trial notes (transcripts) before calling any witnesses. The appellant usually has to post an appeal-bond, to pay for the appellee's expenses in case the appeal is unsuccessful. In some civil cases, a winning party may appeal for an award of a larger sum in damages. appeal is in the Corporate, Commercial, & General Law subject. appeal appears in the definitions of the following terms: appellee, 30-day letter, settlement office, mass market, and undifferentiated marketing. 57. quick response Just in time inventory partnership strategy between suppliers and retailers of general merchandise. It is aimed mainly at reducing order response time, and achieving greater accuracy in shipping the correct goods in correct quantities, by employing computerized equipment such as barcodes and EDI to speed up flow of information. Its other objectives include reduction in operating expenses, out-of-stock situations, and forced mark-downs (discounts). quick response is in the Advertising, Marketing, & Sales, Data Management, Communications, & Networks and Inventory Control & Storage subjects. quick response appears in the definition of the following term: best interests. 58. financial statement Summary report that shows how a firm has used the funds entrusted to it by its stockholders (shareholders) and lenders, and what is its current financial position. The three basic financial statements are the (1) balance sheet, which shows firm's assets, liabilities, and net worth on a stated date; (2) income statement (also called profit & loss account), which shows how the net income of the firm is arrived at over a stated period, and (3) cash flow statement, which shows the inflows and outflows of cash caused by the firm's activities during a stated period. financial statement is in the Accounting & Auditing and Banking, Commerce, Credit, & Finance subjects.

financial statement appears in the definitions of the following terms: annual earnings change, noncash item, billings in excess of costs, accounting noise, and contingent asset. 59. nationalization Takeover of privately owned corporations, industries, and resources by a government with or without compensation. Common reasons for nationalization include (1) prevention of unfair exploitation and large-scale labor layoffs, (2) fair distribution of income from national resources, and (3) to keep means of generating wealth in public control. nationalization is in the Banking, Commerce, Credit, & Finance and Economics, Politics, & Society subjects. nationalization appears in the definitions of the following terms: monopoly, public ownership, privatization, micro country risks, and laissez-faire economics. 60. reciprocity General: Exchange of equal or identical advantages or privileges, such as removal of traveling restriction between two countries. International trade: Lowering of import duties and other trade barriers in return for similar concessions from another country. Reciprocity is a traditional principle of GATT/WTO, but is practicable only between developed nations due to their roughly matching economies. For trade between them and developing nations, the concept of relative reciprocity is applied whereby the developed nations accept less than full reciprocity from their developing trading partners. reciprocity is in the Economics, Politics, & Society, International Trade & Relations and Shipping, Transport, & Travel subjects. reciprocity appears in the definitions of the following terms: rational choice theory (RCT), diplomatic immunity, General Agreement on Tariff and Trade (GATT), and mutuality. 61. sovereign risk Probability that the government of a country (or an agency backed by the government) will refuse to comply with the terms of a loan agreement during economically difficult or politically volatile times. Although sovereign nations don't "go broke," they can assert their independence in any manner they choose, and cannot be sued without their assent. Sovereign risk was a significant factor during 1970s after the oil shock when Argentina and Mexico almost defaulted on their loans which had to be rescheduled.

sovereign risk is in the Banking, Commerce, Credit, & Finance, Disaster Planning & Risk Management and Investing subjects. sovereign risk appears in the definitions of the following terms: risk and country risk. 62. satisfaction Customer level of approval when comparing a product's perceived performance with his or her expectations. Also could refer to discharge, extinguishment, or retirement of an obligation to the acceptance of the obligor, or fulfillment of a claim. While satisfaction is sometimes equated with performance, it implies compensation or substitution whereas performance denotes doing what was actually promised. See also accord and satisfaction. satisfaction is in the Agreements & Contracts, Corporate, Commercial, & General Law, Customer Relations & Services and Purchasing & Procurement subjects. satisfaction appears in the definitions of the following terms: junior debt, customer relationship management (CRM), scheme of arrangement, American customer satisfaction index, and marketing concept. 63. profit multiple Product of pretax or operating profit and a number (called market multiplier) which is either estimated from the selling prices of comparable businesses or is published by the financial press in some countries. This number commonly ranges from 1 to 5, depending on the current popularity or potential of a particular type of business. Profit multiple is one of the most widely used methods of valuing a business as a going concern. See also sales multiple. profit multiple is in the Accounting & Auditing, Banking, Commerce, Credit, & Finance and Investing subjects. profit multiple appears in the definitions of the following terms: sales multiple and market multiplier. 64. marketing myopia <p>A short-sighted and inward looking approach to marketing that focuses on the needs of the company instead of defining the company and its products in terms of the customers' needs and wants. It results in the failure to see and adjust to the rapid changes in their markets.</p> <p>The concept of marketing myopia was discussed in an article (titled "Marketing Myopia," in July-August 1960 issue of the <i>Harvard Business Review</i>) by Harvard Business School emeritus professor of marketing, Theodore C. Levitt (1925-2006), who suggests that companies get trapped in this situation because they omit to ask the vital question, "What business are we in?"</p>

marketing myopia is in the Advertising, Marketing, & Sales and Decision Making, Problem Solving, & Strategy subjects. marketing myopia appears in the definition of the following term: generic need. 65. generic strategies Basic approaches to strategic planning that can be adopted by any firm in any market or industry to improve its competitive performance. The three fundamental marketing strategies (which, though different, are not mutually exclusive) are: differentiation strategy, focus strategy, and low cost strategy. generic strategies is in the Advertising, Marketing, & Sales and Decision Making, Problem Solving, & Strategy subjects. 66. demand loan Loan (such as an overdraft) with or without a fixed maturity date, but which can be recalled anytime (often on a 24-hour notice) by the lender and must be paid in full on the date of demand. Also, the borrower can pay off a demand loan at any time without incurring early-payment penalties. Also called call loan or money at call. demand loan is in the Accounting & Auditing and Banking, Commerce, Credit, & Finance subjects. demand loan appears in the definitions of the following terms: time loan, money at call, statute barred debt, call loan, and on demand. 67. preemption right Privilege granted in articles of association or bylaws of a firm under which the current stockholders (shareholders) are given the first option to buy a new issue of common stock (ordinary shares). It enables them to maintain their percentage of the total ownership of the firm, and is usually exercised on the basis of current stockholding. Also called subscription privilege or subscription right. Contractual right under which a party has the first opportunity to buy an asset before it is offered to a third party. Compare with right of first refusal. Also called preemptive right or right of preemption. preemption right is in the Agreements & Contracts and Entrepreneurship, Management, & Small Business subjects. preemption right appears in the definitions of the following terms: subscription right, preemptive right, right of first refusal, subscription privilege, and preemption clause.

68. quasi contract Court's determination of an obligation of one party to another where no actual contract exists. It is based on the parties' conduct, mutual relationship, and/or on the possibility that one would be unjustly enriched at the expense of the other. In strict legal terms a quasi contract does not constitute a formal contract, but is a legal remedy that allows a plaintiff to recover an award or benefit conferred on the defendant. quasi contract is in the Corporate, Commercial, & General Law subject. quasi contract appears in the definition of the following term: unjust enrichment. 69. ratio Result of one number or quantity divided by another. Ratios are the simplest mathematical (statistical) tools that reveal significant relationships hidden in mass of data, and allow meaningful comparisons. Some ratios are expressed as fractions or decimals, and some as percentages. Major types of business ratios include (1) Efficiency, (2) Liquidity, (3) Profitability, and (4) Solvency ratios. ratio is in the Accounting & Auditing, Banking, Commerce, Credit, & Finance and Statistics, Mathematics, & Analysis subjects. ratio appears in the definitions of the following terms: factor, number of days of inventory on hand, employee stock ownership plan (ESOP), advance/decline line (A/D or AD), and poisson ratio. 70. free trade agreement Treaty (such as FTAA or NAFTA) between two or more countries to establish a free trade area where commerce in goods and services can be conducted across their common borders, without tariffs or hindrances but (in contrast to a common market) capital or labor may not move freely. Member countries usually impose a uniform tariff (called common external tariff) on trade with non-member countries. free trade agreement is in the Banking, Commerce, Credit, & Finance, Economics, Politics, & Society and International Trade & Relations subjects. free trade agreement appears in the definitions of the following terms: free trade area, closer economic relations (CER), Trade and Investment Framework Agreement (TIFA), trading bloc, and Group of 3 (G-3) (Latin America). 71. pro forma Assumed, forecasted, or informal information presented in advance of the actual or formal information. The common objective of a pro forma document is to give a fair idea

of the cash outlay for a shipment or an anticipated occurrence. Pro forma financial statements give an idea of how the actual statement will look if the underlying assumptions hold true. Latin for, according to form or for form's sake. pro forma is in the Accounting & Auditing and Banking, Commerce, Credit, & Finance subjects. pro forma appears in the definitions of the following terms: pro forma income, forecast, business plan, and resolution to borrow. 72. adjusted basis value Original cost or base price of a fixed asset from which depreciation is deducted, and to which capital expenditure is added. It is a taxpayer's equivalent of book value, and is used to arrive at capital gain or capital loss (resulting from the sale of an asset) for computing applicable tax. Also called adjustable basis value. adjusted basis value is in the Accounting & Auditing, Banking, Commerce, Credit, & Finance and Investing subjects. adjusted basis value appears in the definitions of the following terms: carryover basis value, standard of value, and adjustable basis value. 73. hard selling Applying psychological pressure (by appealing to someone's fears, greed, or vanity) to persuade the prospect to make a quick purchase decision. This approach is justified on the ground that most people are lazy and will postpone making a decision even if it were in their best interest to make the commitment. This practice is, however, reviled when its sole purpose is the salesperson's gain at the customer's detriment. Also called high pressure selling. hard selling is in the Advertising, Marketing, & Sales subject. hard selling appears in the definitions of the following terms: high pressure selling, soft selling, and boiler room. 74. consolidated financial statement Financial information presentation in which the assets, equity, liabilities, and operating accounts of a firm and its subsidiaries are combined (after eliminating all inter-firm transactions) and shown as belonging to a single reporting entity. Also called combined financial statement or consolidated accounts. consolidated financial statement is in the Accounting & Auditing subject.

consolidated financial statement appears in the definitions of the following terms: group currency, consolidated accounts, consolidation, combined financial statement, and acquisition accounting. 75. management prerogative Employer's or management's unqualified-authority to exercise its discretion in certain areas without discussions with or the agreement of a union. Also called management rights, they are not subject to negotiations and may be expressly stated as such in a collective bargaining agreement. They include the rights to (1) assign and direct workforce, (2) determine the method to discipline employees for just cause, (3) increase and reduce the workforce according to the demand for firm's outputs or availability of money, (4) decide what products are offered for sale, at what price, and by which method. management prerogative is in the Corporate, Commercial, & General Law and Entrepreneurship, Management, & Small Business subjects. management prerogative appears in the definition of the following term: mandatory bargaining issue. 76. financial accounting standards (FAS) Definitive benchmarks prescribed by a country's Accounting Standards Board (as in the UK), or Financial Accounting Standards Board (as in the US) for reporting of accounting data in financial statements. These rules must be applied to all financial statements in order to provide a true and fair view of the firm's financial position, and a standardized method of comparison with financial statements of the other firms. financial accounting standards (FAS) is in the Accounting & Auditing and Banking, Commerce, Credit, & Finance subjects. financial accounting standards (FAS) appears in the definitions of the following terms: financial reporting standards (FRS), World Congress of Accountants (WCOA), and accounting standards. 77. journal voucher <p>A written authorization prepared for every financial transaction, or for every transaction that meets defined requirements.</p> <p>A journal voucher is an integral part of the audit trail, and carries (1) a serial number, (2) transaction date, (3) transaction amount, (4) ledger account(s) affected, (5) reference(s) to documentary evidence (such as invoices or receipts) supporting the entry, (6) brief description of the transaction, and the (7) signature(s) or initials of one or more authorized signatories. A journal is, in effect, a collection of financial data culled from journal vouchers.</p>

journal voucher is in the Accounting & Auditing subject. journal voucher appears in the definitions of the following terms: journalizing, journal, and journal entry. 78. declining balance depreciation Method of computing depreciation in which the written down or book value (purchase price - accumulated depreciation) of a capital asset is reduced by a fixed percentage rate. This method results in larger depreciation amounts in the earlier years of an asset's useful life and progressively lower amounts in later years, and is employed where the usage of an asset remains generally uniform despite the asset's age. Formula: 1- (Residual value Cost)^1/N where N is the number of years in the asset's estimated useful life. Also called diminishing balance depreciation, and reducing balance depreciation. See also straight line depreciation. declining balance depreciation is in the Accounting & Auditing and Banking, Commerce, Credit, & Finance subjects. declining balance depreciation appears in the definitions of the following terms: straight line depreciation, reducing balance depreciation, and accelerated depreciation. 79. conflict of interest A situation that has the potential to undermine the impartiality of a person because of the possibility of a clash between the person's self-interest and professional interest or public interest. A situation in which a party's responsibility to a second-party limits its ability to discharge its responsibility to a third-party. conflict of interest is in the Corporate, Commercial, & General Law and Entrepreneurship, Management, & Small Business subjects. conflict of interest appears in the definitions of the following terms: interest of director, control person, duties of directors, blind trust, and investment adviser. 80. beneficial owner Entity that enjoys the possession and/or benefits of ownership (such as receipt of income) of a property even though its ownership (title) is in the name of another entity (called a 'nominee' or 'registered owner'). Use of a nominee (who may be an agent, custodian, or a trustee) does not change the position regarding tax reporting and tax liability, and the beneficial-owner remains responsible.

