Glossary

401(k) plan:

A tax-deferred investment and savings plan that acts as a personal pension fund for employees. (The name refers to the relevant section in the tax code.) This plan lets you defer taxes on a portion of your salary until you retire. Taxes on investment gains are deferred until you withdraw money from the plan. You can begin withdrawing from a tax-deferred investment account without penalty at age 59-1/2. Unlike pensions, 401(k) accounts are portable in that you can "roll over" the account—take it with you—and continue building it at your next place of employment with no penalty.

A

account:

A device for representing the amount for any line in the balance sheet or income statement. An account is any device for accumulating additions and subtractions relating to a single asset, liability, or owner's equity item, including revenues and expenses.

acquisition:

Gaining control of a corporation by stock purchase or exchange, either hostile or friendly. See corporate takeover or hostile takeover.

advertising:

Description or presentation of a product, idea, or organization, in order to induce individuals to buy, support, or approve of it.

advertising, online:

Driving traffic to Web sites, brand building, and brand sponsorship, often through banner ads.

affiliates:

A company in which another company has a minority interest. Or more generally, a company that is related to another company in some way.

alliance:

The joining together of two or more companies for the purpose of developing a unique product or service utilizing a combination of the companies' expertise. The alliance exists only for the purpose of the unique product or service, and the individual companies retain the rights to their own products. Similar to a joint venture.

amortization:

The gradual elimination of a liability, such as a mortgage, in regular payments over a specified period of time. Such payments must be sufficient to cover both principal and interest.

annual bonus:

A premium amount paid over normal annual wages or salary, usually paid for meritorious performance over the course of one year.

annual percentage rate (APR):

An interest rate reflecting the cost of a mortgage as a yearly rate. The rate is generally higher than the advertised rate on the mortgage because it takes into account credit costs.

annual report:

A yearly record of a publicly held company's financial condition that includes a description of the firm's operations, its balance sheet, and income statement.

antitrust:

The federal laws forbidding businesses from monopolizing a market or restraining free trade.

asset:

Any item of economic value owned by an individual or corporation, especially that which could be converted to cash. Opposite of liability.

audit:

Systematic inspection of accounting records involving analyses, tests, and confirmations.

B

bankruptcy:

Occurs when a company's liabilities exceed its assets and the firm or one of its creditors has filed a legal petition that the bankruptcy court has accepted under the bankruptcy law. See chapter 11.

banner ads:

Ads appearing on Web sites to build brand awareness, sell something, and drive traffic to other Internet sites.

base salary:

Compensation earned by managers, administrators, and professionals in a firm for a one-year period; excludes any other bonus payments or stock options.

bear market:

A prolonged period of falling prices, usually by 20 percent or more, accompanied by widespread pessimism. Opposite of bull market.

board of directors:

Individuals elected by a corporation's shareholders to oversee the management of the corporation.

boycott:

The refusal of an individual or organized group to purchase products or services from a company because of a conflict in beliefs or values.

brand:

Identifying symbols, words, or marks that distinguish a product or company from its competitors. See logo.

budget:

An itemized forecast of a company's income and expenses expected for some period in the future.

bull market:

A prolonged period of rising prices, usually by 20 percent or more. Opposite of bear market.

business-to-business e-commerce:

Commerce conducted through industry-sponsored marketplaces and private exchanges set up by large companies for suppliers and customers.

business-to-consumer e-commerce:

Commerce conducted by strictly online retailers, traditional retailers with an online presence, or portals where goods and services from several retailers are offered to consumers.

buyout:

The purchase of controlling interest in one corporation by another corporation in order to take over assets and/or operations.

C

capital:

Cash or goods used to generate income. Also, the net worth of a business, i.e. the amount by which its assets exceed its liabilities.

cash flow:

A measure of a company's financial health. Equals cash receipts minus cash payments over a given period of time, or equivalently, net profit plus amounts charged off for depreciation, depletion, and amortization.

chairman:

The highest-ranking officer in a corporation's board of directors. Presides over corporate meetings. Sometimes, but not necessarily, has executive authority over a firm.

chapter 11:

The part of the U.S. Bankruptcy Code describing how a company or creditor can file for court protection. In the case of a corporation, reorganization occurs under the existing management. See bankruptcy.

charge against earnings:

To treat as a loss or expense an amount originally recorded as an asset. Use of this term implies that the charge is not in accord with original expectations.

