Financial Terms

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Definition of intranet

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a mechanism for sharing information and delivering data from corporate databases to the local-area network (LAN) desktops

Related Terms:

401k Plan

A retirement pLAN set up by an employer, into which employees can
contribute the lesser of $13,000 or 15 percent of their pay (as of 2004), which
is excluded from taxation until such time as they remove the funds from the account.

403b Plan

A retirement pLAN similar to a 401k pLAN, except that it is designed
specifically for charitable, religious, and education organizations that fall under
the tax-exempt status of 501(c)(3) regulations.

Aggregate planning

A budgeting process using summary-level information to
derive various budget models, usually at the product family level.

Asymmetric information

information that is known to some people but not to other people.

Baker Plan

A pLAN by U.S. Treasury Secretary James Baker under which 15 principal middle-income debtor
countries (the Baker 15) would undertake growth-oriented structural reforms, to be supported by increased
financing from the World Bank and continued lending from commercial banks.

Balance of Merchandise Trade

The difference between exports and imports of goods.

Balance of payments

A statistical compilation formulated by a sovereign nation of all economic transactions
between residents of that nation and residents of all other nations during a stipulated period of time, usually a
calendar year.

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Balance of Payments

The difference between the demand for and supply of a country's currency on the foreign exchange market.

Balance of Payments Accounts

A statement of a country's transactions with other countries.

Balance of trade

Net flow of goods (exports minus imports) between countries.

Balance of Trade

See baLANce of merchandise trade.

Balance sheet

Also called the statement of financial condition, it is a summary of the assets, liabilities, and
owners' equity.


A “snapshot” statement that freezes a company on a particular day, like the last day of the year, and shows the baLANces in its asset, liability, and stockholders’ equity accounts. It’s governed by the formula:
Assets = Liabilities + Stockholders’ Equity.

Balance Sheet

A financial statement showing the financial position of a business – its assets, liabilities and
capital – at the end of an accounting period.

Balance Sheet

One of the basic financial statements; it lists the assets, liabilities, and equity accounts of the company. The BaLANce Sheet is prepared using the baLANces at the end of a specific day.

balance sheet

A term often used instead of the more formal and correct
term—statement of financial condition. This financial statement summarizes
the assets, liabilities, and owners’ equity sources of a business at a
given moment in time. It is prepared at the end of each profit period and
whenever else it is needed. It is one of the three primary financial statements
of a business, the other two being the income statement and the
statement of cash flows. The values reported in the baLANce sheet are the
amounts used to determine book value per share of capital stock. Also,
the book value of an asset is the amount reported in a business’s most
recent baLANce sheet.

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Balance sheet

A report that summarizes all assets, liabilities, and equity for a company
for a given point in time.

balance sheet

Financial statement that shows the value of the
firm’s assets and liabilities at a particular time.

Balance Sheet

A financial report showing the status of a company's assets, liabilities, and owners' equity on a given date.

Balance sheet exposure

See:accounting exposure.

Balance sheet identity

Total Assets = Total Liabilities + Total Stockholders' Equity

Balanced-Budget Multiplier

The multiplier associated with a change in government spending financed by an equal change in taxes.

Balanced fund

An investment company that invests in stocks and bonds. The same as a baLANced mutual fund.

Balanced mutual fund

This is a fund that buys common stock, preferred stock and bonds. The same as a
baLANced fund.

Balanced Scorecard

A system of non-financial performance measurement that links innovation, customer and process measures to financial performance.

balanced scorecard (BSC)

an approach to performance
measurement that weighs performance measures from four
perspectives: financial performance, an internal business
perspective, a customer perspective, and an innovation and
learning perspective

balancing item

Variable that adjusts to maintain the consistency
of a financial pLAN. Also called plug.

Basic balance

In a baLANce of payments, the basic baLANce is the net baLANce of the combination of the current
account and the capital account.

Blanket inventory lien

A secured loan that gives the lender a lien against all the borrower's inventories.

Blue Ribbon Committee on Improving the Effectiveness of Corporate Audit Committees

A committee formed in response to SEC chairman Arthur Levitt's initiative to improve the financial
reporting environment in the United States. In a report dated February 1999, the committee
made recommendations for new rules for regulation of financial reporting in the United States that
either duplicated or carried forward the recommendations of the Treadway Commission.

Cafeteria Plan

A flexible benefits pLAN authorized under the Internal Revenue
Code allowing employees to pay for a selection of benefits with pay deductions,
some of which may be pretax.

cafeteria plan a “menu” of fringe benefit options that include

cash or nontaxable benefits

Canada Pension Plan (CPP)

A pLAN that provides retirement and long term disability income benefits to residents of Canadian provinces (excluding Quebec).

common-size balance sheet

BaLANce sheet that presents items as a percentage of total assets.