beneficial owner is in the Accounting & Auditing, Corporate, Commercial, & General Law, Investing and Real Estate & Buildings subjects. beneficial owner appears in the definitions of the following terms: nominee, nominee shareholding, non-discretionary proposal, nominee account, and custodial agreement. 81. underwriting agreement Securities-purchase contract between an underwriter or underwriting syndicate and an issuer of bonds or shares. Among other terms, it specifies the price at which the security will be offered to the public (public offering price), underwriter's profit margin (underwriting spread), and the date by which the payments must be settled (settlement date). underwriting agreement is in the Banking, Commerce, Credit, & Finance, Investing and Securities & Futures Trading subjects. underwriting agreement appears in the definition of the following term: green shoe. 82. certificate of deposit (CD) Receipt issued by a depository institution (such as a bank, credit union, or a finance or insurance company) to a depositor who opens a certificate account or time deposit account. Issued in a negotiable or non-negotiable form, it states the (1) amount deposited, (2) rate of interest, and (3) minimum period for which the deposit should be maintained without incurring early withdrawal penalties. certificate of deposit (CD) is in the Banking, Commerce, Credit, & Finance and Investing subjects. certificate of deposit (CD) appears in the definitions of the following terms: deposit note, money market deposit account, certificate account, bank note, and discount certificate. 83. organizational development (OD) Theory and practice of planned, systematic change in the attitudes, beliefs, and values of the employees through creation and reinforcement of long-term training programs. OD is action oriented. It starts with a careful organization-wide analysis of the current situation and of the future requirements, and employs techniques of behavioral sciences such as behavior modeling, sensitivity training, and transactional analysis. Its objective is to enable the organization in adopting-better to the fast-changing external environment of new markets, regulations, and technologies. organizational development (OD) is in the Entrepreneurship, Management, & Small Business and HR, Recruiting, Teams, & Training subjects.

organizational development (OD) appears in the definitions of the following terms: management development, grand strategy, and performance management. 84. flowchart Pictorial summary (graphical algorithm) of the decisions (such as production, storage, transportation) and flows (movement of information and materials) that make up a procedure or process from beginning to end. One of the seven tools of quality, a flowchart shows how the entire system functions, and where error and wastes occur. This information is used in defining, documenting, studying, and improving the system. Also called flow diagram, flow process chart, or network diagram. flowchart is in the Planning & Scheduling, Project Management, Quality Control & Management and Statistics, Mathematics, & Analysis subjects. flowchart appears in the definitions of the following terms: backward chaining, algorithm, seven tools of quality, flow diagram, and simulation. 85. joint tenancy Joint ownership of property by two or more related or unrelated entities (joint-tenants) which is effected only when four conditions interest, possession, time, and title (called four unities) are fulfilled. Unlike in tenancy-in-common, joint-tenants have right of survivorship: the entire share of a deceased joint-tenant automatically (without probate) passes on to the surviving joint-tenant(s), the last survivor becoming the absolute and sole owner. Property in joint-tenancy is not subject to probate or claims of anyone (except due taxes) and passes on free. Also called joint tenancy with right of ownership in common. See also tenancy in common and time sharing. joint tenancy is in the Banking, Commerce, Credit, & Finance, Corporate, Commercial, & General Law and Real Estate & Buildings subjects. joint tenancy appears in the definitions of the following terms: joint account, tenancy by the entirety, probate assets, tenancy in common, and joint tenancy with right of ownership in common. 86. accounting policies Principles, rules and procedures selected, and consistently followed, by the management of an organization (the accounting entity) in preparing and reporting the financial statements. Accounting policies deal specifically with matters such as consolidation of accounts, depreciation methods, goodwill, inventory pricing, and research and development costs. Accounting policies must be disclosed in the annual financial statements. See also summary of significant accounting policies.

accounting policies is in the Accounting & Auditing, Banking, Commerce, Credit, & Finance and Entrepreneurship, Management, & Small Business subjects. accounting policies appears in the definitions of the following terms: accounting bases, accounting practice, summary of significant accounting policies (SSAP), auditor's qualified opinion, and accounting error. 87. byproduct Output other than the principal product(s) of an industrial process, such as sawdust or woodchips generated in processing lumber. Unlike joint-products, byproducts have low value in comparison with the principal product(s) and may be discarded or sold either in their original state, or after further processing. byproduct is in the Environment & Pollution Control and Industries, Manufacturing, & Technology subjects. byproduct appears in the definitions of the following terms: phenols, reactive, toxic waste, black liquor tax credit, and abatement cost. 88. linear relationship Statistics: A relationship of direct proportionality that, when plotted on a graph, traces a straight line. In linear relationships, any given change in an independent variable will always produce a corresponding change in the dependent variable. For example, a linear relationship between production hours and output in a factory means that a 10 percent increase or decrease in hours will result in a 10 percent increase or decrease in the output. linear relationship is in the Statistics, Mathematics, & Analysis subject. linear relationship appears in the definitions of the following terms: least-squares regression, linear programming, coefficient of correlation (r), and log-linear least-squares method. 89. black economy Usually untraceable, and hence untaxable, business dealings that are not reflected in a country's gross domestic product (GDP) computations. An integral part of most thirdworld and many first-world economies, it is a cash based system in which transaction records are kept in secret account books (called 'number two' accounts). Though it employs illegal (and even criminal) methods, it is a survival practice in repressive tax regimens or where legitimate expression of entrepreneurial activity is made unnecessarily difficult by a maze of regulations. Black economy and black money go hand in hand. Also called parallel economy, shadow economy, or underground economy. See also informal economy.

black economy is in the Economics, Politics, & Society subject. black economy appears in the definitions of the following terms: underground economy, black money, and parallel economy. 90. mechanic's lien Claim on the improved property by the contractor, subcontractors, laborers, and material suppliers for the monies owed to them. In general, a mechanic's lien takes precedence over any mortgage on that property because, it is assumed, the value of that property has increased to the extent of the lien. Also called materialman's lien. mechanic's lien is in the Agreements & Contracts, Banking, Commerce, Credit, & Finance and Corporate, Commercial, & General Law subjects. mechanic's lien appears in the definitions of the following terms: construction lien, lien waiver, home lien, material man, and retainage. 91. long term debt Amount owed for a period exceeding 12 months from the date of the balance sheet. It could be in the form of a bank loan, mortgage bonds, debenture, or other obligations not due for one year. A firm must disclose its long-term debt in its balance sheet with its interest rate and date of maturity. Amount of long-term debt is a measure of a firm's leverage, and is distinguished from long term liabilities which may include supply of services already paid for. long term debt is in the Accounting & Auditing and Banking, Commerce, Credit, & Finance subjects. long term debt appears in the definitions of the following terms: term out and net debt per capita. 92. theory of the firm Behavior of a firm in pursuit of profit maximization, analyzed in terms of (1) what are its inputs, (2) what production techniques are employed, (3) what is the quantity produced, and (4) what prices it charges. The theory suggest that firms generate goods to a point where marginal cost equals marginal revenue, and use factors of production to the point where their marginal revenue product is equal to the costs incurred in employing the factors. theory of the firm is in the Economics, Politics, & Society subject. theory of the firm appears in the definition of the following term: microeconomics.

93. consistency principle Accounting: The idea in accounting that once an accounting method is adopted, it should be followed consistently from one accounting period to the next. If, for any reason, the accounting method is changed, a full disclosure of the change and an explanation of its effects on the items of the financial statements must be given. One of the duties of an auditor is to make sure the consistency principle is being followed because, without this, any change might make correct interpretation of the financial data impossible. Also called consistency concept. See also accounting concepts. consistency principle is in the Accounting & Auditing subject. consistency principle appears in the definition of the following term: consistency concept. 94. environmental sanitation Activities aimed at improving or maintaining the standard of basic environmental conditions affecting the well-being of people. These conditions include (1) clean and safe water supply, (2) clean and safe ambient air, (3) efficient and safe animal, human, and industrial waste disposal, (4) protection of food from biological and chemical contaminants, and (5) adequate housing in clean and safe surroundings. Also called environmental hygiene. environmental sanitation is in the Economics, Politics, & Society and Environment & Pollution Control subjects. environmental sanitation appears in the definitions of the following terms: environmental health and environmental hygiene. 95. venture capitalist Private investors who provide venture capital to promising business ventures. They typically invest where at least 25 percent annual returns within one to five years are feasible, and often demand 50 percent or more ownership to exercise control over the investee firm to offset their high risk. Often they also provide management and industry expertise and business connections with other firms and venture capitalists. Their objective usually is to bring the business to its initial public offering (IPO) stage so that they can sell their shareholdings to the public at high profit, and get out. See also adventure capitalist and angel investor. venture capitalist is in the Banking, Commerce, Credit, & Finance and Investing subjects.

venture capitalist appears in the definitions of the following terms: diluted founder, carried interest, cumulative, convertible, participating, preferred-dividend ordinary shares (CCPPO), soft metrics, and exit. 96. client General: Customer of a professional service provider, or the principal of an agent or contractor. Computing: Hardware device (such as a personal computer) or a software application (such as a word-processor) that requests and makes use of services (such as file-transfer and storage) provided by another computer called the server. Normally, a user interacts (interfaces) only with a client whereas the server might be out of sight. A user logged on to a website is using a client computer (with the browser as the client software) that is connected via internet to a server (website's computer). client is in the Computer Hardware, Software, & Security and Entrepreneurship, Management, & Small Business subjects. client appears in the definitions of the following terms: turnkey, contractee, concept statement, prime broker, and expense account. 97. labor The aggregate of all human physical and mental effort used in creation of goods and services. Labor is a primary factor of production. The size of a nation's labor force is determined by the size of its adult population, and the extent to which the adults are either working or are prepared to offer their labor for wages. labor is in the Accounting & Auditing, Banking, Commerce, Credit, & Finance and Economics, Politics, & Society subjects. labor appears in the definitions of the following terms: hot cargo, Rucker plan, labor rate (price) variance, slowdown strike, and subcontractor bond. 98. upstream industries Industrial firms that process the basic or raw material into an intermediary product which is converted into finished product by the downstream industries. For example, petroleum processors who refine crude oil into intermediary chemicals which are converted into plastics by other industries, and farmers or growers whose produce is used by agroprocessors. upstream industries is in the Economics, Politics, & Society subject.

99. buying on margin Purchasing an asset by making a down payment (called the margin) and financing the balance amount through a loan by using the asset as the collateral (such as in a mortgage loan). In securities trading, only a down payment is required because the value of the securities themselves (which remain in the possession of the broker or seller) fully collateralizes the unpaid amount. buying on margin is in the Commodities & Precious Metals Trading, Investing and Securities & Futures Trading subjects. buying on margin appears in the definitions of the following terms: investment leverage and buy on margin. 100. AAA

Top rating awarded to qualifying corporate bonds by the bond rating agencies such as Standard & Poor's (AAA) and Moody's (Aaa). These ratings mean: (1) the bonds are of the highest quality (are 'gilt edged'), (2) carry the least degree of investment risk, and (3) are fully expected to pay both interest and principal on time. Other rating agencies use different designations. See also bond ratings. AAA is in the Accounting & Auditing, Banking, Commerce, Credit, & Finance, Disaster Planning & Risk Management, Investing and Securities & Futures Trading subjects. AAA appears in the definitions of the following terms: Standard & Poor's Ratings, bond ratings, and investment grade bond. 101. bankruptcy

Legal procedure for liquidating a business (or property owned by an individual) which cannot fully pay its debts out of its current assets. Bankruptcy can be brought upon itself by an insolvent debtor (called 'voluntary bankruptcy') or it can be forced on court orders issued on creditors' petition (called 'involuntary bankruptcy'). Two major objectives of a bankruptcy are (1) fair settlement of the legal claims of the creditors through an equitable distribution of debtor's assets, and (2) to provide the debtor an opportunity for fresh start. Bankruptcy amounts to a business-failure, but voluntary winding up does not. See also insolvency. bankruptcy is in the Banking, Commerce, Credit, & Finance and Corporate, Commercial, & General Law subjects. bankruptcy appears in the definitions of the following terms: material information, fair and equitable test, protective trust, prepackaged bankruptcy, and adjustment bond.

102.

assignment

Transfer of ownership of a property, or of benefits, interests, liabilities, rights under a contract (such as an insurance policy), by one party (the assignor) to another (the assignee) by signing a document called deed of assignment. Compare with novation. See also absolute assignment and collateral assignment. assignment is in the Agreements & Contracts and Corporate, Commercial, & General Law subjects. assignment appears in the definitions of the following terms: batch cost, assignment under documentary credit, insubordination, cost allocation, and surety. 103. exchange rate mechanism (ERM)

Process by which member countries of an economic community (such as the European Union) maintain exchange rate parity among their currencies. The currencies are allowed to fluctuate with respect to one another within a specified limit. If the exchange rate between any two currencies reaches the limit, the central banks of both countries intervene to bring it back within the limit. exchange rate mechanism (ERM) is in the Banking, Commerce, Credit, & Finance, Currency Trading and Economics, Politics, & Society subjects. exchange rate mechanism (ERM) appears in the definition of the following term: Black Wednesday. 104. annual percentage rate (APR)

Standardized method of quoting the effective interest rate (actual cost of credit) on consumer loans, specially where interest is computed on monthly or other non-annual basis. An APR includes all fees (except penalties), and takes into account the continual reduction of principal amount through amortization. See also add on loan. annual percentage rate (APR) is in the Accounting & Auditing, Banking, Commerce, Credit, & Finance and Investing subjects. annual percentage rate (APR) appears in the definitions of the following terms: truth in lending, add-on loan, introductory rate, and adequate notice. 105. measured day work (MDW)

Production standard or quota instituted as an alternative to incentive payment or pay-forresults schemes. Workers receive a regular, guaranteed rate of pay in return for quantity and quality, based on work measurement and capabilities of the equipment. Output

falling below the required standards is paid pro rata, output exceeding the standards is rewarded with a bonus. measured day work (MDW) is in the Accounting & Auditing, HR, Recruiting, Teams, & Training and Industries, Manufacturing, & Technology subjects. 106. associate company

Firm over which another firm exercises a degree of control which is less than the degree of control exercised over a subsidiary. In accounting, such control is typically taken to mean the ownership of at least 20 percent of voting shares, and some say in the management of the associate firm. Associated companies usually have interlocking directorates to ensure they have common policies and complementary objectives. associate company is in the Accounting & Auditing, Entrepreneurship, Management, & Small Business and Investing subjects. 107. chairman of the board