chief executive officer (CEO):

The leading executive officer of a corporation charged with the principal responsibility of the organization and accountable only to the owners, directors, and/or stockholders.

chief financial officer (CFO):

The primary executive officer responsible for the financial management of a corporation.

chief operating officer (COO):

Person who has full operational responsibilities for the day-to-day activities of an organization.

class-action lawsuit:

A lawsuit brought by one party on behalf of a group of individuals all having the same grievance.

commodity:

A physical substance, such as food, grains, or metals that are interchangeable with other products of the same type and that investors buy or sell.

common stock:

Securities representing equity ownership in a corporation, providing voting rights and entitling the holder to a share of the company's success through dividends and/or capital appreciation. In the event of liquidation, common stock holders have rights to a company's assets only after bondholders, other debt holders, and preferred stock holders have been satisfied.

compensation:

The total monetary value an employee receives.

competition:

When two or more companies with similar products and/or services try to secure the business of consumers by offering the best terms, such as price.

consumer:

The ultimate user of a product or service.

cooperative:

A type of common property ownership, such as when the residents of a multi-unit housing complex own shares in the corporation that owns the property, rather than owning their own units.

core market:

A group of consumers that represent the majority of a company's marketing efforts and sales revenues. Also, the part of a market that is the company's primary business focus.

corporate credit ratings:

A grade assigned to a company that an investor utilizes to determine the attractiveness of its stock.

corporate culture:

Refers to the shared values, attitudes, standards, codes, and behaviors that characterize members of an organization and define its nature as a socioeconomic unit.

corporate takeover:

A takeover that is supported by the management of the target company. See acquisition or hostile takeover.

corporation:

The most common form of a business organization, and one that is chartered by a state and given many legal rights as an entity separate from its owners. Characterized by the limited liability of its owners, the issuance of shares of easily transferable stock, and existence as a going concern.

currency:

Any form of money that is in public circulation.

D

demand:

The desire and ability by individuals to purchase economic goods or services at the market price; along with supply, one of the two key determinants of price. See supply.

demographics:

Socioeconomic groups characterized by age, income, gender, education, occupation, etc., that comprise a market niche.

depreciation:

The allocation of the cost of an asset over a period of time for accounting and tax purposes. Also, a decline in the value of a property due to general wear and tear or obsolescence.

depression:

A period when business activity drops significantly. High unemployment rates and deflation often accompany a depression.

deregulation:

The removal of government controls from an industry or sector to allow for a free and efficient marketplace.

direct sales:

The selling of a company's products directly to the customer without relying on wholesalers or retailers.

discrimination:

Applying special treatment (generally unfavorable) to an individual solely on the basis of the person's ethnicity, age, religion, or sex.

dissolved:

The end of the legal existence of a corporation by shareholder vote, acquisition, or order of a state attorney general.

distribution:

The payment of a dividend or capital gain. Also, a company's allocation of income and expenses among its various accounts.

diversification:

A portfolio strategy designed to reduce exposure to risk by combining a variety of investments such as stocks, bonds, and real estate, which are unlikely to all move in the same direction.

diversity:

Refers to the way in which people differ from one another such as those that involve cultural or identity groups based on ethnicity, national origin, race, and religion.

divest:

To sell off.

divestiture:

Disposition or sale of an asset by a company.

dividend:

Earnings and profits of a corporation appropriated for distribution among shareholders, usually paid quarterly.

division:

A more or less self-contained business unit that is part of a larger family of business units under common control.

domain name:

Identifies an Internal Protocol(IP) address, or series of addresses, on the Internet. Each site on the Internet is assigned a series of 11 or 12 numbers, known as an IP address. Addresses are translated via a Domain Name System (DNS) server into domain names, which simply are the names assigned to the numbers.

domestic rights:

The entitlement of a company to the products/services it sells within its own country; a company does not necessarily have the rights to its products worldwide due to competition from existing businesses in other regions. See foreign rights.

dot-com:

A colloquial term born of the suffix appended to Uniform Resource Locators (URLs), as in www.companyname.com; it can also be used to refer to Internet-based businesses.

Dow Jones Industrial Average

A collection of 30 stocks that trade on the New York Stock Exchange, it is a gauge of how shares in the largest U.S. companies are performing.

downsizing:

Reducing the total number of employees at a company through terminations or retirements.

