Glossary

Term Definition
ABC Activity-based costing (ABC) aims to provide a dynamic and realistic means of calculating the true cost of doing business. It precisely allocates direct and indirect costs to particular products or customer segments.
ABS

An asset-backed security is a security whose value and income payments are derived from and collateralized (or “backed”) by a specified pool of underlying assets. The pool of assets is typically a group of small and illiquid assets that are unable to be sold individually. Pooling the assets into financial instruments allows them to be sold to general investors, a process called securitization, and allows the risk of investing in the underlying assets to be diversified because each security will represent a fraction of the total value of the diverse pool of underlying assets. The pools of underlying assets can include common payments from credit cards, auto loans, and mortgage loans, to esoteric cash flows from aircraft leases, royalty payments and movie revenues.

Often a separate institution, called a special purpose vehicle, is created to handle the securitization of asset backed securities. The special purpose vehicle, which creates and sells the securities, uses the proceeds of the sale to pay back the bank that created, or originated, the underlying assets. The special purpose vehicle is responsible for “bundling” the underlying assets into a specified pool that will fit the risk preferences and other needs of investors who might want to buy the securities, for managing credit risk—often by transferring it to an insurance company after paying a premium—and for distributing payments from the securities. As long as the credit risk of the underlying assets is transferred to another institution, the originating bank removes the value of the underlying assets from its balance sheet and receives cash in return as the asset backed securities are sold, a transaction which can improve its credit rating and reduce the amount of capital that it needs. In this case, a credit rating of the asset backed securities would be based only on the assets and liabilities of the special purpose vehicle, and this rating could be higher than if the originating bank issued the securities because the risk of the asset backed securities would no longer be associated with other risks that the originating bank might bear. A higher credit rating could allow the special purpose vehicle and, by extension, the originating institution to pay a lower interest rate (that is, charge a higher price) on the asset-backed securities than if the originating institution borrowed funds or issued bonds.

Thus, one incentive for banks to create securitized assets is to remove risky assets from their balance sheet by having another institution assume the credit risk, so that they (the banks) receive cash in return. This allows banks to invest more of their capital in new loans or other assets and possibly have a lower capital requirement.

A/P A/P is the monies the company owes for goods or services received, but not yet paid for.
A/R A/R is the monies due to the company for goods sold or services rendered for which payment has not yet been received.
Accounts Payable Accounts Payable (A/P) is the monies the company owes for goods or services received, but not yet paid for.
Accounts Receivable Accounts Receivable (A/R)is the monies due to the company for goods sold or services rendered for which payment has not yet been received.
Activity-Based Costing Activity-based costing (ABC) aims to provide a dynamic and realistic means of calculating the true cost of doing business. It precisely allocates direct and indirect costs to particular products or customer segments.
Assets Assets are all of a company”s physical or intellectual property that has financial value.
Asset Backed Securities See ABS above.
Balanced Scorecard The balanced scorecard is a strategic management and measurement system that links strategic objectives to a comprehensive range of key performance indicators, to provide a balanced view.
Balance Sheet A financial document showing the assets and liabilities of an organization.
Barriers to Entry Barriers to entry are those things that make it difficult for a new company to compete against companies already established in the field. Examples include such things as patents, trademarks, copyrighted technology, and a dominant brand.
Benchmarking Benchmarking is the process of gathering information about other companies in your industry to compare your performance against and to use to set goals.
Black-Scholes Equation The Black-Scholes equation is used to determine the value or price of a stock option. It is a comparatively simple formula, with only a few common variables, developed by Fisher Black and Myron Scholes in 1973. It makes some simplifying assumptions about free-market economics, but it has become an industry standard.
Bottom Line Bottom Line refers to the bottom line of an Income Statement. The bottom line shows the Net Income Available To Shareholders. When a company talks about increasing the bottom line, they mean doing things to either increase the revenue or decrease expenses so the company”s income increases.
Break-Even Point The break-even point is the point at which income matches expenditures. Typically, initial expenditures are high. It takes time for the income to reach the same level. The break-even point can apply to a product, an investment, or the entire company”s operations.
Burnout Burnout is the term given to the physical or psychological condition induced in workers by overwork or overexposure to stress in the workplace.
Capital Capital is the financial investment required to start and/or run a business.
Cash Flow Cash Flow is the movement of money into and out of a company. When more comes in than goes out, it is said to be a positive cash flow. A negative cash flow is when more goes out than comes in.
CGS CGS (Cost of Goods Sold) are the costs directly related to the purchase or production of whatever the company sells.
CIP CIP is the abbreviation for continuous improvement plan, a set of activities designed to bring gradual, but continual improvement to a process through constant review. The Shewhart cycle is among the best known.
Company Culture Company Culture is the term given to the shared values and practices of the employees. Note that the actual culture may not match the published culture.
Consultant A consultant (from Latin: consultare to discuss) is a professional who provides professional or expert advice in a particular area such as management, accountancy, the environment, entertainment, technology, law (tax law, in particular), human resources, marketing, emergency management, food production, medicine, finance, life management, economics, public affairs, communication, engineering, sound system design, graphic design, or waste management.