Highest ranking officer in a firm's board of directors who presides over the board's meetings, but may or may not have actual executive authority. In smaller firms, usually the same person holds the position of chairman and chief executive officer. Also called chairperson of the board. See also board of directors. chairman of the board is in the Entrepreneurship, Management, & Small Business subject. chairman of the board appears in the definitions of the following terms: Buffett, Warren and chairperson of the board. 108. collection letter

Seller or exporter's order that accompanies a demand draft or time draft (with shipping and other collection documents) and instructs the collecting and remitting banks on interest charges, demurrage charges, case of need, protest, etc. Also called collection order. Not to be confused with letter of collection. collection letter is in the Banking, Commerce, Credit, & Finance and International Trade & Relations subjects. collection letter appears in the definitions of the following terms: advice of acceptance, collection order, and letter of collection. 109. insider

Person who (by virtue of his or her employment or other close association) has insider information on a publicly traded firm. The opportunity of an insider to profit from such information is commonly restricted or prohibited by law. In the US, anyone who holds ten percent or more of the voting shares of a firm is automatically considered an insider. insider is in the Corporate, Commercial, & General Law, Investing and Securities & Futures Trading subjects. insider appears in the definitions of the following terms: close period, insider trading, and Insider Trading Sanctions Act of 1984. 110. single-entry bookkeeping

Simple system for recording accounting information in which transactions are recorded only once, and not twice as debits and credits of 'double entry bookkeeping' system. Used primarily in simple applications such as checkbook balancing or in very small (cashbased) businesses. It does not require keeping of journals or ledgers, but is not compatible with the provisions of GAAP. single-entry bookkeeping is in the Accounting & Auditing subject. single-entry bookkeeping appears in the definition of the following term: double-entry bookkeeping. 111. organic organization

Organizational structure characterized by (1) Flatness: communications and interactions are horizontal, (2) Low specialization: knowledge resides wherever it is most useful, and (3) Decentralization: great deal of formal and informal participation in decision making. Organic organizations are comparatively more complex and harder to form, but are highly adaptable, flexible, and more suitable where external environment is rapidly changing and is unpredictable. Also called open organizations, they are contrasted with mechanistic organizations. organic organization is in the Entrepreneurship, Management, & Small Business and HR, Recruiting, Teams, & Training subjects. organic organization appears in the definitions of the following terms: mechanistic organization and open organization. 112. multi-brand strategy

Marketing of two or more similar and competing products by the same firm under different and unrelated brands. While these brands eat into each others' sales (see cannibalism), multi-brand strategy does have some advantages as a means of (1) obtaining greater shelf space and leaving little for competitors' products, (2) saturating a

market by filling all price and quality gaps, (3) catering to brand-switchers users who like to experiment with different brands, and (4) keeping the firm's managers on their toes by generating internal competition. multi-brand strategy is in the Advertising, Marketing, & Sales and Decision Making, Problem Solving, & Strategy subjects. 113. flat organization

An organizational structure in which most middle-management levels and their functions have been eliminated, thus bringing the top management in direct contact with the frontline salespeople, shop floor employees, and customers. Despite their breadth, flat organizations can benefit from most of the advantages enjoyed by small companies, such as faster response time to changing conditions and customer preferences. flat organization is in the Decision Making, Problem Solving, & Strategy and Entrepreneurship, Management, & Small Business subjects. flat organization appears in the definitions of the following terms: middle management and tall organization. 114. intermediate term

Contractual term the breach of which does not automatically discharge the innocent party from its obligations under the contract or entitle an injured party to damages. A court or an arbitrator must evaluate the seriousness of the breach and its effects before any such decision can be made. See also innominate term. intermediate term is in the Agreements & Contracts and Corporate, Commercial, & General Law subjects. intermediate term appears in the definitions of the following terms: condition, innominate term, technical analysis, Arms index, and warranty. 115. public relations

The profession or practice of creating and maintaining goodwill of an organization's various publics (customers, employees, investors, suppliers, etc.), usually through publicity and other nonpaid forms of communication. These efforts may also include support of arts, charitable causes, education, sporting events, and other civic engagements. public relations is in the Advertising, Marketing, & Sales subject.

public relations appears in the definitions of the following terms: internal audience, business philosophy, account, corporate advertising, and content analysis. 116. commission

Mutually agreed upon, or fixed by custom or law, fee accruing to an agent, broker, or salesperson for facilitating, initiating, and/or executing a commercial transaction. Formal body comprising of one or more experts formed on an ad hoc or continuing basis to address, debate, and/or exhaustively investigate matters within the expertise of its members or within the scope of the commission's mandate. Unlike councils, commissions may have advisory, quasi-judicial, or regulatory powers. commission is in the Accounting & Auditing and Corporate, Commercial, & General Law subjects. commission appears in the definitions of the following terms: compensation plan, International Standards Organization (ISO), renewal commission, compensation structure, and flat commission. 117. business plan

Set of documents prepared by a firm's management to summarize its operational and financial objectives for the near future (usually one to three years) and to show how they will be achieved. It serves as a blueprint to guide the firm's policies and strategies, and is continually modified as conditions change and new opportunities and/or threats emerge. When prepared for external audience (lenders, prospective investors) it details the past, present, and forecasted performance of the firm. And usually also contains pro-forma balance sheet, income statement, and cash flow statement, to illustrate how the financing being sought will affect the firm's financial position. business plan is in the Entrepreneurship, Management, & Small Business and Planning & Scheduling subjects. business plan appears in the definitions of the following terms: Small Business Development Center (SBDC), business concept, loan application, forecast, and pro forma statement. 118. negative pledge

Provision in an unsecured loan agreement that prevents the borrower from obtaining any secured loan without the consent of the unsecured lender. A bond indenture clause that prohibits the bond issuer from pledging its assets to a third party (thus reducing the level of security for the bondholders) is an example of a negative pledge.

negative pledge is in the Banking, Commerce, Credit, & Finance, Investing and Securities & Futures Trading subjects. negative pledge appears in the definition of the following term: negative covenant. 119. extraordinary item

Accounting entry which reflects materially-large cost (such as that incurred for plant shutdown) or materially-large revenue (such as that realized from sale of a piece of land) that is unlikely to recur and which does not derive from a firm's normal line of business. All extraordinary items must be disclosed and explained by the management in the financial statements, showing the firm's earnings before and after taking into account the effects of extraordinary items. Some firms use them to 'massage' their financials in order to make them look better or worse then they actually are (see creative accounting). Also called special item. See also exceptional item. extraordinary item is in the Accounting & Auditing and Banking, Commerce, Credit, & Finance subjects. extraordinary item appears in the definitions of the following terms: unusual item, earnings, exceptional item, extraordinary repair, and special item. 120. implied contract

A legally enforceable agreement that arises from conduct, from assumed intentions, from some relationship among the immediate parties, or from the application of the legal principle of equity. For example, a contract is implied when a party knowingly accepts a benefit from another party in circumstances where the benefit cannot be considered a gift. Therefore, the party accepting the benefit is under a legal obligation to give fair value for the benefit received. Opposite of express contract. See also express contract, implied in fact contract, and implied in law contract. implied contract is in the Agreements & Contracts and Corporate, Commercial, & General Law subjects. implied contract appears in the definitions of the following terms: express contract, organizational culture, loan for exchange, bailment, and loan for consumption. 121. absorption costing

Method of costing a product in which all fixed and variable costs (however remote) are apportioned to cost centers where they are accounted for (absorbed) using absorption rates. This method ensures that all incurred costs are recovered from the selling price of a

good or service, (assuming the final price is acceptable to the customers). Also called full absorption costing. See also direct costing, and marginal costing. absorption costing is in the Accounting & Auditing, Decision Making, Problem Solving, & Strategy, Entrepreneurship, Management, & Small Business and Industries, Manufacturing, & Technology subjects. absorption costing appears in the definitions of the following terms: absorption variance, direct costing, full absorption costing, backflush costing, and full costing. 122. agency by estoppel

Legally binding agency relationship that may arise where, in fact, no formal agency agreement is in effect. A principal may give an appearance of agency relationship by, for example, furnishing his or her firm's call cards or other stationery to the agent. In such cases, the existence of an agency may be presumed, and the principal may be bound by the acts of the agent performed on the principal's behalf. Also called presumption of agency. See also partnership by estoppel. agency by estoppel is in the Agreements & Contracts, Corporate, Commercial, & General Law and Entrepreneurship, Management, & Small Business subjects. agency by estoppel appears in the definition of the following term: presumption of agency. 123. discovery

Pre-trial disclosure process during which several legal devices can be employed by any litigating party to obtain relevant non-privileged information from the opposing or nonopposing party/parties. These devices include depositions, examinations of witnesses, inspection of documents, and interrogatories. If any party is unwilling to cooperate, the court may subpoena the party or the documents, or (after failure to make discovery) dismiss the action or enters a summary judgment. discovery is in the Corporate, Commercial, & General Law subject. discovery appears in the definitions of the following terms: oil and gas limited partnership, protective order, recension, appreciative inquiry, and marketing research. 124. equitable remedy

Court order that forces a defendant to perform his or her part of a contract, instead of imposing a fine (for non-performance or breach of contract) that lets the defendant 'buy' himself or herself out of his or her obligations under the contract. Courts take this step when they are of the opinion that a payment of damages only is not good enough for a just settlement of the case.

equitable remedy is in the Corporate, Commercial, & General Law subject. 125. intermediary Firm or person (such as a broker or consultant) who acts as a mediator on a link between parties to a business deal, investment decision, negotiation, etc. In money markets, for example, banks act as intermediaries between depositors seeking interest income and borrowers seeking debt capital. Intermediaries usually specialize in specific areas, and serve as a conduit for market and other types of information. Also called a middleman. See also intermediation. intermediary is in the Banking, Commerce, Credit, & Finance and International Trade & Relations subjects. intermediary appears in the definitions of the following terms: upstream industries, back to back letter of credit (L/C), finder's fee, direct marketing channel, and market spoiler. 126. quitclaim deed

Document that transfers (conveys) whatever claim, interest, right, or title the maker (grantor) of the deed may have in a particular property, without any statement or warranty regarding any claim (if any) other parties might have in the same property. Used where the grantor's ownership of the property is questionable. quitclaim deed is in the Banking, Commerce, Credit, & Finance, Corporate, Commercial, & General Law and Real Estate & Buildings subjects. quitclaim deed appears in the definition of the following term: warranty deed. 127. normal profit

Minimum profit necessary to attract and retain suppliers in a perfectly competitive market (see perfect competition). Only normal profit could be earned in such markets because, if profit was abnormally high, more competitors would appear and drive prices and profit down. If profit was abnormally low, firms would leave the market and the remaining ones would drive the prices and profit up. Markets where suppliers are making normal profits will neither expand nor shrink and will, therefore, be in a state of long-term equilibrium. Normal profit typically equals opportunity cost. normal profit is in the Banking, Commerce, Credit, & Finance and Investing subjects. normal profit appears in the definitions of the following terms: normal price, leader pricing, and abnormal profit. 128. core competencies

A unique ability that a company acquires from its founders or develops and that cannot be easily imitated. Core competencies are what give a company one or more competitive advantages, in creating and delivering value to its customers in its chosen field. Also called core capabilities or distinctive competencies. See also core rigidities. core competencies is in the Decision Making, Problem Solving, & Strategy and Entrepreneurship, Management, & Small Business subjects.

core competencies appears in the definitions of the following terms: affiliate model, inside-out strategy, competitive advantage, core capabilities, and asset-led. 129. business continuity plan

Set of documents, instructions, and procedures which enable a business to respond to accidents, disasters, emergencies, and/or threats without any stoppage or hindrance in its key operations. Also called business resumption plan, disaster recovery plan, or recovery plan. See also business continuity planning. business continuity plan is in the Disaster Planning & Risk Management and Entrepreneurship, Management, & Small Business subjects. business continuity plan appears in the definitions of the following terms: disaster management and executive succession plan. 130. legacy

Gift of personal property through a will by the writer of the will (the 'testator') to an individual or organization (the 'legatee'). Legacies are generally classified as (1) Demonstrative: paid out of specific funds, or portioned out of a specific property. (2) General: not clearly identified, such as, "a house." (3) Pecuniary: specified sum of money or an annuity. (4) Residuary: what is left out of a personal estate. (5) Specific: clearly identified, such as, "My beach-house." See also inheritance. legacy is in the Accounting & Auditing, Banking, Commerce, Credit, & Finance and Corporate, Commercial, & General Law subjects. legacy appears in the definitions of the following terms: inheritance, devise, legatee, and bequest. 131. foreign exchange market

Global market in convertible currencies are traded and their conversion rates are determined. It is the world's largest financial market in which every day, on average, some one and one-half trillion dollar worth of currencies are bought and sold. Out of this only about 15 percent is traded for goods or services, the balance 85 percent is traded by the individual and institutional speculators. foreign exchange market is in the Banking, Commerce, Credit, & Finance and Currency Trading subjects. foreign exchange market appears in the definitions of the following terms: special drawing rights (SDR), foreign exchange (Forex or FX), effective exchange rate (EXR), Herstatt risk, and exchange stabilization fund (ESF).

