Finance Glossary Questions Flashcards
Represents the claims of suppliers related to goods or services they have furnished to an entity but for which they have not yet been paid. It’s part of the current liabilities of an entity.
Accounts Payable
Money owed to an entity by its customers. It’s part of the current assets of an entity.
Accounts Receivable
Money owed to providers of goods or services for which typically no bill exists or is ever sent. This includes wages, payroll taxes, interest due on loans and rent.
Accruals
The spreading of repayments of a debt or obligation over a set period of time.
Amortization
The increase in value of an asset or investment that results from inflation or direct investments that enhances the value or growth.
Appreciation
The economic resources owned by an entity that have commercial or market value.
Assets
A financial statement that summarizes the financial position of an entity by outlining its assets and liabilities and equity. Assets must equal liabilities and equity.
Balance Sheet
The last payment on a loan that is substantially larger than subsequent payments.
Balloon Payment
A certificate of debt issued by a government or business guaranteeing payment of the original investment plus interest by a specified future date. Municipal bonds are issued by a city, county, town or district. Interest earned on these bonds are exempt from federal income tax and, in some cases, state income tax. Revenue bonds are backed by the revenues received from a specific project such as a toll bridge. Industrial revenue bonds are municipal revenue bonds to finance industrial or commercial construction.
Bond
A financial statement showing all actual cash receipts and disbursements of an entity for a specified period of time.
Cash Flow Statement
Assets of a borrower pledged to secure a debt against default.
Collateral
A private, for profit financial institution that specializes in short and medium term business, personal and real estate loans.
Commercial Bank
A demand deposit usually required by a commercial bank as a condition for extending a line of credit or a bank loan.
Compensating Balance
One that requires applicants to compete against one another in terms of need or appropriateness for the funding
Competitive Grant
Direct costs incurred in the production of goods sold by an entity.
Cost of Goods Sold
The chance that the return on an investment will be less than expected or that the borrower will not meet the terms of the loan of investment and that secondary repayment resources such as collateral will be insufficient to cover losses.
Credit Risk
Any event or factor that counterbalances the peaks and troughs of the business cycle.
Counter Cyclical
Cash and other assets often called cash equivalent (such as inventory, accounts receivable and pre-paid expenses) that are reasonably expected to be realized in cash or sold or consumed within 12 months.
Current Assets
The share of profits of an entity distributed to its shareholders. They may be paid in cash, stock or other security.
Dividends
Evaluation of an entity’s financial statements or portfolio of loans to determine its credit worthiness and other risk factors.
Due Diligence
A type of enterprise zone. It’s a designated area, either urban or rural, that suffers from blight or economic distress where special benefits are offered to businesses located in the area to encourage economic development. Benefits include employment credits, tax credits, and tax exempt financing. The program was created under the Omnibus Budget Reconciliation Act of 1993.
Empowerment Zone
A generic term for designated geographical areas within urban communities or rural areas on which various tax incentives and grants are targeted to encourage investment by businesses and the creation and retention of jobs.
Enterprise Zone
Qualifying areas for annual CDBG funding based on a set formula. To qualify the area must be a central city of metropolitan area, urban county or city with populations over 50K, suffer from blight, poverty, aged housing and other factors.
Entitlement Community
Funds that the owners have personally invested in an entity, as distinguished from debt capital, as well as residual value of an entity after deducting liabilities from assets and paying dividends.
Equity Capital
A document usually issued by a commercial bank verifying that the client has credit for a specified amount, against which drafts can be drawn.
Letter of Credit
Financial obligation to an outside party to be satisfied in the future.
Liability
A claim on a secondary repayment source such as collateral to secure payment on an investment.
Lien
The practice of tying the deposit of public money in a commercial bank to conditions regarding the bank’s lending and investment practices.
Linked Deposits
The ability to convert assets to cash quickly without loss of market value. It also refers to the ability of an entity to meet its current obligations.
Liquidity
The uncertainty that an entity may not be able to liquidate its assets to meet demands for cash withdrawals, requiring the entity to sell its assets at a loss.
Liquidity Risk
A sum of borrowed money that must be repaid with or without an established amount of interest.
Loan
A promise by a third party to cover a loan in case of default.
Loan guarantee
Help a business structure on an overall financial plan and prepare the application package to apply for funding.
Loan packaging
The estimated worth of an asset if sold on the market
Market value
The amount of debt, exclusive of accrued interest.
Principal
Projected financial statements
Proforma
How much money an investor will make on an investment compared to their original investment. Return on an investment is either interest payments on debt investment, dividends on equity investments and any capital gain (the increase in value of an investment over the initial investment).
Rate of Return
The practice of financial institutions of designating certain areas of a city or certain groups as too risky for lending.
Redlining
Net income that is not distributed as dividends to investors.
Retained Earnings
Net income dividend by dollars invested.
Return on Investment
A pool of funds that are lent out, whereby the loan repayments and income are recycled or plowed back into the pool which increases funds available for lending.
Revolving Loan Fund
The degree of uncertainty that an investment will be lost.
Risk
A method of spreading the risk burden. Individual investors purchase small shares of several investments. If a particular investment fails, the investor only loses his share of that investment rather than the whole investment.
Risk Pooling
Markets where ownership of an investment is transferred from the one owner, usually the original, to another.