A consultant is usually an expert or a professional in a specific field and has a wide knowledge of the subject matter. A consultant usually works for a consultancy firm or is self-employed, and engages with multiple and changing clients. Thus, clients have access to deeper levels of expertise than would be feasible for them to retain in-house, and may purchase only as much service from the outside consultant as desired.

Continuous Improvement Plan A Continuous Improvement Plan is a set of activities designed to bring gradual, but continual improvement to a process through constant review. The Shewhart cycle is among the best known.
Cost of Goods Sold Cost of Goods Sold (CGS) are the costs directly related to the purchase or production of whatever the company sells.
Cost of Sales Cost of Sales are the costs directly related to the purchase or production of whatever the company sells.
Cross Training Cross training is training someone in another activity that is related to their current work. The name comes from the fact that you are training them across a broader spectrum of the organization”s work.
Currency Devaluation Devaluation is a reduction in the value of a currency with respect to those goods, services or other monetary units with which that currency can be exchanged.

In common modern usage, it specifically implies an official lowering of the value of a country’s currency within a fixed exchange rate system, by which the monetary authority formally sets a new fixed rate with respect to a foreign reference currency. In contrast, depreciation is used for the unofficial decrease in the exchange rate in a floating exchange rate system. The opposite of devaluation is called revaluation.

Depreciation and devaluation are sometimes incorrectly used interchangeably, but they always refer to values in terms of other currencies. Inflation, on the other hand, refers to the value of the currency in goods and services (related to its purchasing power). Altering the face value of a currency without reducing its exchange rate is a redenomination, not a devaluation or revaluation.

Deming Cycle The Deming Cycle is a set of activities (Plan, Do, Check, Act) designed to drive continuous improvement. Initially implemented in manufacturing, it has broad applicability in business. First developed by Walter Shewhart, it is more commonly called the Deming cycle in Japan where it was popularized by Edwards Deming.
Discounted Cash Flow Discounted cash flow is a sophisticated technique used by financial analysts. Despite its complexity, discounted cash flow analysis is based on a simple idea – that cash today is worth more than cash promised in the future.
EAP An EAP is an employee benefit that covers all or part of the cost for employees to receive counseling, referrals, and advice in dealing with stressful issues in their lives. These may include substance abuse, bereavement, marital problems, weight issues, or general wellness issues.

The services are usually provided by a third-party, rather than the company itself, and the company receives only summary statistical data from the service provider. Employee”s names and services received are kept confidential.

Earnings Statement An Earnings Statement is a standard financial document that summarizes a company”s revenue and expenses for a specific period of time, usually one quarter of a fiscal year and the entire fiscal year.
EBITDA EBITDA is an abbreviation for Earnings before Interest, Tax, Depreciation and Amortization. It reports what the company would have earned during the period if it did not have to pay interest on its debt; didn”t have to pay taxes; and had depreciated the full value of all assets at their acquisition. It is roughly equivalent to the Operating Income line in the Income Statements.
EI Emotional intelligence (EI) is one of the most important ideas to hit the business world in recent years. It is based on the notion that the ability of managers to understand their own emotions, and those of the people they work with, is the key to better business performance.
Emotional Intelligence Emotional intelligence (EI) is one of the most important ideas to hit the business world in recent years. It is based on the notion that the ability of managers to understand their own emotions, and those of the people they work with, is the key to better business performance.
Expenses Expenses are the costs of doing business that result from generating revenue. They include parts, salaries, utilities, etc.
FASB FASB is the abbreviation for the Financial Accounting Standards Board. It was created in 1973, replacing the Accounting Principles Board and the Committee on Accounting Procedure of the American Institute of Certified Public Accountants before it.