132.

confirmed irrevocable letter of credit (L/C)

L/C that adds the endorsement of a seller's bank (the accepting-bank) to that of the buyer's bank (the issuing bank). It provides the highest level of protection to the seller because not only the L/C cannot be canceled (or its terms changed) unilaterally by the buyer (the account party), but also both banks involved in the transaction guaranty its payment on its due (maturity) date. confirmed irrevocable letter of credit (L/C) is in the Banking, Commerce, Credit, & Finance and International Trade & Relations subjects. confirmed irrevocable letter of credit (L/C) appears in the definitions of the following terms: letter of credit (L/C) and irrevocable letter of credit (L/C). 133. exchange rate

Price for which the currency of a country can be exchanged for another country's currency. Factors that influence exchange rate include (1) interest rates, (2) inflation rate, (3) trade balance, (4) political stability, (5) internal harmony, (6) high degree of transparency in the conduct of leaders and administrators, (7) general state of economy, and (8) quality of governance. exchange rate is in the Banking, Commerce, Credit, & Finance, Currency Trading and Economics, Politics, & Society subjects. exchange rate appears in the definitions of the following terms: exchange rate mechanism (ERM), two tier market, current rate method, foreign exchange contract, and managed float. 134. debenture

A promissory note or a corporate bond which (in the US) is backed generally only by the reputation and integrity of the borrower and (in the UK) by the borrower's specific assets. When unsecured, it is called a bare debenture or naked debenture; when secured by a charge on a specific property, it is called a mortgage debenture debenture is in the Banking, Commerce, Credit, & Finance and Securities & Futures Trading subjects. debenture appears in the definitions of the following terms: convertible debt, unsecured debt, redeemable debenture, shareholder loan, and average life. 135. level payment amortization

Repayment of a loan through a fixed number of fixed-amount monthly installments. While the amount of the installment is same every month, however, it is apportioned unequally between interest and principal payments. In the early years, the major proportion (as much as 90 percent) of the installment amount goes towards payment of

the interest. It is only in later years, when most of the interest has been paid off, that the principal balance begins to reduce significantly. Also called straight line amortization. level payment amortization is in the Accounting & Auditing and Banking, Commerce, Credit, & Finance subjects. level payment amortization appears in the definitions of the following terms: level payment mortgage, straight line amortization, level debt service, and amortization. 136. trade secret

Type of intellectual property such as formulary, know how, process, system, or confidential information that gives its owner a competitive advantage and unauthorized disclosure of which will harm the owner. Courts generally grant injunctions to prevent a threatened disclosure of a trade secret by the current or former employees because otherwise the relationship of trust between the employer and employee will be destroyed. The employer must, however, demonstrate that he or she actively safeguarded the trade secret and had informed the employees that it was to remain confidential. trade secret is in the Corporate, Commercial, & General Law subject. trade secret appears in the definitions of the following terms: unfair competition, proprietary data, know how, restraint of trade, and proprietary information. 137. pension fund

Pooled-contributions from pension plans set up by employers, unions, or other organizations to provide for the employees' or members' retirement benefits. Pension funds are the largest investment blocks in most countries and dominate the stock markets where they invest. When managed by professional fund managers, they constitute the institutional investor category with insurance companies and investment trusts. Commonly, pension funds are exempt from capital gains tax and the earnings on their investment portfolios are either tax deferred or tax exempt. pension fund is in the Banking, Commerce, Credit, & Finance, Investing and Securities & Futures Trading subjects. pension fund appears in the definitions of the following terms: dependency ratio, Pension Benefit Guaranty Corporation (PBGC), transfer value, price immunization, and payroll deduction. 138. cost estimate

<p>An approximation of the probable cost of a product, program, or project, computed on the basis of available information.</p> <p>Four common types of cost estimates are: (1) Planning estimate: a rough approximation of cost within a reasonable range of values, prepared for information purposes only. Also called ball park estimate. (2) Budget estimate: an approximation based on well-defined (but preliminary) cost data and established ground rules. (3) Firm estimate: a figure based on cost data sound enough for

entering into a binding contract. (4) Not-to-exceed /Not-less-than estimate: the maximum or minimum amount required to accomplish a given task, based on a firm cost estimate.</p> cost estimate is in the Accounting & Auditing, Agreements & Contracts and Purchasing & Procurement subjects. cost estimate appears in the definitions of the following terms: cost input, pervasiveness of estimates, non-standard adders, cost estimate types, and cost verification. 139. assurance

Part of corporate governance in which a management provides accurate and current information to the stakeholders about the efficiency and effectiveness of its policies and operations, and the status of its compliance with the statutory obligations. Insurance cover against an eventuality that (sooner or later) must occur; death of the person covered under a life insurance policy being the common one. assurance is in the Entrepreneurship, Management, & Small Business and General, Marine, & Life Insurance subjects. assurance appears in the definitions of the following terms: call-back pay, customersupplier partnership, HACCP process, commitment, and objectivity. 140. initial public offering (IPO)

First offering of a firms' stock (shares) on the stockmarket, at the time it 'goes public.' Because a stockmarket usually values the stock on the expectations of the firm's future growth and income, IPOs are typically an opportunity for the founders and other early investors to make high profits by cashing their stockholdings. initial public offering (IPO) is in the Banking, Commerce, Credit, & Finance, Investing and Securities & Futures Trading subjects. initial public offering (IPO) appears in the definitions of the following terms: green shoe, registration statement, third stage, venture capitalist, and exit strategy. 141. notice

Written or formal information, notification, or warning about a fact, required to be made in law or imparted by an operation of law. A party is deemed to have cognizance of a fact if the party (1) has actual knowledge of it, (2) has received notice of it, (3) ought reasonably to know it, (4) knows about a related or associated fact, or (5) would have known by making reasonable enquiries about it. notice is in the Corporate, Commercial, & General Law subject. notice appears in the definitions of the following terms: conspicuous, negotiable instrument, receivership, voluntary termination, and personal notice. 142. compliance

Certification or confirmation that the doer of an action (such as the writer of an audit report), or the manufacturer or supplier of a product, meets the requirements of accepted practices, legislation, prescribed rules and regulations, specified standards, or the terms of a contract. See also conformance. compliance is in the Corporate, Commercial, & General Law, Industries, Manufacturing, & Technology, Purchasing & Procurement and Quality Control & Management subjects. compliance appears in the definitions of the following terms: threat, time value map, security, operational performance, and hotel. 143. unemployment rate

Percentage of total workforce who are unemployed and are looking for a paid job. Unemployment rate is one of the most closely watched statistics because a rising rate is seen as a sign of weakening economy that may call for cut in interest rate. A falling rate, similarly, indicates a growing economy which is usually accompanied by higher inflation rate and may call for increase in interest rates. unemployment rate is in the Economics, Politics, & Society subject. unemployment rate appears in the definitions of the following terms: underemployment equilibrium, Humphrey-Hawkins Act, New Deal, GDP Gap, and jobless recovery. 144. demographic factors

Socioeconomic characteristics of a population expressed statistically, such as age, sex, education level, income level, marital status, occupation, religion, birth rate, death rate, average size of a family, average age at marriage. A census is a collection of the demographic factors associated with every member of a population. demographic factors is in the Economics, Politics, & Society and Statistics, Mathematics, & Analysis subjects. demographic factors appears in the definitions of the following terms: demographic environment, demographics, and demographic segmentation. 145. labor market

The nominal market in which workers find paying work, employers find willing workers, and wage rates are determined. Labor markets may be local or national (even international) in their scope and are made up of smaller, interacting labor markets for different qualifications, skills, and geographical locations. They depend on exchange of information between employers and job seekers about wage rates, conditions of employment, level of competition, and job location. labor market is in the Economics, Politics, & Society subject. labor market appears in the definitions of the following terms: labor supply, Employment Situation Report, wages, frictional unemployment, and market pricing.

146.

Universal Product Code (UPC)

Twelve-digit barcode printed or affixed on virtually everything sold in supermarkets or retail stores, including books, magazines, candy, etc., for automatic checking-out at the cashier counter. UPC not only identifies an item, it also provides real time information on quantity sold, store traffic pattern, and inventory and ordering information. Introduced by IBM in 1973 for use in electronic point-of-sale applications, it was supplanted by European Article Numbering (EAN) code in 1976. Universal Product Code (UPC) is in the Advertising, Marketing, & Sales and Industries, Manufacturing, & Technology subjects. Universal Product Code (UPC) appears in the definitions of the following terms: International Standard Book Number (ISBN), European Article Numbering (EAN) code, and barcode symbol. 147. ownership

The ultimate and exclusive right conferred by a lawful claim or title, and subject to certain restrictions to enjoy, occupy, possess, rent, sell, use, give away, or even destroy an item of property. Ownership may be corporeal (title to a tangible object such as a house) or incorporeal (title to an intangible object, such as a copyright, or a right to recover debt). Possession (as in tenancy) does not necessarily mean ownership because it does not automatically transfer title. ownership is in the Accounting & Auditing, Banking, Commerce, Credit, & Finance, Corporate, Commercial, & General Law and Investing subjects. ownership appears in the definitions of the following terms: alienation clause, leasehold, bill of sale, life cycle costing, and consignee. 148. glass ceiling

Invisible but real barrier through which the next stage or level of advancement can be seen, but cannot be reached by a section of qualified and deserving employees. Such barriers exist due to implicit prejudice on the basis of age, ethnicity, political or religious affiliation, and/or sex. Although generally illegal, such practices prevalent in most countries. glass ceiling is in the HR, Recruiting, Teams, & Training subject. glass ceiling appears in the definition of the following term: build. 149. hierarchical organization

Common, pyramid-like organization where one person is in charge of a functional area (engineering, finance, marketing) with one or more subordinates handling the subfunctions. In an hierarchical organization (whether business, military, political, or

religious) higher levels imply greater superiority and domination than the lower ones, and the chain of command extends straight from the top to the bottom. hierarchical organization is in the Entrepreneurship, Management, & Small Business subject. hierarchical organization appears in the definition of the following term: vertical management. 150. manufacture

To make a good with tools and/or machines by effecting chemical, mechanical, or physical transformation of materials, substances, or components, or by simulating natural processes, usually repeatedly and on a large scale with a division of labor. Manufactured items often are, or are made out to be, different from other similar goods in one or more aspects, and are sold commonly under a particular brand name. See also produce. manufacture is in the Industries, Manufacturing, & Technology subject. manufacture appears in the definitions of the following terms: Silicon Valley, deionized water, product data management (PDM), produce, and secondary industry. 151. phishing

The act of acquiring private or sensitive data from personal computers for use in fraudulent activities. Phishing is usually done by sending emails that seem to appear to come from credible sources (however, they are in no way affiliated with the actual source/company), which require users to put in personal data such as a credit card number or social security number. This information is then transmitted to the hacker and utilized to commit acts of fraud. Some of the criminals behind phishing scams have even gone so far as to create websites that appear to be operated by government agencies. Many virus programs and email providers have developed software in attempt to combat the problem. phishing is in the Computer Hardware, Software, & Security and Internet & World Wide Web subjects. phishing appears in the definition of the following term: scam. 152. scam

A fraudulent scheme performed by a dishonest individual, group, or company in an attempt obtain money or something else of value. Scams traditionally resided in confidence tricks, where an individual would misrepresent themselves as someone with skill or authority, i.e. a doctor, lawyer, investor. After the internet became widely used, new forms of scams emerged such as lottery scams, scam baiting, email spoofing, phishing, or request for helps. These are considered to be email fraud. Also see phishing, scheme.

scam is in the Advertising, Marketing, & Sales, E-Commerce and Internet & World Wide Web subjects. 153. cyber Monday

Refers to the first Monday following the Thanksgiving Holiday weekend, and is considered a prime shopping day for online shoppers and retailers. Following Black Friday, retailers offer a number of specials that are only available to online shoppers. Free shipping is often offered as an incentive for purchases made on cyber Monday. cyber Monday is in the Banking, Commerce, Credit, & Finance and Internet & World Wide Web subjects. cyber Monday appears in the definition of the following term: Black Friday. 154. Black Friday

The day after Thanksgiving Day that signals the beginning of the Christmas shopping season. Retailers kick off the season by offering deep discounts on products for those shoppers lucky enough to obtain the limited supply. Brick and mortar stores traditionally open much earlier than normal business hours, including a few at 12:00 AM midnight. In recent years, e-commerce sites have begun offering discounts and free shipping on Black Friday, as well as created their own shopping holiday in Cyber Monday. Black Friday is in the Business Communications & Presentations, E-Commerce and General Business subjects. Black Friday appears in the definitions of the following terms: Crash of 1929, cornering the market, cyber Monday, and Crash of 1987. 155. syndicate

Temporary association of two or more individuals or firms to carryout a specific business venture or project such as large scale real estate development. Syndicates are commonly treated as corporations or partnerships for tax purposes. Group of brokers or insurance underwriters who together accept the risk of buying and distributing a new stock issue or an insurance risk. syndicate is in the Banking, Commerce, Credit, & Finance, Entrepreneurship, Management, & Small Business and General, Marine, & Life Insurance subjects. syndicate appears in the definitions of the following terms: lead manager, information memorandum, organized crime, bought deal, and underwriter. 156. equitable mortgage

A mortgage in which the lender is secured by taking possession of all the original title documents of the property that serves as security for the mortgage. It gives the mortgagee the right to foreclose on the property, sell it, or appoint a receiver in case of nonpayment.

equitable mortgage is in the Banking, Commerce, Credit, & Finance and Corporate, Commercial, & General Law subjects. 157. acquisition accounting

Procedure adopted in preparation of the consolidated financial statement of an acquiring and the acquired firm. The purchase price of the acquired firm is allocated between its net tangible and intangible assets (such as copyrights, patents, trademarks) on the basis of their fair market value. Any resulting difference (acquisition adjustment) is allocated to goodwill. acquisition accounting is in the Accounting & Auditing, Banking, Commerce, Credit, & Finance and Investing subjects. acquisition accounting appears in the definition of the following term: purchase acquisition. 158. publicity

Type of promotion that relies on public relations effect of a news story carried usually free by mass media. The main objective of publicity is not sales promotion, but creation of an image through editorial or 'independent source' commentary. While the publicist can control the content of the story, he or she may not have any control over its placement or interpretation by the media. publicity is in the Advertising, Marketing, & Sales subject. publicity appears in the definitions of the following terms: front company, fact sheet, public relations, promotion, and Health Insurance Association of America. 159. nepotism

Practice of appointing relatives and friends in one's organization to positions for which outsiders might be better qualified. Despite its negative connotations, nepotism (if applied sensibly) is an important and positive practice in the startup and formative years of a firm where complete trust and willingness to work hard (for little or no immediate reward) are critical for its survival. nepotism is in the HR, Recruiting, Teams, & Training subject. nepotism appears in the definition of the following term: cronyism. 160. terms of trade

Not the contractual conditions of sale between a buyer and a seller, but the quantity of foreign goods and services (imports) that a country can purchase from the proceeds of the sale of its goods and services (exports) of a given quantity. It is a measure of a country's trading clout and is expressed as the ratio of an index of export prices to an index of

import prices. Terms of trade of a country improve when the prices of its exports rise in comparison with the prices of its imports, vice versa. customs value is in the Accounting & Auditing, Banking, Commerce, Credit, & Finance, Customs Documentation & Procedures and International Trade & Relations subjects. customs value appears in the definitions of the following terms: transaction value and agreement on customs valuation. 161. customs value

