Definition of centralization

centralization

a management style that exists when top management
makes most decisions and controls most activities
of the organizational units from the company’s central headquarters

decentralization

a management style that exists when top
management grants subordinate managers a significant degree
of autonomy and independence in operating and making
decisions for their organizational units

45-Degree Line

A line representing equilibrium in the goods and services market, on a diagram with aggregate demand on the vertical axis and aggregate supply on the horizontal axis.

Abusive Earnings Management

The use of various forms of gimmickry to distort a company's true financial performance in order to achieve a desired result.

Abusive Earnings Management

A characterization used by the Securities and Exchange
Commission to designate earnings management that results in an intentional and material misrepresentation
of results.

activity-based management (ABM)

a discipline that focuses on the activities incurred during the production/performance process as the way to improve the value received
by a customer and the resulting profit achieved by providing
this value

American-style option

An option contract that can be exercised at any time between the date of purchase and
the expiration date. most exchange-traded options are American style.

Annual fund operating expenses

For investment companies, the management fee and "other expenses,"
including the expenses for maintaining shareholder records, providing shareholders with financial statements,
and providing custodial and accounting services. For 12b-1 funds, selling and marketing costs are included.

Asian currency units (ACUs)

Dollar deposits held in Singapore or other Asian centers.

Asset/liability management

Also called surplus management, the task of managing funds of a financial
institution to accomplish the two goals of a financial institution:
1) to earn an adequate return on funds invested, and
2) to maintain a comfortable surplus of assets beyond liabilities.

Blow-off top

A steep and rapid increase in price followed by a steep and rapid drop. This is an indicator seen
in charts and used in technical analysis of stock price and market trends.

Blue-chip company

Large and creditworthy company.

Bottom-up equity management style

A management style that de-emphasizes the significance of economic
and market cycles, focusing instead on the analysis of individual stocks.

cash flow from operating activities, or cash flow from profit

This equals the cash inflow from sales during the period minus the cash
outflow for expenses during the period. Keep in mind that to measure
net income, generally accepted accounting principles require the use of
accrual-basis accounting. Starting with the amount of accrual-basis net
income, adjustments are made for changes in accounts receivable,
inventories, prepaid expenses, and operating liabilities—and depreciation
expense is added back (as well as any other noncash outlay
expense)—to arrive at cash flow from profit, which is formally labeled
cash flow from operating activities in the externally reported statement
of cash flows.

Cash Flow Provided by Operating Activities

With some exceptions, the cash effects of transactions
that enter into the determination of net income, such as cash receipts from sales of goods
and services and cash payments to suppliers and employees for acquisitions of inventory and
expenses.

Cash Flow Provided or Used from Financing Activities

Cash receipts and payments involving
liability and stockholders' equity items, including obtaining cash from creditors and repaying
the amounts borrowed and obtaining capital from owners and providing them with a return on,
and a return of, their investments.

Cash Flow Provided or Used from Investing Activities

Cash receipts and payments involving
long-term assets, including making and collecting loans and acquiring and disposing of
investments and productive long-lived assets.

CASH FLOWS FROM FINANCING ACTIVITIES

A section on the cash-flow statement that shows how much cash a company raised by selling stocks or bonds this year and how much was paid out for cash dividends and other finance-related obligations.

CASH FLOWS FROM INVESTING ACTIVITIES

A section on the cashflow statement that shows how much cash came in and went out because of various investing activities like purchasing machinery.

Cash management bill

Very short maturity bills that the Treasury occasionally sells because its cash
balances are down and it needs money for a few days.

Central Bank

A public agency responsible for regulating and controlling an economy's monetary and financial institutions. It is the sole money-issuing authority.

Certified Management Accountant (CMA)

a professional designation in the area of management accounting that
recognizes the successful completion of an examination,
acceptable work experience, and continuing education requirements

Company Acquisitions

Assets acquired to create money. May include plant, machinery and equipment, shares of another company etc.

company cost of capital

Expected rate of return demanded by investors in a company, determined by the average risk of the company’s assets and operations.