Compensating balance

An excess baLANce that is left in a bank to provide indirect compensation for loans
extended or services provided.

Corporate acquisition

The acquisition of one firm by anther firm.

Corporate bonds

Debt obligations issued by corporations.

Corporate charter

A legal document creating a corporation.

Corporate finance

One of the three areas of the discipline of finance. It deals with the operation of the firm
(both the investment decision and the financing decision) from that firm's point of view.

Corporate financial management

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

Corporate financial planning

Financial pLANning conducted by a firm that encompasses preparation of both
long- and short-term financial pLANs.

Corporate processing float

The time that elapses between receipt of payment from a customer and the
depositing of the customer's check in the firm's bank account; the time required to process customer

Corporate tax view

The argument that double (corporate and individual) taxation of equity returns makes
debt a cheaper financing method.

Corporate taxable equivalent

Rate of return required on a par bond to produce the same after-tax yield to
maturity that the premium or discount bond quoted would.

Currency risk sharing

An agreement by the parties to a transaction to share the currency risk associated with
the transaction. The arrangement involves a customized hedge contract embedded in the underlying


bits of knowledge or facts that have not been summarized
or categorized in a manner useful to a decision maker

data mining

a form of analysis in which statistical techniques
are used to uncover answers to important questions about
business operations

Declining balance

An accelerated depreciation method that calculates depreciation each year by applying a fixed rate to the asset’s book (cost–accumulated depreciation) value. Depreciation stops when the asset’s book value reaches its salvage value.


A method of depreciation.

Defined benefit plan

A pension pLAN in which the sponsor agrees to make specified dollar payments to
qualifying employees. The pension obligations are effectively the debt obligation of the pLAN sponsor.
Related: defined contribution pLAN

Defined Benefit Plan

A pension pLAN that pays out a predetermined dollar
amount to participants, based on a set of rules that typically combine the number
of years of employment and wages paid over the time period when each
employee worked for the company.

Defined contribution plan

A pension pLAN in which the sponsor is responsible only for making specified
contributions into the pLAN on behalf of qualifying participants. Related: defined benefit pLAN
Delayed issuance pool Refers to MBSs that at the time of issuance were collateralized by seasoned loans
originated prior to the MBS pool issue date.

Defined Contribution Plan

A qualified retirement pLAN under which the employer
is liable for a payment into the pLAN of a specific size, but not for the size
of the resulting payments from the pLAN to participants.

Dividend reinvestment plan (DRP)

Automatic reinvestment of shareholder dividends in more shares of a
company's stock, often without commissions. Some pLANs provide for the purchase of additional shares at a
discount to market price. Dividend reinvestment pLANs allow shareholders to accumulate stock over the Long
term using dollar cost averaging. The DRP is usually administered by the company without charges to the

Double-declining-balance depreciation

Method of accelerated depreciation.

Educational Assistance Plan

A pLAN that an employer creates on behalf of its
employees covering a variety of educational expenses incurred on behalf of
employees, for which they can avoid recognizing some income.

Electronic data interchange (EDI)

The exchange of information electronically, directly from one firm's
computer to another firm's computer, in a structured format.

electronic data interchange (EDI)

the computer-to-computer transfer of information in virtual real time using standardized formats developed by the American National Standards Institute

Employee stock ownership plan (ESOP)

A company contributes to a trust fund that buys stock on behalf of

Employee Stock Ownership Plan (ESOP)

a profit-sharing compensation program in which investments are made in
the securities of the employer

Employee Stock Ownership Plan (ESOP)

A fund containing company stock and owned by employees, paid for by ongoing contributions by the employer.

enterprise resource planning (ERP) system

a packaged software program that allows a company to
(1) automate and integrate the majority of its business processes,
(2) share common data and practices across the entire enterprise, and
(3) produce and access information in a realtime environment

Enterprise resource planning system

A computer system used to manage all company
resources in the receipt, completion, and delivery of customer orders.

Estate Planning

An insurance program designed to provide funds for insured's dependents upon death of the insured, and to also conserve, as much as possible, the personal assets that the insured wants to bequeath to heirs.

Exchange Rate Mechanism (ERM)

The methodology by which members of the EMS maintain their
currency exchange rates within an agreed upon range with respect to other member countries.

Expected value of perfect information

The expected value if the future uncertain outcomes could be known
minus the expected value with no additional information.

Financial plan

A financial blueprint for the financial future of a firm.

Financial planning

The process of evaluating the investing and financing options available to a firm. It
includes attempting to make optimal decisions, projecting the consequences of these decisions for the firm in
the form of a financial pLAN, and then comparing future performance against that pLAN.

Floor planning

Arrangement used to finance inventory. A finance company buys the inventory, which is then
held in trust by the user.

