This Business terms page will help you manage and understand common business vocabulary across the business domain, providing an authoritative source for all business operations, including its Database Systems.
This vocabulary enhances crystal clear meaning of terms in business context and can be linked to the underlying technical metadata to provide a direct association between business terms and objects.
Business Terms Glossary A – Z
Companies must provide an annual set of accounts. Those listed on the stock exchange must produce information on their profits six months into the financial year.
These are their half-year profits. In the US, the rule is every quarter.
Actively Managed Funds
Run by unit trusts, open-ended investment companies or investment trusts, these are portfolios of shares or bonds run by fund managers, who are (hopefully) expert at buying and selling shares to maximize performance.
They generally invest in a particular geographical area, have a defined strategy (eg income, growth or a mixture of both), or have a ‘theme’, for example, focusing on technology or smaller companies.
Charges are often in the 4% – 5.5% a year range, although these can be lower if you buy through a discount broker or fund supermarket without advice.
Actuaries are employed by insurance companies and pensions providers to calculate factors such as life expectancy, accident rates and likely payouts by using complex mathematical formulas.
When a company gets into financial trouble and is unable to pay its debts, an administrator or administrative receiver may be appointed.
The main goal of an administrator is to rescue the company as a going concern. If this isn’t possible, the administrator will try to get a better result for the creditors – by rescuing parts of the business – than would be possible if the company was wound up.
If this fails, the administrator will sell the company’s assets to make at least a partial payment to creditors.
Deals made between members after the official close of the market.
Many shares and bonds are now quoted on more than one stock market and after-hours dealing allows dealers to buy and sell outside the official hours of the market.
These transactions are treated as having been done at the start of the following business day.
The percentage of the money you pay into a pension scheme or life insurance policy that is actually invested.
The rest goes to the provider to cover charges. A lower allocation rate means less value for money.
Alternative Investment Market
The Alternative Investment Market (AIM) is a sub-market of the London Stock Exchange (LSE) that is designed to help smaller companies access capital from the public market.
AIM allows these companies to raise capital by listing on a public exchange with much greater regulatory flexibility compared to the main market.
Annual Bonus means any compensation, in addition to Base Annual Salary relating to services performed during any calendar year, whether or not paid in such calendar year or included on the Federal Income Tax Form.
Annual Equivalent Rate (AER)
The annual equivalent rate (AER) is the interest rate for a savings account or investment product that has more than one compounding period.
That is, it’s calculated under the assumption that any interest paid is included in the principal payments balance and the next interest payment will be based on the slightly higher account balance.
Overall, this means that interest can be compounded several times in a year depending on the number of times that interest payments are made.
Annual General Meeting (AGM)
An annual general meeting (AGM) is a mandatory yearly gathering of a company’s interested shareholders.
At an AGM, the directors of the company present an annual report containing information for shareholders about the company’s performance and strategy.
Shareholders with voting rights vote on current issues, such as appointments to the company’s board of directors, executive compensation, dividend payments, and the selection of auditors.
Annual Percentage Rate (APR)
An annual percentage rate (APR) is the annual rate charged for borrowing or earned through an investment.
APR is expressed as a percentage that represents the actual yearly cost of funds over the term of a loan.
This includes any fees or additional costs associated with the transaction but does not take compounding into account.
As loans or credit agreements can vary in terms of interest-rate structure, transaction fees, late penalties and other factors, a standardized computation such as the APR provides borrowers with a bottom-line number they can easily compare to rates charged by other lenders.
An annuity is a financial product that pays out a fixed stream of payments to an individual. These financial products are primarily used as an income stream for retirees.
Annuities are created and sold by financial institutions, which accept and invest funds from individuals. Upon annuitization, the holding institution will issue a stream of payments at a later point in time.
The period of time when an annuity is being funded and before payouts begin is referred to as the accumulation phase. Once payments commence, the contract is in the annuitization phase.