Company-specific risk

Related: Unsystematic risk

Companyspecific Risk

See asset-specific risk

Corporate financial management

The application of financial principals within a corporation to create and
maintain value through decision making and proper resource management.

Cost company arrangement

Arrangement whereby the shareholders of a project receive output free of
charge but agree to pay all operating and financing charges of the project.

cost management system (CMS)

a set of formal methods
developed for planning and controlling an organization’s
cost-generating activities relative to its goals and objectives
cost object anything to which costs attach or are related

decision making

the process of choosing among the alternative
solutions available to a course of action or a problem
situation

degree of operating leverage

a factor that indicates how a percentage change in sales, from the existing or current
level, will affect company profits; it is calculated as contribution
margin divided by net income; it is equal to (1 - margin of safety percentage)

degree of operating leverage (DOL)

Percentage change in profits given a 1 percent change in sales.

Demand Management Policy

Fiscal or monetary policy designed to influence aggregate demand for goods and services.

Depository Trust Company (DTC)

DTC is a user-owned securities depository which accepts deposits of
eligible securities for custody, executes book-entry deliveries and records book-entry pledges of securities in
its custody, and provides for withdrawals of securities from its custody.

Earnings Management

The active manipulation of earnings toward a predetermined target.
That target may be one set by management, a forecast made by analysts, or an amount that is consistent
with a smoother, more sustainable earnings stream. Often, although not always, earnings
management entails taking steps to reduce and “store” profits during good years for use during
slower years. This more limited form of earnings management is known as income smoothing.

equivalent units of production (EUP)

an approximation of the number of whole units of output that could have been
produced during a period from the actual effort expended
during that period; used in process costing systems to assign
costs to production

European-style option

An option contract that can only be exercised on the expiration date.

Exchange controls

Governmental restrictions on the purchase of foreign currencies by domestic citizens or
on the purchase of the local domestic currency by foreigners.

Finance Company

company engaged in making loans to individuals or businesses. Unlike a bank, it does not receive deposits from the public.

financing activities

One of the three classes of cash flows reported in the
statement of cash flows. This class includes borrowing money and paying
debt, raising money from shareowners and the return of money to
them, and dividends paid from profit.

Financing decisions

decisions concerning the liabilities and stockholders' equity side of the firm's balance
sheet, such as the decision to issue bonds.

Foreign exchange controls

Various forms of controls imposed by a government on the purchase/sale of
foreign currencies by residents or on the purchase/sale of local currency by nonresidents.

Holding company

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

Institute of Management Accountants (IMA)

an organization composed of individuals interested in the field of management accounting; it coordinates the Certified management
Accountant program through its affiliate organization
(the Institute of Certified management Accountants)

Insurance Company

A firm licensed to sell insurance to the public.

Intercompany loan

Loan made by one unit of a corporation to another unit of the same corporation.

Intercompany transaction

Transaction carried out between two units of the same corporation.

internal accounting controls

Refers to forms used and procedures
established by a business—beyond what would be required for the
record-keeping function of accounting—that are designed to prevent
errors and fraud. Two examples of internal controls are (1) requiring a
second signature by someone higher in the organization to approve a
transaction in excess of a certain dollar amount and (2) giving customers
printed receipts as proof of sale. Other examples of internal
control procedures are restricting entry and exit routes of employees,
requiring all employees to take their vacations and assigning another
person to do their jobs while they are away, surveillance cameras, surprise
counts of cash and inventory, and rotation of duties. Internal controls
should be cost-effective; the cost of a control should be less than
the potential loss that is prevented. The guiding principle for designing
internal accounting controls is to deter and detect errors and dishonesty.
The best internal controls in the world cannot prevent most fraud
by high-level managers who take advantage of their positions of trust
and authority.

investing activities

One of the three classes of cash flows reported in the
statement of cash flows. This class includes capital expenditures for
replacing and expanding the fixed assets of a business, proceeds from
disposals of its old fixed assets, and other long-term investment activities
of a business.