Value of imported goods as appraised by the customs and used as the basis for assessing the amount of import duty and other taxes. It may be computed in several ways, but the most-preferred method is transaction-value which (in addition to the price paid by a buyer to a seller) includes other costs incurred by the buyer, such as packing costs, license fee or royalty, and any other sum(s) that accrue to the seller. It is the customs officer (and not the importer, exporter, or customs broker) who has the final say in assigning this value. Also called customs import value. customs value is in the Accounting & Auditing, Banking, Commerce, Credit, & Finance, Customs Documentation & Procedures and International Trade & Relations subjects. customs value appears in the definitions of the following terms: transaction value and agreement on customs valuation. 162. Ramsey pricing

Argument that if prices are to be increased, it is a good strategy to increase the markup on goods with the most inelastic demand, because consumers or users will buy them anyway. This rule is applicable also in taxation where some goods and services are to be taxed, but not where all are to be taxed. Proposed by Frank Ramsey, it is also called inverse elasticity rule. Ramsey pricing is in the Economics, Politics, & Society subject. 163. trustor

Entity that establishes a trust and place property under the protection and management of one or more trustees for the immediate or eventual benefit of ascertainable one or more beneficiaries. It is not always necessary to identify the trustor who may be also be a trustee and/or one of the beneficiaries. In legal parlance, a trustor is called a settlor in the UK and a grantor in the US, whereas in common usage he or she may also be called a creator, donor, initiator, owner, or Trust maker. trustor is in the Corporate, Commercial, & General Law subject.

trustor appears in the definitions of the following terms: master trust, deed of trust, letter of wishes, residuary trust, and executed trust. 164. certificate of origin

Document that certifies a shipment's country of origin. It is used between members of a trading block or where special privileges are granted to goods produced in certain countries. Certificate of origin is commonly issued by a trade promotion office, or a chamber of commerce in the exporting country. Also called declaration of origin. certificate of origin is in the Customs Documentation & Procedures, International Trade & Relations and Shipping, Transport, & Travel subjects. certificate of origin appears in the definitions of the following terms: letter of credit (L/C), documentary draft, shipping documents, evidence of origin, and documentary credit. 165. fiduciary duty

A legal obligation of one party to act in the best interest of another. The obligated party is typically a fiduciary, that is, someone entrusted with the care of money or property. Also called fiduciary obligation. fiduciary duty is in the Corporate, Commercial, & General Law subject. fiduciary duty appears in the definitions of the following terms: fiduciary obligation, breach of trust, independent contractor, corporate opportunity doctrine, and business judgment rule. 166. operating activities

<p>An activity that directly affects an organization's cash inflows and outflows, and determine its net income.</p> <p>Cash inflows result from sales of goods or services, sale of shares, and from income earned on investments. Cash outflows result from equipment and inventory purchases, interest and principal payments on loans, salaries, dividends, and various other costs and expenses.</p> operating activities is in the Accounting & Auditing and Banking, Commerce, Credit, & Finance subjects. operating activities appears in the definitions of the following terms: cash inflow, indirect method cash flow statement, cash outflow, cash flows from operating activities, and operating cash flow to sales ratio. 167. key performance indicators (KPI)

Key business statistics such as number of new orders, cash collection efficiency, and return on investment (ROI), which measure a firm's performance in critical areas. KPIs show the progress (or lack of it) toward realizing the firm's objectives or strategic plans by monitoring activities which (if not properly performed) would likely cause severe losses or outright failure. key performance indicators (KPI) is in the Accounting & Auditing, Banking, Commerce, Credit, & Finance and Planning & Scheduling subjects. 168. brand development index (BDI)

Percentage of a brand's sales in a particular area in relation to the percentage of the country's population in that area. If a brand has 10 percent of sales, for example, in an area where the 20 percent of country's people live then its BDI in that area is 50 (10 x 100 20). BDI indicates where significant groups of a brand's customers live and helps direct marketing efforts. brand development index (BDI) is in the Advertising, Marketing, & Sales subject. brand development index (BDI) appears in the definitions of the following terms: category development index (CDI), brand development, and brand potential index (BPI). 169. economic growth

<p>Increase in a country's productive capacity, as measured by comparing gross national product (GNP) in a year with the GNP in the previous year.</p> <p>Increase in the capital stock, advances in technology, and improvement in the quality and level of literacy are considered to be the principal causes of economic growth. In recent years, the idea of sustainable development has brought in additional factors such as environmentally sound processes that must be taken into account in growing an economy.</p> economic growth is in the Economics, Politics, & Society and Environment & Pollution Control subjects. economic growth appears in the definitions of the following terms: Global Information Infrastructure (GII), core durable goods orders, fiscal stimulus, discretionary income, and Easy Credit. 170. creditor

<p>A party to whom money is owed.</p> <p>Common classifications of a creditor include (1) Secured: who has a legal right to take a specific property of the borrower and sell it in case of a default. (2) Unsecured: who does not have any such right. (3) Preferential or senior: who takes precedence over other creditors in laying claim to a

bankrupt borrower's property. (4) Junior: whose claim is addressed after satisfying the claims of preferential or senior creditors.</p> creditor is in the Accounting & Auditing and Banking, Commerce, Credit, & Finance subjects. creditor appears in the definitions of the following terms: IOU, deed of inspectorship, official receiver, common stock, and marshalling of assets. 171. binary system

Number system that uses only two values (0,1; on, off) to represent codes and data. Since zeros and ones can be easily represented by two voltages, the binary system is the foundation on which digital technology is built. Every digital computer whether a pocket calculator or a mainframe uses the same binary notation. binary system is in the Computer Hardware, Software, & Security and Information Science & Technology subjects. 172. justification

Defendant's lawful or sufficient reason for having acted (or having failed to act) what he or she is charged with. In a defamation case, the truthfulness of a defamatory statement is a sufficient justification to have made it. Manner of spacing words on a column or page so the rows are aligned in a specified way. justification is in the Corporate, Commercial, & General Law, Decision Making, Problem Solving, & Strategy and Printing, Packaging, & Publishing subjects. justification appears in the definitions of the following terms: color, malice, accelerated depreciation, Delphi technique, and concept selling. 173. memorandum of understanding (MOU)

<p>A document that expresses mutual accord on an issue between two or more parties.</p> <p>Memoranda of understanding are generally recognized as binding, even if no legal claim could be based on the rights and obligations laid down in them. To be legally operative, a memorandum of understanding must (1) identify the contracting parties, (2) spell out the subject matter of the agreement and its objectives, (3) summarize the essential terms of the agreement, and (4) must be signed by the contracting parties. Also called letter of intent.</p> memorandum of understanding (MOU) is in the Agreements & Contracts and Corporate, Commercial, & General Law subjects.

memorandum of understanding (MOU) appears in the definitions of the following terms: international agreement, letter of intent (LOI), and memorandum of agreement. 174. return on investment (ROI)

<p>The earning power of assets measured as the ratio of the net income (profit less depreciation) to the average capital employed (or equity capital) in a company or project.</p> <p>Expressed usually as a percentage, return on investment is a measure of profitability that indicates whether or not a company is using its resources in an efficient manner. For example, if the long-term return on investment of a company is lower than its cost-of-capital, then the company will be better off by liquidating its assets and depositing the proceeds in a bank. Also called rate of return, or yield.</p> return on investment (ROI) is in the Accounting & Auditing, Banking, Commerce, Credit, & Finance and Investing subjects. return on investment (ROI) appears in the definitions of the following terms: key ratios, idea screening, Equity Linked Note, capital investment analysis, and investment. 175. acid test ratio

Key measure of a firm's liquidity, it answers the question "Can this firm meet its current obligations from its liquid assets if suddenly all sales stop?" More stringent than 'current ratio,' it excludes inventories (typically the least liquid of current assets) to concentrate on the more liquid assets of the firm. Usually an acid test ratio of 1.0 or higher is considered satisfactory by lenders and investors. Also called acid ratio or quick ratio. Formula: (Current assets - inventory value) current liabilities. See also current ratio. acid test ratio is in the Accounting & Auditing, Banking, Commerce, Credit, & Finance and Investing subjects. acid test ratio appears in the definition of the following term: current ratio. 176. marshalling of assets

Legal rule that directs the claims of creditors of an insolvent debtor to achieve a fair distribution of debtor's assets among them. For example (between two creditors), if one has recourse to one source of funds and the other has recourse to two such sources, the funds will be marshaled by the court so that the claims of both creditors are satisfied in the most equitable manner. marshalling of assets is in the Banking, Commerce, Credit, & Finance, Corporate, Commercial, & General Law and Disaster Planning & Risk Management subjects.

177.

interim dividend

Distribution of profits to stockholders (shareholders) before a firm's annual earnings have been computed, or at any time between two successive annual general meetings (AGM). Interim dividend is generally paid quarterly in the US and half-yearly in the UK. Firms paying interim dividend try to be reasonably certain they can afford it, and make the necessary adjustments (if any) in the subsequent or year-end dividend payments. interim dividend is in the Accounting & Auditing, Banking, Commerce, Credit, & Finance, Investing and Securities & Futures Trading subjects. interim dividend appears in the definition of the following term: interim statement. 178. fixed charge

Lien or mortgage on a specific fixed-asset (such as a parcel of land) to secure the repayment of a loan. In this arrangement the asset is signed over to the creditor and the borrower would need the lender's permission to sell it. The lender also registers a charge against the asset which remains in force until the loan is repaid. Also called fixed debenture. See also floating charge and fixed charges. fixed charge is in the Banking, Commerce, Credit, & Finance and Corporate, Commercial, & General Law subjects. fixed charge appears in the definitions of the following terms: charge, occupation tax, fixed charges, demand charge, and floating charge. 179. groupware

Specialized workgroup software (such as Lotus Notes) that provides structure and means to collaborate, exchange ideas, debate, decide, and coordinate activities. It allows the members of a team to use the same pool of data, via connection to a local or wide-area network (such as Internet) spanning countries and continents. Also called collaborative tools. groupware is in the Computer Hardware, Software, & Security, Decision Making, Problem Solving, & Strategy, Information & Knowledge Management and Information Science & Technology subjects. groupware appears in the definitions of the following terms: electronic collaboration and enabling technology. 180. job

A group of homogeneous tasks related by similarity of functions. When performed by an employee in an exchange for pay, a job consists of duties, responsibilities, and tasks

(performance elements) that are (1) defined and specific, and (2) can be accomplished, quantified, measured, and rated. From a wider perspective, a job is synonymous with a role and includes the physical and social aspects of a work environment. Often, individuals identify themselves with their job or role (foreman, supervisor, engineer, etc.) and derive motivation from its uniqueness or usefulness. job is in the HR, Recruiting, Teams, & Training subject. job appears in the definitions of the following terms: compensating differential, monster employment index, soft benefit, pallet, and maintenance bond. 181. business tax

Five major types of business taxes are: (1) corporate franchise tax, (2) employment (withholding) tax, (3) excise tax, (4) gross-receipts tax, and (5) value added tax (VAT). Some types of firms (such as insurance, mining, and petroleum extraction companies) pay additional taxes peculiar to their industries. While firms too pay income, property, and sales taxes, such taxes are not specific to businesses. In terms of economic impact, however, all taxes are 'people taxes' because they affect human beings and not some abstraction labeled 'business.' Also called business activity tax. business tax is in the Accounting & Auditing and Banking, Commerce, Credit, & Finance subjects. business tax appears in the definitions of the following terms: tax preparation services, business franchise tax, gross receipts tax, and shifting and incidence of taxation. 182. aggregator model

Electronic commerce business model where a firm (that does not produce or warehouses any item) collects (aggregates) information on goods and/or services from several competing sources at its website. The firm's strength lies in its ability to create an 'environment' which draws visitors to its website, and in designing a system which allows easy matching of prices and specifications. See also affiliate model. aggregator model is in the E-Commerce and Internet & World Wide Web subjects. aggregator model appears in the definition of the following term: affiliate model. 183. affiliate model

Electronic commerce business model that enables a firm to generate revenue streams on hundreds (even thousands) of items without carrying inventories, managing orders, processing payments, or handling packaging and shipping. In this arrangement, a website concentrates on a relationship with a very specific group of individuals as its core competence (see core competencies). It develops and continuously upgrades content and

services to attract and retain the patronage of this group. Once it has a sizable number of regular visitors, it can generate revenue by carrying ads or links to merchants with products that its visitors seek or are interested in. See also aggregator model. affiliate model is in the E-Commerce and Entrepreneurship, Management, & Small Business subjects. affiliate model appears in the definitions of the following terms: affiliate marketing, banner exchange, and aggregator model. 184. ACORN

A Classification Of Residential Neighborhoods. Directory that groups the UK residential areas into 39 types, (and the US residential areas into 36 types) according to age, composition, facilities, household size, income, marital status, mode of travel to work, occupation, ownership of car, ownership of home, etc. It's based on the concept that areas with similar demographic and social characteristics tend to share common life styles and patterns of buying behavior. Designed mainly for marketing and promotional campaigns by the UK researcher Richard Webber, and first published in 1977. ACORN is in the Advertising, Marketing, & Sales subject. 185. leadership

The activity of leading a group of people or an organization, or the ability to do this. In its essence, leadership in an organizational role involves (1) establishing a clear vision, (2) sharing that vision with others so that they will follow willingly, (3) providing the information, knowledge, and methods to realize that vision, and (4) coordinating and balancing the conflicting interests of all members or stakeholders. A leader comes to the forefront in case of crisis, and is able to think and act in creative ways in difficult situations. Unlike management, leadership flows from the core of a personality and cannot be taught, although it may be learned and may be enhanced through coaching or mentoring. The individuals who are the leaders in an organization, regarded collectively. leadership is in the Entrepreneurship, Management, & Small Business and Information & Knowledge Management subjects. leadership appears in the definitions of the following terms: dominant leadership, Harvard Business Review, coach, paternalism, and criterion-related validity. 186. balance sheet ratios

