Vocabulary for Test 3 Flashcards
Rate of return earned on a firm’s total assets invested. Computed as operating income divided by assets.
Return on Assets
Rate of return earned on the owner’s equity investment. Computed as net income divided by owner’s equity investment.
Return on Equity
An informal agreement between a borrower and a bank as to the maximum amount of funds the bank will provide at any one time.
Line of Credit
A commitment by a bank to lend up to a maximum amount.
Revolving Credit Agreement
Money loaned for a 5-10 year period, corresponding to the length of time the investment will bring in profits.
Term Loans
A loan for which items of inventory or other moveable property serve as collateral.
Chattel Mortgage
A long-term loan with real property held as collateral.
Real Estate Mortgage
The interest rate charged by commercial banks on loans to their most creditworthy customers.
Prime Rate (Base Rate)
The interest rate on loans that London-based banks charge other banks in London.
LIBOR (London Interbank Offered Rate)
A very large payment that may be required about half-way through the term over which payments were calculated, repaying the loan balance in full.
Balloon Payment
Bank-imposed restrictions on a borrower that increase the chance of timely repayment.
Loan Covenants
The owner can escape personal liability (personal assets) for the firm’s debts.
Limited Liability
Supplier-provided financing of inventory to a company, which sets up one of these for the amount. This is of short duration (30 days) and the amount of credit available depends on the type of firm and supplier’s willingness to extend credit.
Accounts Payable (Trade Credit)
An installment loan from a seller of machinery used by a business.
Equipment Loan
A line of credit secured by working capital assets.
Asset-Based Loan
Obtaining cash by selling accounts receivable to another firm.
Factoring
Obtaining cash from a lender who, for a fee, advances the amount of the borrower’s cost of goods sold for a specific customer order.
Purchase-Order Financing
Private individuals who invest in early-stage ventures.
Business Angels
Funds provided by wealthy private individuals, usually to small, local startups.
Informal Venture Capital
individuals who form limited partnerships for the purpose of raising venture capital from large institutional investors.
Formal Venture Capitalists
The SBA’s primary business loan program, which helps qualified small companies obtain financing when they might not be eligible through normal lending channels.
7(a) Loan Guaranty Program
An SBA loan program that provides long-term, fixed-rate financing for small business to acquire real estate or machinery and equipment.
Certified Development Company (CDC) 504 Loan Program
An SBA loan program that provides short-term loans of up to %50,000 to small businesses and not-for-profit child-care centers.
7(m) Microloan Program
Privately owned banks, regulated by the SBA, that provide long-term loans and/or equity capital to small businesses.
Small Business Investment Companies (SBICs)
An SBA program that helps to finance companies that plan to transform laboratory research into marketable products.
Small Business Innovative Research Program (SBIR)
A lender that uses funds from federal, state, and private sources to provide financing to small businesses in low-income communities.
Community-Based Financial Institution
The sale of a firm’s capital stock to select individuals.
Private Placement
The issuance of stock to be traded in public financial markets.
Initial Public Offering (IPO)
The processes used to create and deliver a product or service.
Operations
The planning and control of a conversion process that includes turning inputs into outputs that customers desire.
Operations Management
Manufacturing operations designed for short production runs of small quantities of items.
Job Shops
Manufacturing operations used to create unique but similar products.
Project Manufacturing
Manufacturing operations designed for long production runs of high volume, standardized products.
Repetitive Manufacturing
A form of repetitive manufacturing with output that more closely resembles a product stream than individual products.
Continuous Manufacturing
Manufacturing operations that usually involve computer-controlled equipment that can turn out products in smaller or more flexible quantities.
Flexible Manufacturing Systems
Operational strategies used to stimulate customer demand when it is normally low.
Demand Management Strategies
An index that determines the quantity to purchase in order to minimize total inventory costs.
Economic Order Quantity
A method of controlling inventory that uses a targeted service level, allowing statistical determination of the appropriate amount of inventory to carry.
Statistical Inventory Control
A system of classifying items in inventory by dollar velocity (purchase price X annual quantity consumed).
ABC Method
A method of cutting inventory carrying costs by making or buying what is needed just as it is needed.
Just-in-Time Inventory System
A method that provides for periodic counting of items in inventory.
Physical Inventory System
A method of inventory control based on the use of two containers for each item in inventory, one to meet current demand and the other to meet future demand.
Two-Bin Inventory System
The features of a product or service that enable it to satisfy customers’ stated and implied needs.
Quality
An all-encompassing management approach to providing high-quality products and services.
Total Quality Management (TQM)
The examination of a part or a product to determine whether it meets quality standards.
Inspection
A proactive approach to quality management that seeks to mistake-proof a firm’s operations.
Poka-Yoke
The use of random, representative portion of products to determine the acceptability of an entire lot.
Acceptance Sampling
Product or service parameters that can be counted as being present or absent.
Attributes
Measured parameters that fall on continuum, such as weight or length.
Variables
The standards governing international certification of a firm’s quality management procedures.