Investment decisions

decisions concerning the asset side of a firm's balance sheet, such as the decision to
offer a new product.

Junior debt (subordinate debt)

Debt whose holders have a claim on the firm's assets only after senior
debtholder's claims have been satisfied. subordinated debt.

limited liability company

an organizational form that is a hybrid of the corporate and partnership organizational
forms and used to limit the personal liability of the owners;
it is typically used by small professional (such as accounting) firms

Making delivery

Refers to the seller's actually turning over to the buyer the asset agreed upon in a forward contract.

Management

management refers to the individuals in an entity that have the authority and the responsibility to manage the entity. The positions of these individuals, and their titles, vary from one entity to another and, to some extent, from one country to another depending on the local laws and customs. Thus, when the context requires it, the term includes the board of directors or committees of the board which are designated to oversee certain matters (e.g., audit committee).

Management accounting

The production of financial and non-financial information used in planning for the future; making decisions about products, services, prices and what costs to incur; and ensuring that plans are implemented and achieved.

management accounting

a discipline that includes almost
all manipulations of financial information for use by managers
in performing their organizational functions and in
assuring the proper use and handling of an entity’s resources;
it includes the discipline of cost accounting

Management Accounting Guidelines (MAGs)

pronouncements of the Society of management Accountants of
Canada that advocate appropriate practices for specific
management accounting situations

Management buyout (MBO)

Leveraged buyout whereby the acquiring group is led by the firm's management.

management buyout (MBO)

Acquisition of the firm by its own management in a leveraged buyout.

Management/closely held shares

Percentage of shares held by persons closely related to a company, as
defined by the Securities and exchange commission. Part of these percentages often is included in
Institutional Holdings -- making the combined total of these percentages over 100. There is overlap as
institutions sometimes acquire enough stock to be considered by the SEC to be closely allied to the company.

management control

This is difficult to define in a few words—indeed, an
entire chapter is devoted to the topic (Chapter 17). The essence of management
control is “keeping a close watch on everything.” Anything can
go wrong and get out of control. management control can be thought of
as the follow-through on decisions to ensure that the actual outcomes
happen according to purposes and goals of the management decisions
that set things in motion. managers depend on feedback control reports
that contain very detailed information. The level of detail and range of
information in these control reports is very different from the summarylevel
information reported in external income statements.

management control system (MCS)

an information system that helps managers gather information about actual organizational occurrences, make comparisons against plans,
effect changes when they are necessary, and communicate
among appropriate parties; it should serve to guide organizations
in designing and implementing strategies so that
organizational goals and objectives are achieved

management expense ratio (MER)

The total expenses expressed as an annualized percentage of daily average net assets. MER does not include brokerage fees and commissions, which are also payable by the Fund.

Management fee

An investment advisory fee charged by the financial advisor to a fund based on the fund's
average assets, but sometimes determined on a sliding scale that declines as the dollar amount of the fund increases.

management fee

The fee paid to the fund’s manager for supervising the administration of the fund.

management information system (MIS)

a structure of interrelated elements that collects, organizes, and communicates
data to managers so they may plan, control, evaluate
performance, and make decisions; the emphasis of the
MIS is on internal demands for information rather than external
demands; some or all of the MIS may be computerized
for ease of access to information, reliability of input
and processing, and ability to simulate outcomes of
alternative situations

management style

the preference of a manager in how he/she interacts with other stakeholders in the organization;
it influences the way the firm engages in transactions and
is manifested in managerial decisions, interpersonal and
interorganizational relationships, and resource allocations

Managerial decisions

decisions concerning the operation of the firm, such as the choice of firm size, firm
growth rates, and employee compensation.