E

earnings:

Revenues minus cost of sales, operating expenses, and taxes over a given period of time. Often the single most important determinant of a stock's price. Also called income.

earnings per share (EPS):

Total earnings divided by the number of shares outstanding.

e-business service provider:

A company that helps other companies use e-business technologies to improve operations, such as the design of a Web site.

e-mail:

Electronic messages sent over a network.

emerging market:

A market to which a previously untapped potential for U.S. exports or investment might be anticipated.

employees:

Person or persons hired to work for a business.

endorsement:

A signature used to legally transfer a negotiable instrument.

enterprise:

A business or venture.

entrepreneur:

An individual who starts his/her own business.

equal opportunity:

Refers to the equality of access to jobs, promotions, and other opportunities in corporations, associations, and nonprofit organizations.

e-tailing:

Electronic retailing, or the practice of selling goods and services over an electronic medium like the Internet.

export:

To ship a product outside a country or region. Opposite of import.

F

fiscal year:

An accounting period of 365 days (366 in leap years), but not necessarily starting on January 1.

foreign rights:

The entitlement of a company to the products/services it sells in other countries and regions of the world, usually including rights within its own country. Often times, foreign rights are separate from domestic rights. See domestic rights.

franchising:

A form of business organization in which a firm that already has a successful product or service (the franchisor) enters into a continuing contractual relationship with other businesses (franchisees) operating under the franchisor's trade name and usually with the franchisor's guidance in exchange for a fee.

G

glass ceiling:

An imaginary barrier to career advancement. Reference implies that an employee can see to the top through a glass ceiling but cannot penetrate the barrier due to some type of discrimination. Usually applies to women and minorities.

grant:

Funding for a non-profit organization, usually for a specific project.

gross profit margin:

The amount of revenues from sales after deducting cost of goods sold that is available for operating expenses.

H

holding company:

A company that owns enough voting stock in another firm to control management and operations by influencing or electing its board of directors.

holdings:

The stock and/or assets owned by a holding company that represents ownership or controlling interest of another company.

hostile takeover:

A takeover that goes against the wishes of the target company's management and board of directors. See corporate takeover or acquisition.

I

import:

To have a product shipped into a country or region. Opposite of export.

income:

For corporations, same as earnings. For individuals, money earned through employment and investments.

incorporate:

The process by which a business receives a state charter allowing it to become a corporation.

information technology:

The processing and management of data in computer systems, including hardware and software.

initial public offering (IPO):

A company's first sale of stock to the public. Securities offered in an IPO are often, but not always, those of young, small companies seeking outside equity capital and a public market for their stock. Investors purchasing stock in IPOs generally must be prepared to accept very large risks for the possibility of large gains.

international market:

When products and services are directed toward consumers in more than one country.

Internet:

An online network linking millions of computers throughout the world for things like research, communication, and commerce transactions.

internship:

A temporary job assignment taken by a student with a company in a relevant field to their studies. Traditionally, the assignment is not compensated with wages but with college credit or is done for experience only.

inventory:

A company's merchandise, raw materials, and finished and unfinished products that have not yet been sold.

investment:

An item of value purchased for income or capital appreciation.

investor:

One who makes investments.

J

joint ownership:

Situation in which two or more people share ownership of property, securities, or rights.

joint venture:

An agreement between firms to work together on a project for mutual benefit. Similar to an alliance.

junk bond:

A bond from a company with a questionable credit rating. Junk bonds give investors higher yields than bonds from financially stable companies.

L

labor:

Work of any type; includes organized laborers, such as a union, working for the management of a corporation. See management.

layoff:

The elimination of jobs, often without regard to employee performance, usually when a company is experiencing financial difficulties.

leveraged buy-out:

A transaction used to take a public company private, usually financed through bank loans, bonds, and other debt funds. Investors can participate through either the purchase of the debt (participation in the bank loan or purchasing the bond) or the purchase of equity.

liability:

Financial obligation, debt, claim, or potential loss. Opposite of an asset.

licensing:

The granting of permission to use intellectual property rights, such as brand or trade names or characters, under defined conditions. Once the rights are granted, it is referred to as a licensing agreement.

liquidation:

To convert to cash. Also, to sell all of a company's assets, pay outstanding debts, and distribute the remainder to shareholders and then go out of business.

logo:

A company emblem or device. See brand.

