Financial Terms
ISO 9000

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Definition of ISO 9000

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ISO 9000

a comprehensive series of international quality standards
that define the various design, material procurement,
production, quality-control, and delivery requirements and
procedures necessary to produce quality products and services

Related Terms:

Comparison universe

The collection of money managers of similar investment style used for assessing
relative performance of a portfolio manager.

ISO 14000

a series of international standards that are designed
to support a company’s environmental protection
and pollution prevention goals in balance with socioeconomic

Poison pill

Anit-takeover device that gives a prospective acquiree's shareholders the right to buy shares of the
firm or shares of anyone who acquires the firm at a deep discount to their fair market value. Named after the
cyanide pill that secret agents are instructed to swallow if capture is imminent.

poison pill

Measure taken by a target firm to avoid acquisition;
for example, the right for existing shareholders to buy additional
shares at an attractive price if a bidder acquires a large holding.

Poison put

A covenant allowing the bondholder to demand repayment in the event of a hostile merger.

accepted quality level (AQL)

the maximum limit for the number of defects or errors in a process

Accumulated Other Comprehensive Income

Cumulative gains or losses reported in shareholders'
equity that arise from changes in the fair value of available-for-sale securities, from the
effects of changes in foreign-currency exchange rates on consolidated foreign-currency financial
statements, certain gains and losses on financial derivatives, and from adjustments for underfunded
pension plans.

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Active portfolio strategy

A strategy that uses available information and forecasting techniques to seek a
better performance than a portfolio that is simply diversified broadly. Related: passive portfolio strategy

Advance material request

Very early orders for materials before the completion
of a product design, given the long lead times required to supply some items.

Aggregate Production Function

An equation determining aggregate output as a function of aggregate inputs such as labor and capital.

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.

Assets requirements

A common element of a financial plan that describes projected capital spending and the
proposed uses of net working capital.


An option is at-the-money if the strike price of the option is equal to the market price of the
underlying security. For example, if xyz stock is trading at 54, then the xyz 54 option is at-the-money.

Average Collection Period

Average number of days necessary to receive cash for the sale of
a company's products. It is calculated by dividing the value of the
accounts receivable by the average daily sales for the period.

Average collection period, or days' receivables

The ratio of accounts receivables to sales, or the total
amount of credit extended per dollar of daily sales (average AR/sales * 365).

Balance of Merchandise Trade

The difference between exports and imports of goods.

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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.

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.

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

Bank collection float

The time that elapses between when a check is deposited into a bank account and when the funds are available to the depositor, during which period the bank is collecting payment from the payer's bank.

Bank for International Settlements (BIS)

An international bank headquartered in Basel, Switzerland, which
serves as a forum for monetary cooperation among several European central banks, the Bank of Japan, and the
U.S. Federal Reserve System. Founded in 1930 to handle the German payment of World War I reparations, it
now monitors and collects data on international banking activity and promulgates rules concerning
international bank regulation.

BARRA's performance analysis (PERFAN)

A method developed by BARRA, a consulting firm in
Berkeley, Calif. It is commonly used by institutional investors applying performance attribution analysis to
evaluate their money managers' performances.

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.

Bill of materials

A listing of all the materials and quantities that go to make up a completed product.

bill of materials

a document that contains information about
the product materials components and their specifications
(including quality and quantities needed)

Bill of materials

An itemization of the parts and subassemblies required to create a
product, frequently including assumed scrap rates that will arise as part of the production

Bill of materials (BOM)

A listing of all parts and subassemblies required to produce one
unit of a finished product, including the required number of units of each part
and subassembly.

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.

Breeder bill of materials

A bill of material that accounts for the generation and
cost implications of byproducts as a result of manufacturing the parent item.

Budgetary control

The process of ensuring that actual financial results are in line with targets – see variance

Business Expansion Investment

The use of capital to create more money through the addition of fixed assets or through income producing vehicles.

Call money rate

Also called the broker loan rate , the interest rate that banks charge brokers to finance
margin loans to investors. The broker charges the investor the call money rate plus a service charge.

Call protection

A feature of some callable bonds that establishes an initial period when the bonds may not be

capital investment analysis

Refers to various techniques and procedures
used to determine or to analyze future returns from an investment
of capital in order to evaluate the capital recovery pattern and the
periodic earnings from the investment. The two basic tools for capital
investment analysis are (1) spreadsheet models (which I strongly prefer)
and (2) mathematical equations for calculating the present value or
internal rate of return of an investment. Mathematical methods suffer
from a lack of information that the decision maker ought to consider. A
spreadsheet model supplies all the needed information and has other
advantages as well.

Capital Investments

money used to purchase fixed assets for a business, such as land, buildings, or machinery. Also, money invested in a business on the understanding that it will be used to purchase permanent assets rather than to cover day-to-day operating expenses.

Cash delivery

The provision of some futures contracts that requires not delivery of underlying assets but
settlement according to the cash value of the asset.

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.