The FASB is a private body whose mission is to

Financial Accounting Standards Board The Financial Accounting Standards Board was created in 1973, replacing the Accounting Principles Board and the Committee on Accounting Procedure of the American Institute of Certified Public Accountants before it.

The FASB is a private body whose mission is to

Fiscal Year A twelve-month accounting period that usually, but not necessarily, starts on January 1.
Fixed Assets Fixed Assets are the non-liquid assets that are required for the company”s day-to-day operations. They include facilities, equipment, and real property.
Fixed Costs Fixed Costs are expenses that don”t change based on production or sales volumes. They include salaries, rent, insurance, etc.
FY FY is the abbreviation for fiscal year, a twelve-month accounting period that usually, but not necessarily, starts on January 1.
GAAP GAAP is the abbreviation for Generally Accepted Accounting Principles. It refers to a set of widely accepted accounting standards, set by the FASB, and used to standardize financial accounting of public companies.
Game Theory Game theory is based on the premise that no matter what the game, no matter what the circumstances, there is a strategy that will enable you to succeed.
Generally Accepted Accounting Principles Generally Accepted Accounting Principles refers to a set of widely accepted accounting standards, set by the FASB, and used to standardize financial accounting of public companies.
Goals Goals are objective, measurable expectations set to measure progress toward desired results.
Gross Profit Gross Profit equals sales revenue minus the cost of goods sold.
Gross Revenue Gross Revenue is money generated by all of a company”s operations, before deductions for expenses.
Hoshin Kanri Hoshin Kanri is a corporate-wide management approach that combines strategic management and operational management by linking the achievement of top management goals with daily management at an operational level. It is particularly associated with change management.
Income Statement An Income Statement is a standard financial document that summarizes a company”s revenue and expenses for a specific period of time, usually one quarter of a fiscal year and the entire fiscal year.
Insider A company insider is someone who has access to the important information about a company that affects its stock price or might influence investors decisions.

People who are not employees of the company may be company insiders. Auditors, outside counsel, brokers and analysts may fit the definition.

Insider Trading Illegal Insider Trading is the trading in a security (buying or selling a stock) based on material information that is not available to the general public.

It is prohibited by the US Securities and Exchange Commission (SEC) because it is unfair and would destroy the securities markets by destroying investor confidence.

Intellectual Property Intellectual Property (IP) is all of a company”s patents, trademarks, service marks, trade names, trade secrets, and copyrights. It is distinguished from capital property.
IP Intellectual Property (IP) is all of a company”s patents, trademarks, service marks, trade names, trade secrets, and copyrights. It is distinguished from capital property.
Job Enlargement Job Enlargement is the horizontal expansion of a job. It involves the addition of tasks at the same level of skill and responsibility. It is done to keep workers from getting bored. It is different than job enrichment.
Job Enrichment Job Enrichment is the addition to a job of tasks that increase the amount of employee control or responsibility. It is a vertical expansion of the job as opposed to the horizontal expansion of a job, which is called job enlargement.
Kaizen (Quality Circles) As much a social system as an industrial process, kaizen is at the heart of the quality philosophy, and involves the use of quality circles – or small teams of workers – to analyze and make suggestions for improving their own work tasks.
Key Performance Indicators Key Performance Indicators (KPI) are quantifiable measurements, agreed to beforehand, that reflect the critical success factors (of the company, department, project).
Key Success Indicators Key Success Indicators are quantifiable measurements, agreed to beforehand, that reflect the critical success factors (of the company, department, project).
KPI KPI are quantifiable measurements, agreed to beforehand, that reflect the critical success factors (of the company, department, project).
KSA KSA is Human Resources (HR) shorthand for Knowledge, Skills and Abilities. These attributes can be used to describe an individual, a position, or both.
KSI KSI are quantifiable measurements, agreed to beforehand, that reflect the critical success factors (of the company, department, project).
Liabilities Liabilities are all of a company”s financial obligations that have a negative value.
Long Term Assets Long Term Assets are the non-liquid assets that are required for the company”s day-to-day operations. They include facilities, equipment, and real property.
Management Consulting Management consulting indicates both the industry and practice of helping organizations improve their performance primarily through the analysis of existing business problems and development of plans for improvement.Organizations hire the services of management consultants for a number of reasons, including gaining external (and presumably objective) advice and access to the consultants’ specialized expertise.