ISO 9000
A choice that companies must make when they have the option of making or buying component parts for products they produce, or the option of purchasing necessary services or providing them in-house.
Make-or-Buy Decisions
Contracting with a third party to take on and manage one or more of a firm’s functions.
Outsourcing
An organization in which small businesses combine their demand for products or services in order to negotiate as a group with suppliers.
Cooperative Purchasing Organizations (COOP)
A list of critical factors that help in accessing a supplier’s performance.
Supply Chain Operations Reference (SCOR) Model
An approach that emphasizes efficiency through elimination of all forms of waste in a company’s operations.
Lean Production
An approach that recognizes the interdependence of assets and activities and manages them to optimize the entire company’s performance.
Synchronous Management
Any point in the operations process where limited capacity reduces the production capability of an entire chain of activities.
Bottleneck
The most restrictive of bottlenecks, determining the capacity of the entire system.
Constraint
A specification of what a seller requires in exchange for transferring ownership or use of a product or service.
Price
An agreement between a buyer and a seller that allows for delayed payment for a product or service.
Credit
The sum of cost of goods sold, selling expenses, and overhead costs.
Total Cost
An approach in which the total cost for a given period is divided by the quantity sold in that period to set a price.
Average Pricing
The degree to which a change in price affects the quantity demanded.
Elasticity of Demand
Demand that changes significantly when there is a change in the price of a product or service.
Elastic Demand
Demand that does not change significantly when there is a change in the price of a product or service.
Inelastic Demand
An approach based on setting a high price to convey an image of high quality or uniqueness.
Prestige Pricing
Sales volume at which total sales revenue equals total costs and expenses.
Break-Even Point
The difference between the unit selling price and the unit variable costs and expenses.
Contribution Margin
An approach based on applying a percentage to a product’s cost to obtain its selling price.
Markup Pricing
A technique that sets lower than normal prices to hasten market acceptance of a produce or service or to increase market share.
Penetration Pricing Strategy
A technique that sets very high prices for a limited period before reducing them to more competitive levels.
Price Skimming Strategy
A technique that uses a particular competitor as a model in setting prices.
Follow-the-Leader Pricing Strategy
A technique that sets more than one price for a product or service in order to offer price concessions to certain customers.
Variable Pricing Strategy
Charging more than one price when the customer’s profile suggests that the higher price will be accepted.
Dynamic (Personalized) Pricing
A technique that sets a range of several distinct merchandise price levels.
Price Lining Strategy
Financing granted by retailers to individuals who purchase for personal or family use.
Consumer Credit
Financing provided by suppliers to client companies.
Trade Credit
A line of credit that allows the customer to obtain a product or service at the time of purchase, with payment due when billed.
Open Charge Account
A line of credit that requires a down payment, with the balance paid over a specified period of time.
Installment Account
A line of credit on which the customer may charge purchases at any time, up to a pre-established limit.
Revolving Charge Account
Privately owned organizations that collect credit information on businesses.
Trade-Credit Agencies
Privately owned organizations that summarize a number of firms’ credit experiences with particular individuals.
Credit Bureaus
A categorization if accounts receivable based on the length of time they have been outstanding.
Aging Schedule
Bad debts divided by credit sales.
Bad Debt Ratio
Marketing communications that inform and persuade consumers.
Promotion
A blend of nonpersonal, personal, combined and special forms of communication aimed at a target market.
Promotional Mix
A face-to-face meeting with a customer.
Personal Selling
A systematic process of continually looking for new customers.
Prospecting
A strategy to sell by informing, persuading, and reminding customers of the availability of superiority of a firm’s products or services.
Advertising
A presentation designed to make potential customers aware of a specific product or service and create a desire for it.
Product Advertising
A presentation of information about a particular firm, designed to enhance to firm’s image in order to make its product advertising more credible and effective.
Institutional Advertising
An inclusive term for any promotional technique other than personal selling and advertising that stimulates the purchase of a particular product or service.
Sales Promotion
A promotional strategy that provides visibility for a business at little or no cost.
Publicity
The possibility of losses associated with the assets and earnings potential of a firm.
Business Risk
The uncertainty associated with an investment decision.
Market Risk
The uncertainty associated with a situation where only loss or no loss can occur.
Pure Risk
Land and anything physically attached to the land, such as buildings.
Real Property
Any property other than real property, including machinery, equipment, inventory, and vehicles.
Personal Property
The cost of replacing personal property and rebuilding real property at today’s prices.
Replacement Value of Property
An insurance term that refers to the depreciated value of property.
Actual Cash Value (ACV)
A cause of loss, either through natural events or through the actions of people.
Peril
A loss in which physical damage to property reduces its value to the property owner.
Direct Loss
A loss arising from an inability to carry on normal operations due to a direct loss of property.
Indirect Loss
Laws that obligate an employer to pay employees for injury or illness related to employment, regardless of fault.
Workers’ Compensation Legislation
A contractual clause that requires one party to assume the financial consequences of another party’s legal liabilities.