Collection Department

An internal department within a company staffed by specialists in collecting past due accounts or accounts receivable.

Collection float

The negative float that is created between the time when you deposit a check in your account
and the time when funds are made available.

Collection fractions

The percentage of a given month's sales collected during the month of sale and each
month following the month of sale.

Collection policy

procedures followed by a firm in attempting to collect accounts receivables.

collection policy

procedures to collect and monitor receivables.

Committee, AIMR Performance Presentation Standards Implementation Committee

The Association for investment Management and Research (AIMR)'s performance Presentation standards Implementation
Committee is charged with the responsibility to interpret, revise and update the AIMR performance
Presentation standards (AIMR-PPS(TM)) for portfolio performance presentations.

common-size balance sheet

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

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

Compensating balance

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

Complete portfolio

The entire portfolio, including risky and risk-free assets.

Comprehensive due diligence investigation

The investigation of a firm's business in conjunction with a
securities offering to determine whether the firm's business and financial situation and its prospects are
adequately disclosed in the prospectus for the offering.

computer-aided design (CAD)

a system using computer graphics for product designs

Concentration services

Movement of cash from different lockbox locations into a single concentration
account from which disbursements and investments are made.

Configuration control

Verifying that a delivered product matches authorizing
engineering documentation. This also refers to engineering changes made subsequent
to the initial product release.

Consumer Credit Protection Act

A federal Act specifying the proportion of
total pay that may be garnished.

Contract Work Hours and Safety Standards Act

A federal Act requiring federal contractors to pay overtime for hours worked exceeding 40 per week.


50% of the outstanding votes plus one vote.

Control account

An account maintained in the general ledger that holds the balance without the detail. The detail is maintained in a subsidiary ledger.

control chart

a graphical presentation of the results of a
specified activity; it indicates the upper and lower control
limits and those results that are out of control

control premium

the additional value inherent in the control interest as contrasted to a minority interest, which reflects its power of control

controllable cost

a cost over which a manager has the ability to authorize incurrence or directly influence magnitude

Controllable profit

The profit made by a division after deducting only those expenses that can be controlled by the
divisional manager and ignoring those expenses that are outside the divisional manager’s control.

controllable variance

the budget variance of the two variance approach to analyzing overhead variances

Controlled disbursement

A service that provides for a single presentation of checks each day (typically in
the early part of the day).

Controlled foreign corporation (CFC)

A foreign corporation whose voting stock is more than 50% owned
by U.S. stockholders, each of whom owns at least 10% of the voting power.


The corporate manager responsible for the firm's accounting activities.


the chief accountant (in a corporation) who is responsible
for maintaining and reporting on both the cost
and financial sets of accounts but does not handle or negotiate
changes in actual resources


Officer responsible for budgeting, accounting, and auditing.


the process of exerting managerial influence on
operations so that they conform to previously prepared plans

Cost Accounting Standards Board (CASB)

a body established by Congress in 1970 to promulgate cost accounting
standards for defense contractors and federal agencies; disbanded
in 1980 and reestablished in 1988; it previously issued
pronouncements still carry the weight of law for those
organizations within its jurisdiction

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 control

The process of either reducing costs while maintaining the same level of productivity or maintaining costs while increasing productivity.

cost control system

a logical structure of formal and/or informal
activities designed to analyze and evaluate how well
expenditures are managed during a period

cost of production report

a process costing document that
details all operating and cost information, shows the computation
of cost per equivalent unit, and indicates cost assignment
to goods produced during the period

Cost of quality

The difference between the actual costs of production, selling and service and the costs that would be incurred if there were no failures during production or usage of products or services.

Creditor Proof Protection

The creditor proof status of such things as life insurance, non-registered life insurance investments, life insurance RRSPs and life insurance RRIFs make these attractive products for high net worth individuals, professionals and business owners who may have creditor concerns. Under most circumstances the creditor proof rules of the different provincial insurance acts take priority over the federal bankruptcy rules.
The provincial insurance acts protect life insurance products which have a family class beneficiary. Family class beneficiaries include the spouse, parent, child or grandchild of the life insured, except in Quebec, where creditor protection rules apply to spouse, ascendants and descendants of the insured. investments sold by other financial institutions do not offer the same security should the holder go bankrupt. There are also circumstances under which the creditor proof protections do not hold for life insurance products. Federal bankruptcy law disallows the protection for any transfers made within one year of bankruptcy. In addition, should it be found that a person shifted money to an insurance company fund in bad faith for the specific purpose of avoiding creditors, these funds will not be creditor proof.

Cutoff control

A procedure for ensuring that transaction processing is completed
before the commencement of cycle counting.

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.

Dedicating a portfolio

Related: cash flow matching.

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.

Defined EBITDA

A measure of EBITDA that is outlined or defined in a debt or credit agreement.
Also see adjusted EBITDA and recurring EBITDA.


The tender and receipt of an actual commodity or financial instrument in settlement of a futures contract.







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