Because of their exposure to and relationships with numerous organizations, consulting firms are also said to be aware of industry

Market Share A company”s market share is the percentage of any of its markets that it holds. Companies will often discount their products in order to saturate the marketplace with them and thereby gain a bigger market share.
Metrics Metrics are a set of measurements that quantify results. Performance metrics quantify the units performance. Project metrics tell you whether the project is meeting its goals. Business metrics define the business” progress in measurable terms.
NDA NDA is the abbreviation for non-disclosure agreement. An NDA is a legal contract that allows a company to share its IP with others, whose input it needs, without unduly jeopardizing that information.
Net Income Net Income is total revenue minus total expense, what”s left of the monies received after all debts have been paid, the bottom line. If Net Income is positive it is also called Net Profit. A negative Net Income is a Net Loss.
Non-disclosure Agreement A Non-disclosure Agreement is a legal contract that allows a company to share its intellectual property (IP) with others, whose input it needs, without unduly jeopardizing that information.
Objective A business objective is something the business is aiming toward or a strategic position it is working to attain. Usually it is a step in the strategy. Objectives are similar to goals, but often have success/failure rather than quantifiable metrics.
OD Organization Development (OD) is an evolving field of consulting practice that is dedicated to understanding and positively impacting the processes of human systems (formal and informal groups, teams, organizations, and individual leaders) in order to increase their effectiveness, health and overall success. OD practitioners leverage the best of a variety of disciplines, including applied behavioral science. OD focuses on achieving results through people.
Opportunities A company”s opportunities are the gains it has the potential to realize. It may have the potential to gain market share, the ability to raise cash by divesting of less-profitable units, etc. Opportunities are also part of a SWOT analysis, the abbreviation for strengths, weaknesses, opportunities, and threats.
Organization Development Organization Development (OD) is an evolving field of consulting practice that is dedicated to understanding and positively impacting the processes of human systems (formal and informal groups, teams, organizations, and individual leaders) in order to increase their effectiveness, health and overall success. OD practitioners leverage the best of a variety of disciplines, including applied behavioral science. OD focuses on achieving results through people.
Outsourcing Outsourcing involves an organization passing the provision of a service or the execution of a task previously undertaken in-house to a third party to perform on its behalf.
Paradigm A paradigm is a pattern or example. In business it is a framework of behaviors or set of rules action governing people”s actions and assumptions.
PDCA PDCA is a cycle of activities (Plan, Do, Check, Act) designed to drive continuous improvement. Initially implemented in manufacturing, it has broad applicability in business. First developed by Walter Shewhart, it was popularized by Edwards Deming.
Plan Do Check Act Plan, Do, Check, Act is a cycle of activities designed to drive continuous improvement. Initially implemented in manufacturing, it has broad applicability in business. First developed by Walter Shewhart, it was popularized by Edwards Deming.
Profit and Loss Statement A Profit and Loss Statement is a standard financial document that summarizes a company”s revenue and expenses for a specific period of time, usually one quarter of a fiscal year and the entire fiscal year.
Relationship Marketing Relationship marketing refers to the benefits that ongoing relationships with key customers can bring to an organization.
R & D R & D is the abbreviation for Research and Development. This refers to the line on an income statement showing the amount of money a company has re-invested during the period to find and develop new products.
Request for Proposal A Request for Proposal is a document issued when an organization wants to buy something and chooses to make the specifications available to many other companies so they can submit competitive bids.
Request for Quotation A Request for Quotation is a document issued when an organization wants to buy something and chooses to make the specifications available to many other companies so they can submit competitive bids.
Research and Development Research and Development refers to the line on an income statement showing the amount of money a company has re-invested during the period to find and develop new products.
Restricted Stock Units of stock with restrictions on when they can be sold. Usually issued as partial compensation for employees and directors. The restriction usually lifts in 3 to 5 years when the stock vests.
Return on Assets Return on Assets (abbreviated ROA) is a measure of a company”s profitability. It is calculated as earnings divided total average assets and is expressed as a percentage.
Return on Investment Return on Investment (abbreviated ROI) is a measure of a company”s ability to use its assets to generate additional value for shareholders. It is calculated as Net Profit divided by Net Worth, and expressed as a percentage.
Revenue Revenue is money generated by a company”s operations, before deductions for expenses.
RFP RFP is the abbreviation for Request for Proposal. An RFP is issued when an organization wants to buy something and chooses to make the specifications available to many other companies so they can submit competitive bids.
RFQ RFQ is the abbreviation for Request for Quotation. An RFQ is issued when an organization wants to buy something and chooses to make the specifications available to many other companies so they can submit competitive bids.
ROA ROA is the abbreviation for Return on Assets. It is a measure of a company”s profitability and is calculated as earnings divided total average assets. ROA is expressed as a percentage.
ROI ROI is the abbreviation for Return on Investment. It is a measure of a company”s ability to use its assets to generate additional value for shareholders. It is calculated as Net Profit divided by Net Worth, and expressed as a percentage.
Sales Revenue Sales Revenue is money generated by a company”s sales operations, before deductions for expenses.
Scenario Planning Scenario planning involves testing business strategies against a series of alternative futures.
Shewhart Cycle Named for Walter Shewhart who discussed the concept in his 1939 book,
SME Small and Medium-sized Enterprises or SMEs are companies whose headcount or turnover falls below certain limits.