Future-Oriented Financial Information

information about prospective results of operations, financial position and/or changes in financial position, based on assumptions about future economic conditions and courses of action. Future-oriented financial information is presented as either a forecast or a projection.

Hourly Rate Plan

A method for calculating wages for hourly employees that involves
the multiplication of the wage rate per hour times the number of hours
worked during the work week.

Index Portfolio Rebalancing Service (IPRS)

Index Portfolio RebaLANcing Service (IPRS) is a comprehensive investment service that can help increase potential returns while reducing volatility. Several portfolios are available, each with its own strategic baLANce of Index Funds. IPRS maintains your personal asset allocation by monitoring and rebaLANcing your portfolio semi-annually.


bits of knowledge or fact that have been carefully
chosen from a body of data and arranged in a meaningful way

Information asymmetry

A situation involving information that is known to some, but not all, participants.

Information Coefficient (IC)

The correlation between predicted and actual stock returns, sometimes used to
measure the value of a financial analyst. An IC of 1.0 indicates a perfect linear relationship between predicted
and actual returns, while an IC of 0.0 indicates no linear relationship.

Information-content effect

The rise in the stock price following the dividend signal.

information content of dividends

Dividend increases send good news about cash flow and earnings. Dividend cuts send bad news.

Information costs

Transaction costs that include the assessment of the investment merits of a financial asset.
Related: search costs.

Information-motivated trades

Trades in which an investor believes he or she possesses pertinent
information not currently reflected in the stock's price.

Information services

Organizations that furnish investment and other types of information, such as
information that helps a firm monitor its cash position.

Informational efficiency

The speed and accuracy with which prices reflect new information.

Informationless trades

Trades that are the result of either a reallocation of wealth or an implementation of an
investment strategy that only utilizes existing information.

Insider information

Relevant information about a company that has not yet been made public. It is illegal for
holders of this information to make trades based on it, however received.

Insured plans

Defined benefit pension pLANs that are guaranteed by life insurance products. Related: noninsured pLANs

Insured Retirement Plan

This is a recently coined phrase describing the concept of using Universal Life Insurance to tax shelter earnings which can be used to generate tax-free income in retirement. The concept has been described by some as "the most effective tax-neutralization strategy that exists in Canada today."
In addition to life insurance, a Universal Life Policy includes a tax-sheltered cash value fund that cannot exceed the policy's face value. Deposits made into the policy are partially used to fund the life insurance and partially grow tax sheltered inside the policy. It should be pointed out that in order for this to work, you must make deposits into this kind of policy well in excess of the cost of the underlying insurance. Investment of the cash value inside the policy are commonly mutual fund type investments. Upon retirement, the policy owner can draw on the accumulated capital in his/her policy by using the policy as collateral for a series of demand loans at the bank. The loans are structured so the sum of money borrowed plus interest never exceeds 75% of the accumulated investment account. The loans are only repaid with the tax free death benefit at the death of the policy holder. Any remaining funds are paid out tax free to named beneficiaries.
Recognizing the value to policy holders of this use of Universal Life Insurance, insurance companies are reworking features of their products to allow the policy holder to ask to have the relationship of insurance to investment growth tracked so that investment growth inside the policy may be maximized. The only potential downside of this strategy is the possibility of the government changing the tax rules to prohibit using a life insurance product in this manner.

Interplant transfer

The movement of inventory from one company location to
another, usually requiring a transfer transaction.


The cost of LANd owned by the company.

Land improvements

The cost of improvements to LANd owned by the company, such as fencing and outdoor lighting.

Leverage rebalancing

Making transactions to adjust (rebaLANce) a firm's leverage ratio back to its target.

Local expectations theory

A form of the pure expectations theory which suggests that the returns on bonds
of different maturities will be the same over a short-term investment horizon.

Long-term financial plan

Financial pLAN covering two or more years of future operations.

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

Manufacturing resource planning

An integrated, computerized system for pLANning
all manufacturing resources.

manufacturing resource planning (MRP II)

a fully integrated materials requirement pLANning system that involves
top management and provides a basis for both strategic
and tactical pLANning

Manufacturing resource planning (MRP II)

An expansion of the material requirements pLANning concept, with additional computer-based capabilities in the areas of
direct labor and machine capacity pLANning.

Market Mechanism

The system whereby using prices, the interaction of supply and demand allocates inputs and distributes outputs.

market-value balance sheet

Financial statement that uses the market value of all assets and liabilities.

Material requirements planning

A computerized system used to calculate material
requirements for a manufacturing operation.

Material requirements planning (MRP)

A computer-driven production methodology
that manufactures products based on an initial demand forecast. It tends to result in
more inventory of all types than a just-in-time (JIT) production system.

Materials requirement planning

Computer-based systems that pLAN backward from the production schedule
to make purchases in order to manage inventory levels.







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