Money management

Related: Investment management.

Most distant futures contract

when several futures contracts are considered, the contract settling last.
Related: nearby futures contract

Mutually exclusive investment decisions

Investment decisions in which the acceptance of a project
precludes the acceptance of one or more alternative projects.

Net operating losses

Losses that a firm can take advantage of to reduce taxes.

Net operating margin

The ratio of net operating income to net sales.

Nonsignificant part number

An identifying number assigned to a part that conveys
no other information.

open-book management

a philosophy about increasing a firm’s performance by involving all workers and by ensuring
that all workers have access to operational and financial
information necessary to achieve performance improvements

operating activities

Includes all the sales and expense activities of a business.
But the term is very broad and inclusive; it is used to embrace all
types of activities engaged in by profit-motivated entities toward the
objective of earning profit. A bank, for instance, earns net income not
from sales revenue but from loaning money on which it receives interest
income. making loans is the main revenue operating activity of banks.

operating budget

a budget expressed in both units and dollars

Operating cash flow

Earnings before depreciation minus taxes. It measures the cash generated from
operations, not counting capital spending or working capital requirements.

operating cash flow

See cash flow from operating activities.

Operating Cash Flow

Income available after the payment of taxes, plus the value of the
non-cash expenses

Operating cycle

The average time intervening between the acquisition of materials or services and the final
cash realization from those acquisitions.

Operating Earnings

A term frequently used to describe earnings after the removal of the
effects of nonrecurring or nonoperating items.

Operating expense

Any expense associated with the general, sales, and administrative
functions of a business.

OPERATING EXPENSES

The total amount that was spent to run a company this year.

Operating Expenses

The amount of money the company must spend on overhead, distribution, taxes, underwriting the risk and servicing the policy. It is a factor in calculating premium rates.

Operating exposure

degree to which exchange rate changes, in combination with price changes, will alter a
company's future operating cash flows.

Operating income

The net income of a business, less the impact of any financial activity,
such as interest expense or investment income, as well as taxes and extraordinary
items.

Operating Income

A measure of results produced by the core operations of a firm. It is common
for both recurring and nonrecurring items that are associated with operations to be included
in this measure. operating income is typically found in multistep income statements and is a pretax
measure.

Operating lease

Short-term, cancelable lease. A type of lease in which the period of contract is less than the
life of the equipment and the lessor pays all maintenance and servicing costs.

Operating lease

The rental of an asset from a lessor, but not under terms that would
qualify it as a capital lease.

Operating Lease

One where the risks and benefits, as well as ownership, stays with the lessor.

Operating leverage

Fixed operating costs, so-called because they accentuate variations in profits.

operating leverage

A relatively small percent increase or decrease in
sales volume that causes a much larger percent increase or decrease in
profit because fixed expenses do not change with small changes in sales
volume. Sales volume changes have a lever effect on profit. This effect
should be called sales volume leverage, but in practice it is called operating
leverage.
operating liabilities
The short-term liabilities generated by the operating
(profit-making) activities of a business. most businesses have three types
of operating liabilities: accounts payable from inventory purchases and
from incurring expenses, accrued expenses payable for unpaid expenses,
and income tax payable. These short-term liabilities of a business are
non-interest-bearing, although if not paid on time a business may be
assessed a late-payment penalty that is in the nature of an interest
charge.

operating leverage

the proportionate relationship between
a company’s variable and fixed costs

operating leverage

degree to which costs are fixed.

Operating Line of Credit

A bank's commitment to make loans to a particular borrower up to a specified maximum for a specified period, usually one year.

Operating Loan

A loan advanced under an operating line of credit.

Operating profit

The profit made by the business for an accounting period, equal to gross profit less selling, finance, administration etc. expenses, but before deducting interest or taxation.

operating profit

See earnings before interest and income tax (EBIT).

Operating profit margin

The ratio of operating margin to net sales.

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