The abbreviation SME occurs commonly in the EU and in international organizations, such as the World Bank, the United Nations and the WTO, but less so in the US. Companies with headcounts less than 100 are typically labeled

Strategic Inflection Point Strategic inflection points occur when a company”s competitive position goes through a transition. It is the point at which the organization must alter the path it is on – adapting itself to the new situation – or risk going into decline. It is concerned with how companies recognize and adapt to
Strategy A Strategy is the plan you develop to help you achieve your vision. It requires an evaluation of your organization internally, but also of the external and environmental factors, especially competitors, that can impact you.
Strengths A company”s strengths are the things it does well. It may have a dominant market share or have a low turnover rate, etc. Strengths are also part of a SWOT analysis, the abbreviation for strengths, weaknesses, opportunities, and threats.
Strike Price The Strike Price is the price at which the holder of a stock option may purchase the stock.

If the strike price is below the price at which the stock is trading on the open market, the option holder may be able to make a profit. If the stock price on the open market is below the strike price, the options are said to be

SWOT SWOT is the abbreviation for strengths, weaknesses, opportunities, and threats. These four factors provide a framework which an organization can use to conduct a structured analysis of its operations.
Tactics Tactics are the specific actions, sequences of actions, and schedules you use to fulfill your strategy. If you have more than one strategy you will have different tactics for each.
Theory X Douglas McGreagor”s Theory X states that some people have an inherent dislike for work and will avoid it whenever. These people need to be controlled and coerced by their managers to achieve production. See Theory Y for the opposite.
Theory Y Douglas McGreagor”s Theory Y states that some people see work as natural will be self-directing if they are committed to the objectives. The manager”s role with these people is to help them achieve their potential. See Theory X for the opposite.
Threats A company”s threats are the dangers it faces, either from within or from outside. Threats can be things like a new low-cost competitor, possible new government regulations, etc. Threats are also part of a SWOT analysis, the abbreviation for strengths, weaknesses, opportunities, and threats.
Top Line Top Line refers to the top line of an Income Statement. The top line shows the Total Sales Revenue. When a company goal is to increase the top line, it means to concentrate on increasing gross sales.
Variable Costs Variable Costs are expenses that vary based on production volumes. They include material, labor, production utilities, etc.
Vest / Vesting To give someone control over their stock or stock options.

When employees are given stock options or restricted stock, they often do not gain control over the stock or options for a period of time. This period is known as the vesting period and is usually 3 to 5 years. During the vesting period the employee cannot sell or transfer the stock or options.

Vision Your organization”s Vision is the over-riding principle that guides the organization. It defines what you want the organization to be. The vision is often the dream of the founder or leader.
Weaknesses A company”s weaknesses are the things it does not do well or that others do better. It may have a high turnover, be more concerned about processes than progress, etc. Weaknesses are also part of a SWOT analysis, the abbreviation for strengths, weaknesses, opportunities, and threats.

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Founded in 1978