Arbitrage is basically buying a security in one market and simultaneously selling it in another market at a higher price, profiting from the temporary difference in prices.
This is considered a risk-free profit for the investor/trader. In the context of the stock market, traders often try to exploit arbitrage opportunities.
It involves taking advantage of the difference in the price of a share or currency, usually in two different markets.
Asset stripping is the taking over a company with the aim of selling off its assets, such as property, to make a profit, rather than developing the business.
The individual assets of the company, such as its equipment, real estate, brands or intellectual property, may be more valuable than the company as a whole due to such factors as poor management or poor economic conditions.
The result of asset stripping is often a dividend payment for investors and either a less-viable company or bankruptcy.
Auditors are accountants who must certify that the company accounts prepared and signed by the board of directors, and are a ‘true and fair view’ of the company’s financial position.
Average (Arithmetic Mean)
The arithmetic mean, commonly called the average, is found by adding all the individual numbers concerned and dividing by how many numbers there were.
For example, the average of N15, N25, N60 and N100 is N50 (N15+N25+N60+N100=N200; divided by 4 is N50).
Average Earnings Growth
An economic indicator of future inflation, because higher earnings cause price rises if they are not matched by increases in productivity.
Here are more business terms:
Balance of Payments
The balance of payments accounts record all flows of money in and out of a country. These flows might result from exports (an inflow or credit) or from imports (an outflow or debit).
All flows of money are added together and grouped according to their type.
The overall account is then called the balance of payments – principally because the total of outflows must equal the total of inflows.
Balance sheet is a summary of the financial value of a company, usually published at the end of its financial year.
It is a statement of account that presents summary of assets and liabilities of a business in a well arranged form, so that the financial position of the business is clearly ascertained.
Bank of England
The UK’s central bank, the Bank of England was originally founded in 1694 by a group of private bankers to raise money for the crown.
In 1997, the chancellor, Gordon Brown, relinquished the power to set interest rates, transferring it to the Bank.
The Treasury now sets the inflation targets and the Bank’s monetary policy committee sets interest rates to try to meet them.
Bank of England’s Inflation Report
This gives detailed economic analysis and inflation projections on which the Bank of England’s monetary policy committee bases its interest rate decisions, and presents an assessment of the prospects for UK inflation over the next two years.
Bankers’s draft is a cheque drawn from a bank or building society against real cash. It is generally used for large purchases such as cars or homes.
Bankers’ drafts are considered a safe way of obtaining money from someone you don’t know.
A bear market is a stock market in which share prices fall precipitously, typically 15%-20%. Some bear markets are short – bad news creates a panic and stocks are sold off suddenly.
But when investors realize that the world is not coming to an end, markets bounce back. The bear markets of 1987 and 1998 fit into this category.
The prolonged bear market of 2000-2002, following the bursting of the hi-tech bubble, was the worst since the 1929-1932 crash when overvalued stocks, economic crises in Europe, banking crises in the US, reductions in international trade and a lack of confidence led to three years of massive declines.
Bid – offer spread is used to describe the buying price (offer) and selling price (bid) of shares, currency, bonds or other financial instruments. The difference between the two prices is the spread.
The bid and offer price are made by the market maker. If an investor wants to buy shares, they will “hit” the market on the offer side.
The spread is where the market maker earns profit.
This is most clearly seen when buying foreign currency at a bank. If a bureau de change buys and sells all day long (and the exchange rates do not change) they will make money on the spread. The smaller the spread, the better the deal is likely to be for the buyer.
This is an event that is extremely hard to predict. Generally associated with Nassim Nicholas Taleb’s book, The Black Swan.
Black swan events are typically random and unexpected, and some think the current financial crisis is a black swan.
Before the discovery of Australia, it was assumed that all swans were white because nobody had seen one of a different shade.
Markets tend to work on the basis that black swans either don’t exist or appear with such irregularity that they are not worth worrying about.
This is the appellation given to a company considered to be large, safe and prestigious.