Comparisons of balance sheet items to gain insight into the (1) changes in the financial position, (2) strength/weakness of the financial position, and (3) relationship between different items. Two basic balance sheet ratios are the debt ratio (total debt total assets) and debt to equity ratio (total debt total equity).

balance sheet ratios is in the Accounting & Auditing and Banking, Commerce, Credit, & Finance subjects. 187. empowerment

A management practice of sharing information, rewards, and power with employees so that they can take initiative and make decisions to solve problems and improve service and performance. Empowerment is based on the idea that giving employees skills, resources, authority, opportunity, motivation, as well holding them responsible and accountable for outcomes of their actions, will contribute to their competence and satisfaction. empowerment is in the Entrepreneurship, Management, & Small Business and HR, Recruiting, Teams, & Training subjects. empowerment appears in the definitions of the following terms: determinism, reverse appraisal, and team based organization (TBO). 188. illiquid

Firm without enough cash to meet its current needs and obligations. Illiquidity is one of the major causes of business failure because a firm can survive without profit for a while but not without cash. Even firms rich in fixed assets (land, buildings, machinery) become insolvent from want of cash because it takes time to convert these assets into cash, and that too usually at a loss in value. illiquid is in the Accounting & Auditing and Banking, Commerce, Credit, & Finance subjects. illiquid appears in the definitions of the following terms: liquidity risk, lender of last resort, and private equity. 189. corporate policy

Usually, a documented set of broad guidelines, formulated after an analysis of all internal and external factors that can affect a firm's objectives, operations, and plans. Formulated by the firm's board of directors, corporate policy lays down the firm's response to known and knowable situations and circumstances. It also determines the formulation and implementation of strategy, and directs and restricts the plans, decisions, and actions of the firm's officers in achievement of its objectives. Also called company policy. corporate policy is in the Decision Making, Problem Solving, & Strategy and Entrepreneurship, Management, & Small Business subjects.

corporate policy appears in the definitions of the following terms: strategic management, management system, chief executive officer (CEO), corporate campaign, and management. 190. market

An actual or nominal place where forces of demand and supply operate, and where buyers and sellers interact (directly or through intermediaries) to trade goods, services, or contracts or instruments, for money or barter. Markets include mechanisms or means for (1) determining price of the traded item, (2) communicating the price information, (3) facilitating deals and transactions, and (4) effecting distribution. The market for a particular item is made up of existing and potential customers who need it and have the ability and willingness to pay for it. market is in the Advertising, Marketing, & Sales and Economics, Politics, & Society subjects. market appears in the definitions of the following terms: Budapest Stock Exchange (BSE), survey, first round financing, regulated market, and monopsony. 191. behavior segmentation

A type of market segmentation based on differences in the consumption behavior of different groups of consumers, taking into account their lifestyles, patterns of buying and using, patterns of spending money and time, and similar factors. One of the five common segmentation strategies, its objective is to define specific niches that require custom tailored promotion. behavior segmentation is in the Advertising, Marketing, & Sales subject. behavior segmentation appears in the definition of the following term: segmentation strategies. 192. dividend discount model

Mathematical formula used generally by stockbrokers to determine the selling price of a firm's stock (shares). Based on the discounted value of the expected future dividend amounts, it is used usually to spot firms that are undervalued by the stockmarket but have potential for high returns. See also dividend valuation model. dividend discount model is in the Accounting & Auditing, Banking, Commerce, Credit, & Finance, Investing and Securities & Futures Trading subjects. dividend discount model appears in the definition of the following term: dividend valuation model.

193.

equity method

Method of accounting used by a parent firm for monies invested in the subsidiaries. The parent firm records the investment in its balance sheet at a valuation that takes into account the profits and losses of the subsidiaries since their acquisition. Also called equity accounting. See also cost method. equity method is in the Accounting & Auditing, Banking, Commerce, Credit, & Finance and Securities & Futures Trading subjects. equity method appears in the definition of the following term: cost method. 194. financial accounting standards board (FASB)

Independent US body responsible for establishing and interpreting the GAAP mainly for use in the North America. Its accounting standards, generally speaking, result in greater transparency and ease of analysis of a firm's finances than the accounting standards of several other countries. The comparable UK body is Accounting Standards Board (ASB). financial accounting standards board (FASB) is in the Accounting & Auditing and Banking, Commerce, Credit, & Finance subjects. financial accounting standards board (FASB) appears in the definitions of the following terms: Accounting Standards Board (ASB), troubled debt restructuring, financial accounting standards (FAS), hierarchy of GAAP, and accounting principles board. 195. economic life

Period over which an asset (machine, property, computer system, etc) is expected to be usable, with normal repairs and maintenance, for the purpose it was acquired, rented, or leased. Expressed usually in number of years, process cycles, or units produced, it is usually less than the asset's physical life, and is the period over which the asset's depreciation is charged. Also called average life, service life, effective life, mean life, or useful life. economic life is in the Accounting & Auditing and Banking, Commerce, Credit, & Finance subjects. economic life appears in the definitions of the following terms: capital lease, projected total life cost, legal life, economic obsolescence, and Wal-Mart effect. 196. entrepreneurship

The capacity and willingness to undertake conception, organization, and management of a productive venture with all attendant risks, while seeking profit as a reward. In economics, entrepreneurship is regarded as a factor of production together with land,

labor, natural resources, and capital. Entrepreneurial spirit is characterized by innovation and risk-taking, and an essential component of a nation's ability to succeed in an ever changing and more competitive global marketplace. entrepreneurship is in the Economics, Politics, & Society and Entrepreneurship, Management, & Small Business subjects. entrepreneurship appears in the definitions of the following terms: entrepreneurial profit, resource, factor endowment, factor income, and intrapreneurship. 197. exchange rate mechanism (ERM)

Process by which member countries of an economic community (such as the European Union) maintain exchange rate parity among their currencies. The currencies are allowed to fluctuate with respect to one another within a specified limit. If the exchange rate between any two currencies reaches the limit, the central banks of both countries intervene to bring it back within the limit. exchange rate mechanism (ERM) is in the Currency Trading and Banking, Commerce, Credit, & Finance subjects. 198. upstream industries

Industrial firms that process the basic or raw material into an intermediary product which is converted into finished product by the downstream industries. For example, petroleum processors who refine crude oil into intermediary chemicals which are converted into plastics by other industries, and farmers or growers whose produce is used by agroprocessors. upstream industries is in the Economics, Politics, & Society subject. 199. sale and leaseback

Off balance sheet financing in which an owner sells an asset or property to a leasing firm and, at the same time, leases it (as a lessee) on a long-term basis to retain exclusive possession and use. Although this arrangement frees capital tied up in a fixed asset, the original owner loses depreciation and tax benefits. Also called leaseback. See also sale and buyback. sale and leaseback is in the Accounting & Auditing, Banking, Commerce, Credit, & Finance and Purchasing & Procurement subjects. sale and leaseback appears in the definitions of the following terms: capital lease, lease, and sale and buyback.

200.

AAA

Top rating awarded to qualifying corporate bonds by the bond rating agencies such as Standard & Poor's (AAA) and Moody's (Aaa). These ratings mean: (1) the bonds are of the highest quality (are 'gilt edged'), (2) carry the least degree of investment risk, and (3) are fully expected to pay both interest and principal on time. Other rating agencies use different designations. See also bond ratings. AAA is in the Accounting & Auditing, Banking, Commerce, Credit, & Finance, Disaster Planning & Risk Management, Investing and Securities & Futures Trading subjects. AAA appears in the definitions of the following terms: bond ratings, Standard & Poor's Ratings, and investment grade bond. 201. money market

Network of banks, discount houses, institutional investors, and money dealers who borrow and lend among themselves for the short-term (typically 90 days). Money markets also trade in highly liquid financial instruments with maturities less than 90 days to one year (such as bankers' acceptance, certificates of deposit, and commercial paper), and government securities with maturities less than three years (such as treasury bills), foreign exchange, and bullion. Unlike organized markets (such as stock exchanges) money markets are largely unregulated and informal where most transactions are conducted over phone, fax, or online. Long-term borrowing and lending markets are called capital markets. money market is in the Banking, Commerce, Credit, & Finance, Economics, Politics, & Society and Investing subjects. money market appears in the definitions of the following terms: money center banks, discount house, credit crunch, intermediary, and money market investment. 202. Loudermill rights

Employee rights deriving from a 1985 US Supreme court decision ('Cleveland Board of Education vs. Loudermill') that most public (but not private) employees have a property right in their jobs. An employee cannot be dismissed without due process involving pretermination hearing that gives them the opportunity to present their side of the story. Loudermill rights is in the HR, Recruiting, Teams, & Training subject. 203. investment portfolio

Pool of different investments by which an investor bets to make a profit (or income) while aiming to preserve the invested (principal) amount. These investments are chosen generally on the basis of different risk-reward combinations: from 'low risk, low yield'

(gilt edged) to 'high risk, high yield' (junk bonds) ones; or different types of income streams: steady but fixed, or variable but with a potential for growth. investment portfolio is in the Banking, Commerce, Credit, & Finance and Investing subjects. investment portfolio appears in the definitions of the following terms: variable life insurance, bell-shaped-curve portfolio, Goldman 360, country diversification, and variable death benefit. 204. experiment

Research method for testing different assumptions (hypotheses) by trial and error under conditions constructed and controlled by the researcher. During the experiment, one or more conditions (called independent variables) are allowed to change in an organized manner and the effects of these changes on associated conditions (called dependent variables) is measured, recorded, validated, and analyzed for arriving at a conclusion. experiment is in the Quality Control & Management and Statistics, Mathematics, & Analysis subjects. experiment appears in the definitions of the following terms: lurking variable, dependent variable, Latin Square Design, black noise, and design resolution. 205. management system

Documented and tested step-by-step method aimed at smooth functioning through standard practices. Used primarily in franchising industry, management systems generally include detailed information on topics such as (1) organizing an enterprise, (2) setting and implementing corporate policies, (3) establishing accounting, monitoring, and quality control procedures, (4) choosing and training employees, (5) choosing suppliers and getting best value from them, and (6) marketing and distribution. management system is in the Decision Making, Problem Solving, & Strategy and Entrepreneurship, Management, & Small Business subjects. management system appears in the definitions of the following terms: Goldman 360, feedback control, management by objectives (MBO), business process reengineering (BPR), and anti-money laundering software. 206. data integrity

The accuracy and consistency of stored data, indicated by an absence of any alteration in data between two updates of a data record. Data integrity is imposed within a database at its design stage through the use of standard rules and procedures, and is maintained through the use of error checking and validation routines.

data integrity is in the Data Management, Communications, & Networks subject. data integrity appears in the definitions of the following terms: secure socket layer (SSL), online transaction processing (OLTP), integrity, Certified Information Systems Auditor (CISA), and digital signature. 207. cash flows from operating activities

Section of a cash flow statement that shows cash receipts and payments resulting from transactions associated with the determination of net income of a firm. Also called cash provided by operating activities. Formula: Net income + Depreciation and amortization + Net changes in accounts receivable + Changes in accounts payable + Changes in inventories + Changes in other operating activities. cash flows from operating activities is in the Accounting & Auditing and Banking, Commerce, Credit, & Finance subjects. cash flows from operating activities appears in the definitions of the following terms: direct method cash flow statement and operating cash flow. 208. preliminary official statement (POS)

Preliminary prospectus on a pending new issue, circulated usually to gauge the level of interest among prospective investors by giving the broad information (but without indicating the price of the issue). Popularly known as red herring because of the notice (printed in red ink) on its first page which expressly states that the document is not an offer but a public disclosure on a forthcoming conditional sale. Also called preliminary prospectus. preliminary official statement (POS) is in the Banking, Commerce, Credit, & Finance, Corporate, Commercial, & General Law, Investing and Securities & Futures Trading subjects. preliminary official statement (POS) appears in the definition of the following term: red herring. 209. Laffer curve

Graphical representation of a conceptual relationship between marginal tax rates and total tax collections. Named after the US economics professor Arthur Laffer who proposed that lower taxes encourage additional output (supply) and thus increase aggregate income. Laffer curve is used by the supporters of supply side economics to back their claim that low income tax policies spur non-inflationary growth by encouraging new investment. Laffer curve is in the Economics, Politics, & Society subject.

Laffer curve appears in the definition of the following term: supply side economics. 210. indemnity

Undertaking given to compensate for (or to provide protection against) injury, loss, incurred penalties, or from a contingent liability. A shipping company, for example, will ask for a bank's indemnity for releasing a shipment to a consignee who has lost original shipping documents. The bank in turn will require the consignee to sign a counterindemnity before issuing its indemnity to the shipping company. This way the consignee gets the release of shipment in completion of a transaction, and both the shipping company and the bank are protected in case some dispute arises out of that transaction. See also letter of indemnity. indemnity is in the Agreements & Contracts, Banking, Commerce, Credit, & Finance and Corporate, Commercial, & General Law subjects. indemnity appears in the definitions of the following terms: insurable value, contingent liability, contingent business interruption insurance, bumbershoot policy, and multiple indemnity. 211. voting right

Delegable right of a common stock (ordinary share) holder to take part in a firm's decision making process, by voting on matters of policy and to choose members of the board of directors. Such matters include issuance of additional stock, stock splits, and substantial changes in the firm's business. Most common shares have one vote each, and preferred stock (preference share) holders usually also have the right to vote when their dividends remain unpaid for a specified period. voting right is in the Entrepreneurship, Management, & Small Business and Investing subjects. voting right appears in the definitions of the following terms: capital reorganization, common stock, preference shares, de facto merger, and restricted shares. 212. black economy

Usually untraceable, and hence untaxable, business dealings that are not reflected in a country's gross domestic product (GDP) computations. An integral part of most thirdworld and many first-world economies, it is a cash based system in which transaction records are kept in secret account books (called 'number two' accounts). Though it employs illegal (and even criminal) methods, it is a survival practice in repressive tax regimens or where legitimate expression of entrepreneurial activity is made unnecessarily difficult by a maze of regulations. Black economy and black money go hand in hand.