Secondary Market
The process of evaluating a potential borrower in terms of its creditworthiness, risks involved, and performance potential.
Underwriting
Item costs that change directly and proportionately with changes in the production volume (i.e. utility bills); the opposite of fixed costs.
Variable costs
Interest rates that are tied to a money-market indicator, normally a US Treasury bill, and moves up and down with that market indicator. Also called floating rates or adjustable rates.
Variable interest rates
Investment capital subject to considerable risk, generally associated with capitalizing new or unproven businesses.
Venture Capital
An agreement that gives the owner the option within a specified period of time to purchase equity capital.
Warrant
Current assets of an entity including cash, marketable securities, accounts receivables, inventory, and prepaid expenses. Net working capital is current assets less current liabilities.
Working Capital
The historic price paid for an asset less total accumulated depreciation to date. This is compared to market value.
Book Value
An option held by the issuing entity of a bond to redeem the bond before the maturity date.
Callable
The difference b/w the price an investor paid for an investment and the proceeds received from the sale of that investment.
Capital Gains (or Loss)
The difference b/w the supply of private sector financial capital and the demand for that capital.
Capital Gap
To supply with capital of investment funds
Capitalize
The total funding of an entity consisting of debt, stock, and retained earnings used to finance operations and meet debt obigations.
Capitalization
Often in finance it has a broader definition that includes actual money and highly liquid short-term investments such as money market funds and Treasury bills.
Cash
Obligations of a company that are expected to be satisfied (paid) either by the use of the current assets or by the creation of other current liabilities within 12 months. This includes accounts payable and current portion of long-term debt.
Current Liabilities
A bond backed by the general credit or reputation of a business rather than a specific lien on assets.
Debenture
Funds obtained from borrowing
Debt Capital
A constitutional or legislative restriction on the amount of funds that a state or municipal gov’t can borrow, usually expressed as a specific sum of money or a fixed percent of the assessed value of all taxable property within the gov’ts jurisdiction.
Debt Limit
The cash required in a given period, usually one year, for payment of interest and the current payments of loan principal on outstanding debt. Also, the borrower’s ability to meet debt and interest obligations.
Debt Service
Failure to pay financial obligations
Default
The provision of own funds by a lender to a borrower without going through another organization, typically used in terms of gov’ts, foundations and non-profits.
Direct Financing
A weighted rate of return that accounts for inflation and other risks associated with an investment.
Discount Rate
The principal of a bond or preferred stock.
Face Value
Costs that are independent of the level of production (i.e. rent or mortgage); the opposite of variable costs.
Fixed Costs
Federal government clause involving loan guarantees that allow the gov’t to guarantee loans by promising to use its taxing power.
Full Faith and Credit
A direct transfer of funds from a higher level of gov’t to a lower level of gov’t or business.
Grants-in-Aid
A financial statement that derives the net income of an entity by summarizing the sources of current revenue and the costs associated with obtaining that revenue.
Income Statement
The provision of funds from a lender to a borrower through another entity, process or incentives. Examples include guarantees of loans, linked deposits, tax breaks and credits.
Indirect Financing
An overall general rise in prices.
Inflation
The inability to pay ones’ debts when they come due.
Insolvency
1) The relation of debt to equity; the use of borrowed funds by an entity.
2) The use of incentives to induce private sector lenders, individuals or businesses to invest capital in a designated area, project or business
Leverage
The amount of time before an investment or debt comes due.
Maturity
An income statement identity. The amount remaining after all costs, expenses, and allowances for depreciation have been deducted from total receipts of an entity.
Net Income
The amount by which total assets (typically measured by their fair market value) exceed total liabilities.
Net Worth
A written promise to pay a debt, similar to bonds.
Notes
The process of producing a product or service, getting it to market and collecting the proceeds from its sale. It’s also defined as the flow of cash through the normal operations of a company.
Operating Cycle
The benefit foregone by making an investment or incurring a liability.
Opportunity Costs
An agreement that permits the purchase or sale or something within a specified period of time according to specified terms.
Option
The principal of a bond or preferred stock
Par Value
A method of spreading the risk burden. Individual investors purchase small shares of several investments. If a particular investment fails, the investor only loses his share of the investment rather than the whole investment
Pooling
The value today of a future payment or stream of payments
Present Value
The pledging of assets to cover a liability in case of default.
Security
The chance that the value of the pledged collateral on an investment is less than the value of the investment.
Security Risk
Equity money supplied to help a venture launch its operations.
Seed Capital
A fund to which contributions are made, periodically for the purpose of ultimately paying debt or replacing assets.
Sinking Fund
A venture capital firm licensed and monitored by the Small Business Administration. This can be capitalized with SBA funds.
Small Business Investment Company (SBIC)
The entity’s ability to meet interest expenses and obligation s associated with long-term debt.
Solvency
A claim on a property, asset or repayment of a debt that is inferior to the interest of another party. This can apply to all debt instruments.
Subordinate Position
Short-term credit or loan provided by a goods or service supplier to its customers; that is, the supplier does not demand advance or simultaneous payment for its sales.
Trade Credit
The lowering rates on specific taxes, normally taxes owed on real or other property, below the rate commonly levied within the community.
Tax Abatement
Debt capital repayable according to a specific schedule. It includes medium and long-term loans.
Term Loans