M

majority interest:

Ownership of more than 50 percent of a company's voting stock; or a significant fraction, even less than 50 percent, if the remaining ownership is sufficiently spread out.

managed assets:

A collection of stocks, bonds, and/or mutual funds owned by an individual or company, but controlled by a professional financial planner for the purpose of financial gain.

management:

The collective body of those who plan, organize, staff, lead, and control any enterprise or interest.

manufacture:

The organized action of making of goods and services for sale.

market:

The number of potential customers that have in common one or more easily identifiable characteristic that affect their wants.

market analysis:

Research to predict what a market will do.

market capitalization:

The total dollar value of all outstanding shares within a corporation.

market share:

The percentage of sales a company captures for a particular product line and in a specific market niche.

market value:

A stock's last reported sale price.

marketing:

A process that brings ideas, goods, or services to the market through planning, pricing, coordinating, promoting, selling, and distribution.

marketing strategy:

The specific philosophy and marketing techniques employed to maximize impact on a market niche.

merchandising:

The purchasing, distribution, and reselling of goods at the retail level.

merger:

The combining of two or more corporations, either through a pooling of interests, where the accounts are combined; a purchase, where the amount paid over and above the acquired company's book value is carried on the books of the purchaser as good will; or a consolidation, where a new company is formed to acquire the net assets of the combining companies.

merit pay:

A form of compensation paid to an employee, above their normal wages, in recognition of an outstanding performance.

mission statement:

The definitive scope of the overall business and its objectives in a concise narrative format.

monopoly:

A situation where at least one-third of a local or national market is controlled by a single company or group of people.

mutual fund:

An investment trust in which investors may contribute funds in exchange for a position in the trust. The total of these contributed funds are, in turn, invested in various securities, such as stocks, bonds, guaranteed investment contracts, Treasury bills, and other vehicles.

N

North American Free Trade Agreement (NAFTA):

An agreement between Canada, Mexico, and the United States that resolves to increase the development and expansion of world trade with the goal of creating an expanded and secure market for the goods and services produced in their territories.

net earnings:

Gross sales minus taxes, interest, depreciation, and other expenses.

net income:

Gross income less all operating expenses, taxes, and losses, except interest and financial charges on borrowed capital.

net loss:

The amount by which total expenses exceed total revenues for a given period of time.

net revenues:

Gross revenues less all costs of doing business and income taxes.

net sales:

A firm's gross sales minus returns and allowances, freight, and cash discounts allowed.

network:

An extended group of people with similar interests or concerns who interact and remain in informal contact for mutual assistance or support.

non-profit:

An incorporated organization that works for educational or charitable purposes, and its shareholders and trustees do not benefit financially.

O

operating expenses:

Costs associated with sales and administrative functions as distinct from those associated with production.

operating income:

The amount of revenue remaining after the cost of goods sold and selling, general, and administrative costs have been subtracted from sales revenue.

operating margin:

Operating income divided by revenues.

operating profit:

Income before deductions minus expenses.

operating subsidiary:

A company for which a majority of the voting stock is owned by a holding company.

operating units:

Working or functioning divisions within a corporation.

overhead:

The ongoing administrative expenses (rent, insurance, and maintenance) of a business, also called burden.

over-the-counter market:

A decentralized market where dealers are linked through computers and phone lines. The market is for companies not listed on any stock exchange.

P

parent company:

A company that owns the majority stock and fully controls another company.

partnership:

A relationship of two or more individuals for the express purpose of conducting a business enterprise on a for-profit basis.

patent:

A title by which the government grants the exclusive right to make use of an invention for a fixed time period. In America, a patent takes about 18 months to secure.

patent infringement:

Violation of another's exclusive rights to the production or sale of a product.

payroll:

The financial record of employees' salaries, wages, bonuses, net pay, and deductions for a given accounting period.

pension plan:

A fund that is established for the payment of retirement benefits.

preferred stock:

A security that shows ownership in a corporation and gives the shareholder a claim, before the claim by common stock holders, on earnings and usually on assets in the case of liquidation. Most preferred stock does not carry voting rights and pays a fixed dividend.

president:

The highest ranking officer in a corporation after the chairman of the board, unless the title chief executive officer is used, in which case the president can outrank the chairman. The president is appointed by the board of directors and usually reports directly to the board.

price/earnings (P/E):