Also called parallel economy, shadow economy, or underground economy. See also informal economy. black economy is in the Economics, Politics, & Society subject. black economy appears in the definitions of the following terms: underground economy, parallel economy, and black money. 213. externalities

Factors whose benefits (called external economies) and costs (called external diseconomies) are not reflected in the market price of goods and services. Externalities are a loss or gain in the welfare of one party resulting from an activity of another party, without there being any compensation for the losing party. Externalities are an important consideration in cost-benefit analysis. externalities is in the Decision Making, Problem Solving, & Strategy, Economics, Politics, & Society and Planning & Scheduling subjects. externalities appears in the definitions of the following terms: pure private good, external economies, and external diseconomies. 214. dirty float

Floating currency exchange rate system which is not controlled entirely by the market forces of demand and supply. Instead, it is at least partially controlled by government intervention that limits appreciation or depreciation of the currency within a range. Also called managed float. dirty float is in the Banking, Commerce, Credit, & Finance, Currency Trading and International Trade & Relations subjects. dirty float appears in the definitions of the following terms: clean float and managed float. 215. simple interest

Interest computed only on the principal and (unlike compound interest) not on principal plus interest earned or incurred in the previous period(s). Simple interest is used commonly in variable rate consumer lending and in mortgage loans where a borrower pays interest only on funds used. Formula: Principal amount x Annual interest rate x Number of years. simple interest is in the Accounting & Auditing, Banking, Commerce, Credit, & Finance and Investing subjects.

simple interest appears in the definitions of the following terms: interest, compound interest, and truth in savings. 216. accounting policies

Principles, rules and procedures selected, and consistently followed, by the management of an organization (the accounting entity) in preparing and reporting the financial statements. Accounting policies deal specifically with matters such as consolidation of accounts, depreciation methods, goodwill, inventory pricing, and research and development costs. Accounting policies must be disclosed in the annual financial statements. See also summary of significant accounting policies. 217. lockout

Industrial action during which an employer withholds work, and denies employees access to the place of work. In effect, it is a strike by the management to compel a settlement to a labor dispute on terms favorable to the employer. When lock out action is taken by several employers in concert, it is called a joint lockout. Also called shut out. 218. reciprocity

General: Exchange of equal or identical advantages or privileges, such as removal of traveling restriction between two countries. International trade: Lowering of import duties and other trade barriers in return for similar concessions from another country. Reciprocity is a traditional principle of GATT/WTO, but is practicable only between developed nations due to their roughly matching economies. For trade between them and developing nations, the concept of relative reciprocity is applied whereby the developed nations accept less than full reciprocity from their developing trading partners. 219. qualification

Capacity, knowledge, or skill that matches or suits an occasion, or makes someone eligible for a duty, office, position, privilege, or status. Qualification denotes fitness for purpose through fulfillment of necessary conditions such as attainment of a certain age, taking of an oath, completion of required schooling or training, or acquisition of a degree or diploma. Qualification does not necessarily imply competence. Precise limitation (from general to particular) of language, scope, or terms that would otherwise be interpreted broadly or differently. 220. financial statement

Summary report that shows how a firm has used the funds entrusted to it by its stockholders (shareholders) and lenders, and what is its current financial position. The three basic financial statements are the (1) balance sheet, which shows firm's assets, liabilities, and net worth on a stated date; (2) income statement (also called profit & loss account), which shows how the net income of the firm is arrived at over a stated period,

and (3) cash flow statement, which shows the inflows and outflows of cash caused by the firm's activities during a stated period. Also called business financials. 221. inspection

Critical appraisal involving examination, measurement, testing, gauging, and comparison of materials or items. An inspection determines if the material or item is in proper quantity and condition, and if it conforms to the applicable or specified requirements. Inspection is generally divided into three categories: (1) Receiving inspection, (2) Inprocess inspection, and (3) Final inspection. In quality control (which is guided by the principle that "Quality cannot be inspected into a product") the role of inspection is to verify and validate the variance data; it does not involve separating the good from the bad. 222. work breakdown structure (WBS)

Project network-modeling step in which the entire job is graphically subdivided into manageable work elements (tasks). WBS displays the relationship of each task to the other tasks, to the whole and the end product (goal or objective). It shows the allocation of responsibility, and identifies resources required and time available, at each stage for project monitoring and management. Also called activity decomposition chart. 223. control

Manufacturing: Device or mechanism installed or instituted to guide or regulate the activities or operation of an apparatus, machine, person, or system. Law: Ownership of controlling shares in a company. See management control. 224. consistency principle

Accounting: The idea in accounting that once an accounting method is adopted, it should be followed consistently from one accounting period to the next. If, for any reason, the accounting method is changed, a full disclosure of the change and an explanation of its effects on the items of the financial statements must be given. One of the duties of an auditor is to make sure the consistency principle is being followed because, without this, any change might make correct interpretation of the financial data impossible. Also called consistency concept. See also accounting concepts. 225. seed capital

Comparatively small amount of capital contributed in the very beginning by a firm's founder(s). It is rarely provided by lenders or institutional investors because startup is the riskiest stage in a firm's life cycle with the highest chance of failure. Also called front end money, front money, or startup capital. 226. data

Information in raw or unorganized form (such as alphabets, numbers, or symbols) that refer to, or represent, conditions, ideas, or objects. Data is limitless and present everywhere in the universe. See also information and knowledge. Computers: Symbols or signals that are input, stored, and processed by a computer, for output as usable information. 227. extrapolation

Statistical technique of inferring unknown from the known. It attempts to predict future data by relying on historical data, such as estimating the size of a population a few years from now on the basis of current population size and its rate of growth. Extrapolation may be valid where the present circumstances do not indicate any interruption in the long-established past trends. However, a straight line extrapolation (where a short-term trend is believed to continue far in into future) is fraught with risk because some unforeseeable factors almost always intervene. See also interpolation. 228. rationalization

Corporate: Selling off or closing down some plants or units to reorganize a firm's operations to be more in line with its core competencies, in the interest of efficiency, or as a cost cutting measure. Often used as a euphemism for firing employees. See also downsizing. Psychological: Attribution of reasonableness or socially acceptable motives to an action, behavior, or decision with plausible explanations, while hiding (or being unconscious of) the true motives. See also defense mechanism. 229. debenture

A promissory note or a corporate bond which (in the US) is backed generally only by the reputation and integrity of the borrower and (in the UK) by the borrower's specific assets. When unsecured, it is called a bare debenture or naked debenture; when secured by a charge on a specific property, it is called a mortgage debenture. 230. generic strategies

Basic approaches to strategic planning that can be adopted by any firm in any market or industry to improve its competitive performance. The three fundamental marketing strategies (which, though different, are not mutually exclusive) are: differentiation strategy, focus strategy, and low cost strategy. 231. discretionary account

Power of attorney arrangement in which a customer gives limited or complete authority to an agent (bank, broker, or investment-portfolio manager) to buy and/or sell securities or commodities on the customer's behalf without the customer's prior approval or knowledge. Also called controlled account. See also managed account.

232.

absorption costing

A method of costing a product in which all fixed and variable costs are apportioned to cost centers where they are accounted for using absorption rates. This method ensures that all incurred costs are recovered from the selling price of a good or service. Also called full absorption costing. See also direct costing, marginal costing. 233. debenture

A promissory note or a corporate bond which (in the US) is backed generally only by the reputation and integrity of the borrower and (in the UK) by the borrower's specific assets. When unsecured, it is called a bare debenture or naked debenture; when secured by a charge on a specific property, it is called a mortgage debenture. 234. article

Particular item or thing, specially the one being acquired under a contract or purchase order. Distinct but integral part of a document (such as a contract, constitution, or statute) identified by a unique number. Piece of nonfictional writing on a specific topic, identified by its title and often by its author(s), and published with other such literary works. 235. stop order

Client's order to a broker to buy or sell a commodity or security when a specified price is reached, either above (on a buy order) or below (on a sell order) the price current at the time the order is given. A stop order to sell becomes a market order when the item is offered at or below the specified price. A stop order to buy becomes a market order when the item is bid at or above the specified price. See also limit order. 236. organizational structure

The framework, typically hierarchical, within which an organization arranges its lines of authority and communications, and allocates rights and duties. Organizational structure determines the manner and extent to which roles, power, and responsibilities are delegated, controlled, and coordinated, and how information flows between levels of management. An structure depends entirely on the organization's objectives and the strategy chosen to achieve them. In a centralized structure, the decision making power is concentrated in the top layer of the management and tight control is exercised over departments and divisions. In a decentralized structure, the decision making power is distributed and the departments and divisions have varying degrees of autonomy. An organizational chart illustrates the organizational structure. 237. underwriting agreement

Securities-purchase contract between an underwriter or underwriting syndicate and an issuer of bonds or shares. Among other terms, it specifies the price at which the security will be offered to the public (public offering price), underwriter's profit margin (underwriting spread), and the date by which the payments must be settled (settlement date). 238. underwriting agreement

Securities-purchase contract between an underwriter or underwriting syndicate and an issuer of bonds or shares. Among other terms, it specifies the price at which the security will be offered to the public (public offering price), underwriter's profit margin (underwriting spread), and the date by which the payments must be settled (settlement date). 239. Margrabe option

Futures contract based on exchange of one asset for another, such as in cross currency option. Invented in 1978 by the US risk-management consultant William Margrabe who also devised a formula for determining its price. Also called exchangeable option, outperformance option. See also rainbow option. 240. confidential information

Privileged communication shared with only a few people for furthering certain purposes, such as with an attorney for a legal matter, or with a doctor for treatment of a disease. Receiver of confidential information is generally prohibited from using it to take advantage of the giver. Also called privileged information. See also proprietary information. 241. recession

Period of general economic decline, defined usually as a contraction in the GDP for six months (two consecutive quarters) or longer. Marked by high unemployment, stagnant wages, and fall in retail sales, a recession generally does not last longer than one year and is much milder than a depression. Although recessions are considered a normal part of a capitalist economy, there is no unanimity of economists on its causes. 242. appraisal value

Appraiser's opinion (not determination) of the current worth of a property based on factors such as area, location, improvements, and amenities. Generally, this value is arrived at by using one of three methods: (1) Cost approach, (2) Income approach, or (3) Market comparison approach. Not to be confused with assessed value. Also called appraised value. 243. quality circle (QC)

Participative management technique within the framework of a companywide quality system in which small teams of (usually 6 to 12) employees voluntarily form to define and solve a quality or performance related problem. In Japan (where this practice originated) quality circles are an integral part of enterprise management and are called quality control circles. 244. middle class

Social class usually comprising of white-collar (non-manual) workers, lower-level managers, and small business owners, often constituting about one-third of the employed population of a country. The income of this class is higher than that of the working-class but lower than that of the upper-middle class (doctors, engineers, lawyers, middle-size business owners) and upper class. 245. acceptable use policy (AUP)

Corporate, organizational, or internet service provider's rules governing use of computers, networks, and associated resources. In general, an AUP states that employees, or users (1) should not try to access system areas for which they do not have authorization, (2) are accountable for what they do, (3) should use the system only for its designed purposes, (4) are responsible for the confidentiality of their passwords, (5) should refrain from illegal activities, and unethical or obscene online (internet) behavior, and (6) should not access pornographic material on the internet. 246. blue collar

Refers to employees whose job entails (largely or entirely) physical labor, such as in a factory or workshop. For a piece of work to be termed blue collar, it should be directly related to the output generated by the firm, and its end result should be identifiable or tangible. Historically, in the West, manual workers wore blue shirt collars but clerical workers wore white. See also white collar. 247. pro rata

Proportionate allocation or distribution of a quantity (such as costs, income, shares, taxes) on the basis of a common factor. For example, profit is generally divided among several stockholders (shareholders) on the basis of the amount of stock (number of shares) held by each. Latin for, according to the rate. 248. solvency ratios

Mathematical comparisons of different components of an entity's financial statements to determine its solvency. Common solvency ratios are (1) Current liabilities to inventory ratio, (2) Current liabilities to net worth ratio, (3) Current ratio, (4) Fixed assets to net worth ratio, (5) Quick ratio, and (6) Total liabilities to net worth Ratio.

249.

flow chart

Pictorial summary (graphical algorithm) of the decisions (such as production, storage, transportation) and flows (movement of information and materials) that make up a procedure or process from beginning to end. One of the seven tools of quality, a flow chart shows how the entire system functions, and where error and wastes occur. This information is used in defining, documenting, studying, and improving the system. Also called flow diagram, flow process chart, or network diagram. 250. pegging

Commodities trading: Control by commodity exchanges of price fluctuations by tying the daily trading limits to the previous trading day's settlement (close) price. Currency trading: Control of exchange rate fluctuations by a government through (1) tying a currency's value to the value of a stronger currency, (2) buying and selling own currency to increase or decrease its demand. Securities trading: Manipulation of a new issue's market price by its underwriter through large purchases on the stockmarket. Similar manipulation of already issued securities is illegal. 251. bear market

Period in which prices of securities or commodities fall by 20 percent or more. During such periods (1) investment interest is generally limited, (2) concerns about the state of the economy abound, and (3) dealers or speculators are more inclined in selling their investment portfolios than to increase their risk by holding. See also bull market. 252. theory of the firm

Behavior of a firm in pursuit of profit maximization, analyzed in terms of (1) what are its inputs, (2) what production techniques are employed, (3) what is the quantity produced, and (4) what prices it charges. The theory suggest that firms generate goods to a point where marginal cost equals marginal revenue, and use factors of production to the point where their marginal revenue product is equal to the costs incurred in employing the factors. 253. TED Spread

Treasuries Over Euro Dollar Spread. Wall Street term for the gap between interest rates (yields) on the US government securities (treasury bills) and the dollars-deposits held outside of the US (eurodollars). Futures contracts based on TED spread are actively traded on the futures markets by speculators who bet on the narrowing or widening of the gap. It is also used as an indicator of investor confidence in the US federal government finances and the US financial system: a narrow spread indicates high confidence, and a wide spread reflects diminished confidence.