Such companies are usually well-known, have a large market capitalization and a good track record of dividend payments.
The term comes from poker, where blue chips are traditionally the highest-valued chips in the game.
A bond is simply an IOU. It is an agreement under which a sum is borrowed from an investor at a stipulated rate of interest and repaid after an agreed period of time.
By purchasing a bond you are lending money to the institution issuing the bond. Such loans normally repay a fixed rate of interest (unlike equities) over a specified time and then repay the original sum in full after a fixed period when the bond matures.
Bonds are generally issued by either the government (gilt-edged bonds), or a public company (corporate bonds).
Gilt-edged or Treasury bonds usually pay out interest twice a year. The amount they pay can be calculated by multiplying the face value of the holding by the “coupon” (rate of interest) shown in the title of the gilt.
Investment grade bonds are considered to be at the lower end of the risk-scale because large, famous companies with good finances and most governments are unlikely to go bankrupt and default on the IOU.
Bonds are rated from the safest (AAA) to the riskiest (D), also known as ‘junk bonds’; ‘investment grade’ bonds are normally higher than BBB.
There are various types of loans but this is a type of loan that can be taken out by people moving house who need access to finance in order to cover them until they sell their home.
There are risks involved. If the borrowers fail to sell their house quickly, for example, they will have to carry on making mortgage payments as well as repaying the loan.
British Retail Consortium
The British Retail Consortium is the lead trade association for retailers. It produces a monthly indicator of price changes in retail outlets, called the Shop Price Index.
It takes into account 500 of the most commonly purchased goods.
The generic term used to describe an intermediary between two parties, generally a buyer and a seller.
Mortgage brokers, insurance brokers, Forex brokers and stock brokers are all covered by the term.
Some of these intermediaries may call themselves “agents” or “consultants” and may or may not be tied to offering deals from a limited pool of suppliers. They are obliged to tell you either way.
Budget is simply a formal statement of estimated income and expenses based on future plans and objectives.
In other words, a budget is a document that management makes to estimate the revenues and expenses for an upcoming period based on their goals for the business.
Policies that cover the cost if your property is damaged or destroyed by, for instance, flood or fire.
This should cover the cost of rebuilding the property, not its market value.
A market when prices roar ahead. After 1982, the US stock market for example, experienced the biggest bull market ever.
Shares increased in value over 14-fold – prompting former Fed chairman Alan Greenspan to utter his famous warning of “irrational exuberance” among investors – before they declined by almost 50% between 2000 and 2002.
The opposite situation is a bear market.
This is the tendency of economies to move through periods of boom and bust, with fluctuations in economic growth occurring every five years or so.
Governments are in a constant battle to even out the peaks and troughs – Gordon Brown prides himself on ending boom and bust – but none has ever completely solved the problem.
Economic expansions tend inexorably to create bubbles in share or house prices or both, which inevitably burst.
A buy-out occurs where a controlling proportion of a firm’s shares are purchased by a single party.
A term often heard is “management buy-out” which means the management buys company shares to become the owner of that company.
Another type of buy-out is where a company buys back shares in itself that it has previously sold off, thereby taking itself off the stock market and turning itself back into a private firm.
A mortgage designed specifically for landlords looking to buy a property to let to tenants.
You will usually need to find a substantial deposit, often around 20%, and guarantee that the rent on the property will more than cover mortgage repayments.
CAC 40 Index
France’s equivalent to the FTSE 100 but with only 40 companies.
The carry trade occurs when investors borrow money at low rates of interest in one currency and invest it at higher rates in another.
The most common carry trade of recent years has been in Yen.
With interest rates in Japan at virtually zero, speculators have been borrowing there to invest in the UK or the US, where rates are more like 5%.
There is a big risk, though, that the exchange rate moves against you. With the recent financial market turmoil, investors fled from risky investments and unwound many of their yen carry trades.