Shows the "multiple" of earnings at which a stock sells. Determined by dividing current price by current earnings per share. Earnings per share for the P/E ratio is determined by dividing earnings for the past 12 months by the number of common shares outstanding.

private label:

A retail establishment's proprietary brand of product.

privately held company:

A company whose shares are not traded on the open market.

proceeds:

Money resulting from the sale of goods or services.

product line:

A set of related products sold by a single company.

production cost:

Expenses incurred by production. Includes both fixed and variable costs of production.

profit:

Money earned in excess of the cost of producing and selling goods.

profit margin:

Indicator of profitability, determined by dividing net income by revenue for the same 12-month period. Result is shown as a percentage.

profit sharing:

An arrangement in which an employer shares its profits with its employees. The compensation can be stocks, bonds, or cash, and can be immediate or deferred until retirement.

publicly owned company:

A company with securities issued through an initial public offering (IPO), which are traded on the open market.

R

recession:

A downturn in a country's economy, as measured by a decline in gross national product for two consecutive quarters.

reorganize:

To change a company's operations and procedures in an effort to improve business and efficiency.

restructuring:

To reorganize a company's operations and debts to stay in business.

retail:

The business of selling products and services to the public as the ultimate consumer.

revenues:

The total sum of money that returns from the sale of goods or services.

rights:

A privilege given to stockholders to subscribe to a new issue of securities, generally below market price.

royalties:

A duty paid by a manufacturer to the owner of a patent or a copyright at a certain rate for each article manufactured.

S

sales:

Income received in exchange for goods and services recorded for a given accounting period.

securities:

Stocks and bonds.

shareholder:

Someone who holds shares of stock in a corporation.

shares:

Certificates representing units of ownership in a corporation, mutual fund, or limited partnership.

short-term debt:

A loan repayable within 2 to 3 months.

slogan:

A phrase or saying that attempts to define the main benefit or cause of an organization or its products.

spin-off:

The act of creating an independent company from an existing part of the company by selling new shares of the spin-off.

spokesperson:

An advocate who represents an organization and its purpose.

stock:

An instrument that signifies an ownership position, or equity, in a corporation and represents a claim on its proportionate share in the corporation's assets and profits.

stock options:

The right given to a buyer to purchase or sell stock at a fixed price on or before a given date.

stockholder:

Someone who holds shares of stock in a corporation.

sub-franchise:

An organization in which a firm with a successful product or service (the franchisor) enters into a continuing contractual relationship with another business (franchisees), that in turn enters into a contractual relationship with another business (subfranchisee). Both the franchisee and sub-franchisee operate under the franchisor's trade name and guidance in exchange for a fee.

subsidiary:

A company that is completely controlled by another company.

subsidies:

A grant from the government to a private company to assist the establishment or support of an enterprise deemed advantageous to the public.

supply:

The total amount of a good or service available for purchase; along with demand, it is one of the two key determinants of price. See demand.

sweatshop:

A shop or factory where employees work long hours for poor pay.

T

targeted marketing:

The specific market niche a product or service is directed towards. See marketing.

tariff:

A tax imposed on a commodity when it is imported into a country.

test marketing:

The launching of a new product in a limited area and in such a manner designed to limit risk. See marketing.

trademark:

A symbol, logo, or design that legally identifies a business or its product. See logo.

trading volume:

The number of shares, bonds, or contracts that change hands during a specified period of time.

U

union:

An organization of employees formed to bargain with the employer.

universal product code (UPC):

Refers to a machine-scannable bar code used to identify products, inventory, and many other purposes.

URLs:

Uniform Resource Locators, or strings of letters, numbers, and special characters that constitute the addresses of documents, files, electronic mailboxes, images, and other resources in cyberspace.

U.S. Securities and Exchange Commission:

Responsible for administering federal securities laws written to provide protection for investors.

V

venture:

An entrepreneurial activity in which capital is exposed to the risk of loss for the possibility of reaping a profit reward.

vice president:

A corporate officer, subordinate to the president, often having responsibility over a functional department.

W

wholesale trade:

The purchase of goods or services in bulk by businesses or persons who may add something to those goods or services, or use them in production, and then sell them to others, rather than to the ultimate consumers.

World Wide Web:

One of several utilities, including e-mail, File Transfer Protocol (FTP), Internet Relay Chat (IRC), Telnet, and Usenet, that form the Internet; often just referred to as the Web.