254.

logo

Recognizable and distinctive graphic design, stylized name, unique symbol, or other device for identifying an organization. It is affixed, included, or printed on all advertising, buildings, communications, literature, products, stationery, and vehicles. Not to be confused with a brand, which identifies a product or family of products. Also called logotype. 255. dividend yield

Annual rate of return on common stock (ordinary shares) or preferred stock (preference shares), computed by dividing the annual dividend by the shares' market price. Dividend yield reflects the return on the current 'opportunity value,' and not on the historical cost of the investment. As the price of the shares declines, the dividend yield goes up indicating that the shares are priced cheaply and are a 'good buy.' Such shares usually attract risk averse investors. 256. mezzanine financing

Non-conventional funding that shares characteristics of both debt and equity. It comprises of equity-based options (such as warrants) and lower-priority (subordinate) debt, and is used commonly in financing acquisitions and buyouts. Convertible debentures (see convertible loan) are also an example of mezzanine financing. Also called mezzanine debt. 257. bankruptcy

Legal procedure for liquidating a business (or property owned by an individual) which cannot fully pay its debts out of its current assets. Bankruptcy can be brought upon itself by an insolvent debtor (called 'voluntary bankruptcy') or it can be forced on court orders issued on creditors' petition (called 'involuntary bankruptcy'). Two major objectives of a bankruptcy are (1) fair settlement of the legal claims of the creditors through an equitable distribution of debtor's assets, and (2) to provide the debtor an opportunity for fresh start. Bankruptcy amounts to a business-failure, but voluntary winding up does not. See also insolvency. 258. keiretsu

Grouping of large Japanese financial and industrial corporations through historical associations and cross-shareholdings. In a keiretsu each firm maintains its operational independence while retaining very close commercial relationships with other firms in the group. Horizontal keiretsus (such as Mitubishi Corp. and Sumitomo Corp.) involve firms in different industries whereas vertical keiretsus (such as Toyota Corp. and Sony Corp.) involve firms upstream and downstream of a manufacturing process. Keiretsu is Japanese for a headless combine and used to be written as zaibatsu.

259.

premium

General: Excess over apparent worth. Banking: Fee charged for advancing a loan (see points). Commerce: Merchandise offered free or at reduced price to make a combined offer (see bundling) more attractive to the customer. Mutual funds: Closed-end mutual fund's market price above its net asset value. Securities: Amount by which a security is selling at above its par value 260. scientific management

An early 20th century school of management thought concerned primarily with the physical efficiency of an individual worker. Scientific management is based on the work of the US engineer Frederick Winslow Taylor (1856-1915) who in his 1911 book The Principles Of Scientific Management laid down the fundamental principles of large-scale manufacturing through assembly-line factories. It emphasizes rationalization and standardization of work through division of labor, time and motion studies, work measurement, and piece-rate wages. See also Taylorism. 261. satisfaction

Customer level of approval when comparing a product's perceived performance with his or her expectations. Also could refer to discharge, extinguishment, or retirement of an obligation to the acceptance of the obligor, or fulfillment of a claim. While satisfaction is sometimes equated with performance, it implies compensation or substitution whereas performance denotes doing what was actually promised. See also accord and satisfaction. 262. arbitrage

Profiting from differences in prices or yields in different markets. 'Arbitrageurs' buy a commodity, currency, security or any other financial instrument in one place and immediately sell it at a higher price to a ready buyer at another place completing both ends of the transaction usually within a few seconds. Arbitrage is a sophisticated form of non-speculative, risk-free betting because it involves dealings where returns and prices are definite, fixed, and known. See also speculation. 263. searching

Exploration of the World Wide Web by following one interesting link to another, usually with a definite objective and a planned search strategy. In comparison surfing is exploration definite in objective but not in strategy, and browsing is exploration without a definite objective or search strategy. 264. offer

Voluntary but conditional promise submitted by a buyer or seller (offeror) to another (offeree) for acceptance, and which becomes legally enforceable if accepted by the

offeree. An offer (unlike a solicitation) is a clear indication of the offeror's willingness to enter into an agreement under specified terms, and is made in a manner that a reasonable person would understand its acceptance will result in a binding contract. Offers normally include a closing date, otherwise a period of 30 days after the date of offer is commonly assumed. See also bid and proposal. Terms and conditions under which an offer is made, such as quantity, price, discounts, delivery date, shipping costs, etc. 265. corporate citizenship

The legal status of a corporation in the jurisdiction in which it was incorporated. A company's role in, or responsibilities towards society. See corporate social responsibility. 266. Deming's 14 points

Quality pioneer W. Edward Deming's management guideposts: (1) Create constancy of purpose to achieve quality. (2) Adopt the quality way of thinking. (3) Stop depending on inspection to achieve quality. (4) End the practice of awarding business to suppliers on price alone instead minimize cost by working closely with only one or two vendors. (5) Constantly improve every process involved in planning, production, and service. (6) Institute on-job training for all employees. (7) Adopt and institute leadership. (8) Drive out fear from the work environment. (9) Break down barriers between the workers and the management. (10) Eliminate slogans, exhortations, and targets. (11) Eliminate quantity-quotas and targets for the workforce and management. (12) Remove barriers that rob people of their pride in workmanship, and eliminate the annual rating or merit system. (13) Institute a vigorous program of education and self-improvement for everyone. (14) Put everyone in the organization to work to accomplish the transformation. 267. small and medium enterprise (SME)

Business segment term used differently in different countries, sometimes differently in different industries in the same country. In the US, any firm from a small-office homeoffice (SOHO) to a large corporation may be called a SME. More specifically, firms included in Russel indices such as Russel 2500 index and Russel Midcap index are classified as SMEs. In European Union, a firm with (1) 50 to 250 employees, (2) annual turnover of Euro 7 to 40 million, (3) total assets less than Euro 27 million, and (4) not more than 25 percent ownership by a large corporation, may be classified as a SME. The International Chamber Of Commerce (ICC) defines a SME as having 100 to 2000 employees. 268. balance of payments (BOP)

Set of accounts that record a country's international transactions, and which (because double entry bookkeeping is used) always balance out with no surplus or deficit shown on the overall basis. A surplus or deficit, however, can be shown in any of its three component accounts: (1) Current account, covers export and import of goods and

services, (2) Capital account, covers investment inflows and outflows, and (3) Gold account, covers gold inflows and outflows. BOP accounting serves to highlight a country's competitive strengths and weaknesses, and helps in achieving balanced economic-growth. 269. financial statement

Summary report that shows how a firm has used the funds entrusted to it by its stockholders (shareholders) and lenders, and what is its current financial position. The three basic financial statements are the (1) balance sheet, which shows firm's assets, liabilities, and net worth on a stated date; (2) income statement (also called profit & loss account), which shows how the net income of the firm is arrived at over a stated period, and (3) cash flow statement, which shows the inflows and outflows of cash caused by the firm's activities during a stated period. Also called business financials. 270. contingent capital

Funds that would be available under a pre-negotiated agreement if a specific contingency (such as a natural disaster) occurs or a threshold (such as the maximum price of a raw material or the minimum price of product) is crossed. In this off balance-sheet arrangement, a party pays a capital commitment fee to a second party which undertakes (in advance) to extend a loan or purchase debt or equity security of a certain amount in case a stated situation occurs. Thus, the first party does not transfer its risk (as in insurance, which affects the income statement) and does not have to show a liability on its books (as for a loan, which affects the balance sheet), but receives a critical capital injection exactly when it is needed without having to negotiate from a position of weakness. Contingent capital arrangements take several forms, such as a catastrophe equity put option, contingent surplus note, or standby loan. 271. rational choice theory (RCT)

Attempts to explain all (conforming and deviant) social phenomenon in terms of how self-interested individuals make choices under the influence of their preferences. It treats social exchange as similar to economic exchange where all parties try to maximize their advantage or gain, and to minimize their disadvantage or loss. RCT's basic premises are that (1) human beings base their behavior on rational calculations, (2) they act with rationality when making choices, (3) their choices are aimed at optimization of their pleasure or profit. This concept has applications in economics and marketing, and in criminology and international relations. RCT, however, cannot explain the existence of certain social phenomenon such as altruism, reciprocity, and trust, and why individuals voluntarily join associations and groups where collective and not individual benefits are pursued. Not to be confused with theory of rational expectations. Also called theory of reasoned action. 272. deferred payment letter of credit (L/C)

A letter of credit that is paid a fixed number of days after shipment or presentation of prescribed documents. It is used where a buyer and a seller have a close working relationship because, in effect, the seller is financing the purchase by allowing the buyer a grace period for payment. A deferred payment letter of credit differs from a sight draft or time draft in that no drafts are involved but the payment is guaranteed on the stated date. However, there being no draft, the beneficiary party's ability to discount or sell his or her right to payment is restricted. Also called usance letter of credit. See also red clause letter of credit. 273. factors of production

Resources required for generation of goods or services, generally classified into four major groups: (1) Land (including all natural resources), (2) Labor (including all human resources), (3) Capital (including all man-made resources), and (4) Enterprise (which brings all the previous resources together for production). These factors are classified also as management, machines, materials, and money (this, the 4 Ms), or other such nomenclature. More recently, knowledge has come to be recognized as distinct from labor, and as a factor of production in its own right. 274. cost benefit analysis (CBA)

Process of quantifying costs and benefits of a decision, program, or project (over a certain period), and those of its alternatives (within the same period), in order to have a single scale of comparison for unbiased evaluation. Unlike the present value (PV) method of investment appraisal, CBA estimates the net present value (NPV) of the decision by discounting the investment and returns. Though employed mainly in financial analysis, a CBA is not limited to monetary considerations only. It often includes those environmental and social costs and benefits that can be reasonably quantified. See also feasibility study. 275. bureaucracy

System of administration distinguished by its (1) clear hierarchy of authority, (2) rigid division of labor, (3) written and inflexible rules, regulations, and procedures, and (4) impersonal relationships. Once instituted, bureaucracies are difficult to dislodge or change. See also Parkinson's Law and Peter Principle. 276. limited liability company (LLC)

Relatively recent type of US business structure that combines the limited personal liability feature of a corporation with the single taxation feature of a partnership or soleproprietorship firm. Its profits and tax benefits are split any way the stockholders/ shareholders (whether individuals or other firms) choose. Tax return for a LLC is filed with the taxation authorities only for the purpose of information, and each shareholder files own tax return separately. Also called company limited by share. See also limited company.

277.

matrix organization

An organizational structure that facilitates the horizontal flow of skills and information. It is used mainly in the management of large projects or product development processes, drawing employees from different functional disciplines for assignment to a team without removing them from their respective positions. Employees in a matrix organization report on day-to-day performance to the project or product manager whose authority flows sideways (horizontally) across departmental boundaries. They also continue to report on their overall performance to the head of their department whose authority flows downwards (vertically) within his or her department. In addition to a multiple command and control structure, a matrix organization necessitates new support mechanisms, organizational culture, and behavior patterns. Developed at the US National Aeronautics & Space Administration (NASA) in association with its suppliers, this structure gets its name from its resemblance to a table (matrix) where every element is included in a row as well as a column. 278. backorder

A customer order that cannot be filled when presented, and for which the customer is prepared to wait for some time. The percentage of items backordered and the number of backorder days are important measures of the quality of a company's customer service and the effectiveness of its inventory management. 279. recruitment

The process of identifying and hiring the best-qualified candidate (from within or outside of an organization) for a job vacancy, in a most timely and cost effective manner. 280. organizational culture

The values and behaviors that contribute to the unique social and psychological environment of an organization. Organizational culture is the sum total of an organization's past and current assumptions, experiences, philosophy, and values that hold it together, and is expressed in its self-image, inner workings, interactions with the outside world, and future expectations. It is based on shared attitudes, beliefs, customs, express or implied contracts, and written and unwritten rules that the organization develops over time and that have worked well enough to be considered valid. Also called corporate culture, it manifests in (1) the ways the organization conducts its business, treats its employees, customers, and the wider community, (2) the extent to which autonomy and freedom is allowed in decision making, developing new ideas, and personal expression, (3) how power and information flow through its hierarchy, and (4) the strength of employee commitment towards collective objectives. It is termed strong or weak to the extent it is diffused through the organization. It affects the organization's productivity and performance, and provides guidelines on customer care and service; product quality and safety; attendance and punctuality; and concern for the environment. It extends also to production-methods, marketing and advertising change.

281.

franchising

Arrangement where one party (the franchiser) grants another party (the franchisee) the right to use its trademark or trade-name as well as certain business systems and processes, to produce and market a good or service according to certain specifications. The franchisee usually pays a one-time franchise fee plus a percentage of sales revenue as royalty, and gains (1) immediate name recognition, (2) tried and tested products, (3) standard building design and dcor, (4) detailed techniques in running and promoting the business, (5) training of employees, and (6) ongoing help in promoting and upgrading of the products. The franchiser gains rapid expansion of business and earnings at minimum capital outlay. 282. Ansoff matrix

Strategic marketing planning tool that links a firm's marketing strategy with its general strategic direction and presents four alternative growth strategies as a table (matrix). These strategies are seeking growth: (1) Market penetration: by pushing existing products in their current market segments. (2) Market development: by developing new markets for the existing products. (3) Product development: by developing new products for the existing markets. (4) Diversification: by developing new products for new markets. Named after its inventor, the father of strategic management, Igor Ansoff (1941- ), and first published in 1957 in Harvard business review. 283. Fisher effect The effect proposes that if the real interest rate is equal to the nominal interest rate minus the expected inflation rate, and if the rea interest rate were to be held constant, that the nominal rate and the inflation rate have to be adjusted on a one-for-one basis. Real interest rate = nominal interest rate - inflation rate. In simple terms: an increase in inflation will result in an increase in the nominal interest rate. For example, if the real interest rate is held at a constant 5.5% and inflation increased from 2% to 3%, the Fisher Effect indicates that the nominal interest rate would have to increase from 7.5% (5.5% real rate + 2% inflation rate) to 8.5% (5.5% real rate + 3% inflation rate). 284. retail price index (RPI)

Official measure of the general level of inflation as reflected in the retail price of a basket of goods and services such as energy, food, gasoline (petrol), housing, household goods, traveling fare, etc. RPI is commonly computed on monthly basis, but an annual rate is also published which serves as a yardstick for adjusting inflation-indexed salaries and wages, tax allowances, and pensions. Several different types of RPI are used for different requirements. A consumer price index (CPI) is a type of RPI. 285. 286.

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