Business Related Concepts and Terms

Question 1

mutuality of agreement

Answer 1

the parties must agree willingly. Often stated as a meeting of the minds.

Question 2

holographic will

Answer 2

an entirely handwritten will

Question 3

partnership

Answer 3

a contract between two or more persons to pool resources and efforts for the purposes of conducting a business operation

Question 4

audit opinion

Answer 4

a report given by an independent certified public accountant that gives the auditor’s opinion as to the reasonableness of the facility’s financial statement

Question 5

oral contract

Answer 5

an enforceable agreement that is not in writing or signed by the parties

Question 6

rate of return

Answer 6

the annual percentage of income earned on an investment

Question 7

corporation

Answer 7

an association of shareholder(s) (even one shareholder) created by statute and treated by the law as a person.

Question 8

cash flow

Answer 8

the cash receipts less the cash disbursements from a given operation or set of operations for a specific time period

Question 9

competence

Answer 9

the capability of a person to make a will. A person is judged capable or competent if he/she understands the nature and extent of his/her property, the identity of the property owned, and the consequences of the act of making a will.

Question 10

bonds

Answer 10

a debt obligation of a facility or corporation or other body to pay a specific amount on a stated date

Question 11

off-balance sheet

Answer 11

an item reported in financial statements that nevertheless has an impact on the operations of a facility.

Question 12

attachment

Answer 12

a legal procedure in which a defendant’s property is seized by court order pending the outcome of a claim against the defendant

Question 13

contractor

Answer 13

one who agrees to do work for another and retains control over the means, method and manner in which the work is done

Question 14

consideration

Answer 14

something of value given in return for performance of an act or the promise to perform an act

Question 15

contract

Answer 15

an agreement between two or more persons that creates legally enforceable rights and remedies

Question 16

good faith

Answer 16

means being truthful and faithful to one’s obligations in business dealings

Question 17

incompetence

Answer 17

inability to function within the limits judged normal by a court of law. A guardian must be appointed if a person is found to be incompetent.

Question 18

better-off test

Answer 18

a method of evaluating the strategic impact of an acquisition or business venture on the facility’s financial standing

Question 19

mortgage

Answer 19

a use of the value of a purchase to borrow money for the purchase of that property by promising to repay the debt on a scheduled basis

Question 20

Will

Answer 20

a person’s declaration as to how he/she wishes his/her real and personal property to be disposed of after death

Question 21

audit

Answer 21

an examination of a facility’s compliance with accounting standards and policies

Question 22

living will

Answer 22

some nursing facility residents make a living will, which governs the type(s) of treatment to be given the resident in the event the resident becomes comatose or in a similar condition

Question 23

401(k)

Answer 23

an employee retirement plan, sometimes called a salary reduction plan

Question 24

present value

Answer 24

the current value of a future payment or stream of payments

Question 25

liquidity

Answer 25

the ability of current assets to meet the financial obligations of current liabilities

Question 26

letter of credit

Answer 26

a bank instrument stating that a bank has granted the holder the amount of credit equal to the face amount of the letter of credit (L/C)

Question 27

arm’s length transaction

Answer 27

a business transaction at market-established prices between two unrelated parties

Question 28

allowance for bad debts

Answer 28

a provision a facility makes for uncollectible accounts receivable

Question 29

Return on Owner’s Equity (ROE)

Answer 29

measures the return that a facility has earned on the funds invested in it

Question 30

deferred expense

Answer 30

an expense incurred in one accounting period that will benefit future accounting periods, also called a deferred charge. Insurance pre-paid, as mentioned above, is a good example.

Question 31

Return of Invested Capital (ROIC)

Answer 31

(net income after any taxes) / (noncurrent liabilities + owner’s equity)

Question 32

certified public accountant (CPA)

Answer 32

a title given to accountants who pass the Uniform CPA examination administered by the American Institute of Certified Public Accountants and who satisfy the experience requirements of each given state

Question 33

limited liability company - or - limited liability corporation

Answer 33

llc’s provide the flexibility of a partnership with the same kind of financial protection offered by a C corporation structure.

Question 34

cost of capital

Answer 34

the rate of return available in the marketplace on investments that are comparable both in terms of risk and other characteristics such as liquidity and other qualitative factors

Question 35

grandfather clause

Answer 35

provision whereby persons already engaged in a business or profession receive a license or entitlement without meeting all the conditions new entrants would have to meet

Question 36

intangible asset

Answer 36

an item or right that has no physical substance and provides an economic benefit

Question 37

administrator

Answer 37

a person appointed to transfer the property of one who dies intestate to those who succeed in ownership. To die intestate is to die without leaving a will. The estate (or property) of persons who die testate (with a will) is administered by an executor of the estate, usually named in the will.

Question 38

defined benefit pension plan

Answer 38

a program of pension benefits that employees will receive when they retire

Question 39

long term asset

Answer 39

an asset with future economic benefits that are expected for a number of years

Question 40

return on investment (ROI)

Answer 40

a measure of the earning power of a facility’s assets

Question 41

price elasticity of demand

Answer 41

the effect price change has on income. This is calculated by

Question 42

cost-benefit analysis

Answer 42

a method of determining whether the results of a particular proposed course of action are sufficient to justify the cost of undertaking it

Question 43

return on assets

Answer 43

is calculated by dividing the net income after any taxes by the average total assets

Question 44

mutuality of obligation

Answer 44

all parties must be bound to some reciprocal performance. A promise by one person to do something at the will of another person without any consideration (benefit) to the first person not a contract.

Question 45

bankruptcy

Answer 45

inability to pay one’s debts, insolvency

Question 46

annual report

Answer 46

a detailed statement of the facility’s financial position at the end of its reporting year - either fiscal or calendar

Question 47

bad faith

Answer 47

generally implies a design to mislead or deceive another

Question 48

defined contribution pension plan

Answer 48

a program designating the annual dollar amount an employer contributes to a pension plan

Question 49

externality

Answer 49

any incidental by product(s) (both positive and negative) associated with a particular course of action chosen by a facility

Question 50

note receivable

Answer 50

a contract to receive money at a future date

Question 51

net present value

Answer 51

in corporate finance, the present value (i.e., the value of cash to be received in the future expressed in current dollars) of an investment in excess of the initial amount invested

Question 52

profit margin

Answer 52

the ratio of income to sales (gross profit) / (sales)

Question 53

commercial paper

Answer 53

short-term securities (2 days to 270 days) issued by corporations, banks, and other borrowing institutions to raise short term working capital

Question 54

garnishment

Answer 54

a legal process through which a plaintiff can obtain goods or money belonging to a defendant, held by a third party, that are due or will become due to the plaintiff. Garnishment is similar to attachment.

Question 55

Generally Accepted Accounting Principles (GAAP)

Answer 55

the policies, standards and rules followed by accountants in the preparation of financial statements and in recording and summarizing transactions

Question 56

net profit margin

Answer 56

(also known as return on services rendered) shows the percentage of net income generated by each service billed dollar in for-profit facilities.

Question 57

competent parties

Answer 57

in the case of some nursing home residents, the courts decide on their competence to enter into a contract

Question 58

leverage

Answer 58

in accounting and finance, the amount of long-term debt that a company has in relation to its equity