Financial Terms Main Page

This site contains comprehensive definitions for a wide range of terms that cover topics such as financial, finance, business, accounting, payroll, inventory, investment, money, inventory control, stock trading, financial advisor, tax advisor, credit...

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Asset substitution problem

Arises when the stockholders substitute riskier assets for the firm's existing
assets and expropriate value from the debtholders.

Characteristic line

The market model applied to a single security. The slope of the line is a security's beta.

Day trading

Refers to establishing and liquidating the same position or positions within one day's trading.

Leveraged equity

Stock in a firm that relies on financial leverage. Holders of leveraged equity face the
benefits and costs of using debt.

Nationalization

A government takeover of a private company.

Purchase discounts

A contra account that reduces purchases by the amount of the discounts taken for early payment.

sunk cost

A cost that has been paid and cannot be undone or reversed.
Once the cost has been paid, it is irretrievable, like water over the dam
or spilled milk. Usually, the term refers to the recorded value of an asset
that has lost its value in the operating activities of a business. Examples
are the costs of products in inventory that cannot be sold and fixed
assets that are no longer usable. The book value of these assets should
be written off to expense. These costs should be disregarded in making
decisions about what to do with the assets (except that the income tax
effects of disposing of the assets should be taken into account).

Benchmark

A standard by which something may be compared and measured

prime cost

the total cost of direct material and direct labor for a product

Society of Management Accountants of Canada

the professional body representing an influential and diverse
group of Certified Management Accountants; this body produces
numerous publications that address business management issues

Endogenous

Determined from within the system. Opposite of exogenous.

Return

See yield.

Davis-Bacon Act of 1931

A federal Act providing wage protection to nongovernment
workers by requiring businesses engaged in federal construction
projects to pay their employees prevailing wages and fringe benefits.

Unbilled Accounts Receivable

Revenue recognized under the percentage-of-completion
method in excess of amounts billed. Also known as cost plus estimated earnings in excess of
billings.

Rate of Return

Return on invested capital (calculated as a percentage). Often an investor has, as one of their investment criteria, a minimum acceptable rate of return on an acquisition.