Indemnification Clause
Wrongful acts of omissions for which an injured party can take legal action against the wrongdoer for monetary damages.
Torts
The typical standard of care, based on what a reasonable or prudent person would have done under similar circumstances.
Reasonable (Prudent Person) Standard
Economic or noneconomic damages intended to make the claimant whole by compensating the claimant for the injuries of loss arising from the negligent action.
Compensatory Damages
Compensatory damages that relate to economic loss, such as medical expenses and loss of income.
Economic Damages
Compensatory damages for such losses as pain and suffering, mental anguish, and loss of physical abilities.
Noneconomic Damages
A form of punishment beyond compensatory damages that intends to punish wrongdoers for gross negligence or callous disregard and to have deterrent effect.
Punitive Damages
A negligent act that is the clear cause of damages sustained.
Proximate Cause
A defect resulting from a problem that occurs during the manufacturing process, causing the product to subsequently not be made according to specification.
Manufacturing Defect
A defect resulting from a dangerous design, even though the product was made according to specifications.
Design Defect
A defect resulting from failure to convey to the user that hazards are associated with a product or to provide adequate instructions on safe product use.
Marketing Defect
Risks that directly affect individual employees but may have an indirect impact on a business as well.
Personnel Risks
Ways of coping with risk that are designed to preserve the assets and earning power of a firm.
Risk Management
Minimizing potential losses by preventing, avoiding, and/or reducing risk.
Risk Control
Keeping loss form happening.
Loss Prevention
Choosing not to engage in hazardous activities.
Loss Avoidance
Lessening the frequency, severity, or unpredictability of potential losses.
Loss Reduction
Making funds available to cover losses that cannot be eliminated by risk control.
Risk Financing
Buying insurance or making contractual arrangements that transfer risk to others.
Risk Transfer
Financing loss intentionally, through a firm’s cash flows.
Risk Retention
Coverage that designates part of a firm’s earnings as a cushion against possible future losses.
Self-Insurance
Program that designate part of a firm’s earnings to fund a portion of employee medical coverage.
Partially Self-Funded Program
A firm’s per employee limit on self-funding for medical claims.
Specific Stop Loss Limit
A comprehensive limit on annual expenses should a number of employees reach the specific stop loss limit.
Aggregate Stop Loss Limit
Identifying the specific perils covered in a property insurance policy.
Named-Peril Approach
Stating in a property insurance policy that all direct damages are covered except those caused by perils specifically excluded.
All-Risk Approach
A provision in a property insurance policy that requires the owner to have insurance for at least 80 percent of what it would cost to rebuild the building or replace the personal property.
Coinsurance Clause
Coverage that reimburses a business for the loss of anticipated income following the interruption of business operations.
Business Interruption Insurance
Coverage for general liability loss exposure, including premises liability, operations liability, product liability, completed operations liability, and personal and advertising injury liability.
Commercial General Liability (CGL) Insurance
Coverage designed to provide liability and physical damage protection for a vehicle.
Automobile Insurance
Coverage that provides benefits to employees injured at work.
Workers’ Compensation Insurance
Coverage primarily against employee dishonesty.
Crime Insurance
A business version of a homeowner’s policy, designed to meet the property and general liability insurance needs of some small business owners.
Business Owner’s Policy (BOP)
A policy for small businesses that do not qualify for BOP that combines property insurance, commercial general liability insurance, business interruption insurance, and crime insurance.
Package Policy
Coverage for medical care at hospitals, doctors’ offices, and rehabilitation facilities, that usually includes outpatient services and prescription drugs.
Health Insurance
A managed-care network providing health insurance that is less expensive than that of a PPO but more limiting in choice of medical care providers.
Health Maintenance Organizations (HMO)
A managed-care network providing health insurance that is more expensive than that of an HMO but offers a broader choice of medical providers.
Preferred Provider Organizations (PPO)
Coverage that provides benefits to a firm upon death of key personnel.
Key-Person Life Insurance
Coverage that provides benefits upon the disability of a firm’s partner or other key employees.
Disability Insurance
A search firm that identifies qualified candidates for executive positions.
Headhunters
The extent to which a test assesses true job performance ability.
Validity
The consistency of a test in measuring job performance ability.
Reliability
Financial incentive based on number of units produced.
Piecework
Legislation prohibiting discrimination based on race, color, religion, sex, or national origin.
- employers of 15 or more people
Civil Rights Act
Legislation that regulates the safety of workplaces and work practices.
Occupational Safety and Health Act
Federal law that establishes a minimum wage and provides for overtime pay.
- No less than time and a half for working over 40 hours a week.
Fair Labor Standards Act (FLSA)
Legislation that assures employees of unpaid leave for childbirth or other family needs.
- Firms of 50 or more employees as much as 12 weeks unpaid leave, employed for at least 12 months and worked at least 1,250 hours over those 12 months
- Must continue healthcare coverage
Family and Medical Leave Act