This caused the yen to surge by over 10% in less than a fortnight. In the past couple of days, though, the yen has fallen back again, possibly as calmer markets have encouraged a renewed bout of carry trading.
CBI Industrial Trends
This is a monthly CBI survey on conditions in the industrial sector.
The part of the balance of payments that records a nation’s incoming and outgoing investment flows, such as payments for parts of or entire companies (direct or portfolio investment), stocks, bonds, bank accounts, real estate and factories.
The balance of payments is influenced by many factors, including the financial and economic climate of other countries.
If you purchase 1,000 shares at £1 each and eventually sell them for £10 each, you have made a capital gain of £9,000.
This will be subject to capital gains tax at your income tax rate.
If the shares were bought before April 1998, this gain will be adjusted downwards to remove the effects of inflation.
Capital Gains Tax
This is the tax paid to the Inland Revenue when you make a capital gain, that is, a profit from selling an asset, which could be anything from shares to a painting or a holiday home
This is one of the various kinds of taxes in which everyone has an allowance before they become liable for capital gains tax and rates vary.
In general, you do not have to pay capital gains tax on your car, your main home, ISAs or personal belongings worth £6,000 or less.
You pay the tax at whatever your highest rate of income tax is. But reliefs and exemptions are available – so those who could be liable are best seeking expert advice.
Capital Ratios – Tier 1 and Tier 2
Capital ratios are a measure of a bank’s capital strength used by regulatory agencies.
Tier one (core) capital, the more important of the two, consists largely of shareholders’ equity.
This is the amount paid to originally purchase the shares of the bank and retained profits (minus losses). Put simply, if the original stockholders paid £100 to buy their stock and the bank has made £10 in profits each year since, paid out no dividends and made no losses, after 10 years the bank’s tier one capital would be £200.
National regulators now allow several other instruments other than common shares to count in tier one capital, which are commonly referred to as upper tier one capital.
Tier two capital is also known as supplementary capital. In the Basel I accord, it is categorized as undisclosed reserves, revaluation reserves, general provisions, hybrid instruments and subordinated term debt.
Collateralized Debt Obligations – toxic financial instruments at the heart of the credit crunch.
Banks embraced them as a way of shifting debt off their balance sheets, enabling them to lend more.
This is the banker to the government and the other banks in a country. It is the apex of all types of banks.
In the UK, it is the Bank of England. In the US, the Federal Reserve. In Nigeria, it is called the Central Bank of Nigeria CBN.
Chapter 11 Bankruptcy
Chapter 11 is a chapter of the US bankruptcy code that gives a company an opportunity to reorganize and emerge from bankruptcy.
Chapter 11 bankruptcy is a form of corporate financial reorganization in which a company’s assets gets sold off to pay creditors.
In some cases, Chapter 11 bankruptcy allows companies to continue to function. Creditors must vote to approve the reorganization plan.
If a plan cannot be agreed, the court can either convert the case to liquidation under Chapter 7 or, if this is in the interest of creditors, return the business to the status quo before bankruptcy.
Individuals may also be able to file for Chapter 11 bankruptcy.
Chartered Institute of Purchasing and Supply
The CIPS with RBS produces monthly Purchasing Managers’ Index (PMI) reports, which cover manufacturing, construction and the service sector.
The PMI surveys purchasing managers, whose job is to assess future demand, and so gives an indicator of the future of the each sector.
A high PMI indicates materials purchases are increasing and the outlook is positive.
A low PMI indicates orders for materials are down and the economic outlook is less favorable.
This is an analyst who forecast trends in stocks, indices and currencies by looking at patterns on charts of their historic performance.
Their work contradicts random walk theory.
This is a metaphor for the protocol that exists in financial institutions to insulate analysts from pressures from the deal-makers.
In theory, equity analysts are supposed to provide impartial information on the companies they analyze. But there is always subtle pressure on analysts to make favorable comments so firms do not take their mergers and acquisitions business to a rival investment bank.
The notion of impartial advice to investors took a huge knock in the Wall Street scandals of recent years. Some analysts privately rubbished the internet stocks they covered, but said the opposite in reports for public consumption.
City of London
This is London’s financial district. Sometimes called the Square Mile, it lies on the north bank of the river Thames between the Temple Bar memorial pillar and the base of Tower Hill.
The City Corporation is Britain’s oldest local government; it has the status of a county, with powers that exceed those of London’s 32 other boroughs, notably control of its own police force.
Lenders will often ask for collateral or security against a loan.
This could be any major asset, but typically a house may be used as collateral.
Homeowner loans advertised in the mainstream media use borrowers’ homes as a backup in case they fail with repayments.
Asset-backed commercial paper is a form of IOU that banks use in money markets to lend and borrow from each other. The paper is backed, in theory at least, by assets.
Few banks are willing to lend any more against these questionable assets and are reluctant to roll them over, preferring to have their cash back.
This commercial paper is usually not held on banks’ balance sheets, but if they can’t roll it over for cash from another bank they have to bring it onto the balance sheet and eventually count up the value of the dodgy assets behind them.
Most banks have been unable, as well as unwilling, to state how much the write-down of those asset values will cost them, and how much of a black hole is in their balance sheet.
A commodity is any homogeneous item which may be freely bought and sold.
The term typically refers to products such as coffee, cocoa and soya beans (soft commodities) or gold, aluminum and platinum (hard commodities).
Commodities typically are bought and sold in futures markets where producers combine with manufacturers and speculators to create a smoothly functioning market.
This is a body which decides whether a monopoly, or a potential monopoly, is in the public interest.
The OFT can refer takeovers to the Competition Commission, which may find against a proposed deal on the grounds that it would harm competition in the UK.
Commission investigations often take around six months and the delay can be enough to put off the bidder.
Consumer Prices Index (CPI)
This is a key measure of UK inflation which is used to assess the government’s inflation target and which the Bank of England’s monetary policy committee works to achieve.
The CPI tracks changes in the prices of a basket of goods and services that a typical household might buy.
Core CPI excludes the prices of volatile items such as energy and food. The British government prefers to use the CPI to measure inflation rather than the RPI.
The Nationwide produces a consumer confidence index at the start of every month in the run up to the Bank of England’s interest rate decision.
Rising confidence can mean consumer spending will rise, driving economic growth and inflation, interest rates special report.
Corporate raiders specialize in launching hostile takeovers of companies with undervalued assets.
Corporation tax is paid by companies on their profits.
Cost-push inflation occurs when production input costs – wages, raw materials – rise. Producers pass the cost on to consumers through price rises.
Council tax is set and collected by local government to help pay for local services like policing and refuse collection.
It is paid for houses, bungalows, flats, maisonettes, mobile homes or houseboats, whether owned or rented.
The amount you pay depends on what valuation band your property falls into.
In the financial crisis that struck in August 2007, banks found it increasingly hard to raise funding in the wholesale money markets.
Banks were reluctant to lend to each other not knowing how safe their money would be. Practically all banks had to write off billions of dollars in bad debts as a direct consequence of the sub-prime crisis in the US, but uncertainty over future possible losses froze up inter-bank lending.
Up until the start of the credit crunch, financial institutions were able to borrow money at rates only slightly higher than the official interest rates set by central banks, but the process became far more expensive after mid-2007, reflecting the sense of heightened risk.
Central banks have pumped billions of dollars into the financial system in a bid to make it easier for banks to raise cash.
Credit Default Swaps
Credit default swaps are derivative contracts. They were invented in the late 1990s and are a form of insurance on bonds issued by companies or countries that investors buy and sell.
If it looks like an issuer might have trouble paying, its CDS price rises because the bond is more risky and it will cost more to insure.
CDS contracts can be used by bond investors – as a hedge against potential defaults – or traded separately when they are called naked CDSs.
The current concern focuses on naked CDSs on sovereign debt.
More business Terms Coming..
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