Financial Terms
Net sales

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Definition of Net sales

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Net sales

Total revenue, less the cost of sales returns, allowances, and discounts.

Related Terms:

NET SALES (revenue)

The amount sold after customers’ returns, sales discounts, and other allowances are taken away from
gross sales. (Companies usually just show the net sales amount on their income statements, omitting returns, allowances, and the like.)


A ratio that shows how much net income (profit) a company made on each dollar of net sales. Here’s the formula:
(net income) / (net sales)


A ratio that shows how much a company had to collect in net sales to make a dollar of profit. Figure it this way:
(net sales) / (net income)

After-tax profit margin

The ratio of net income to net sales.

Asset turnover

The ratio of net sales to total assets.

Before-tax profit margin

The ratio of net income before taxes to net sales.

Capital gain

When a stock is sold for a profit, it's the difference between the net sales price of securities and
their net cost, or original basis. If a stock is sold below cost, the difference is a capital loss.

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Commodities Exchange Center (CEC)

The location of five New York futures exchanges: Commodity
Exchange, Inc. (COMEX), the New York Mercantile exchange (NYMEX), the New York Cotton Exchange,
the Coffee, Sugar and Cocoa exchange (CSC), and the New York futures exchange (NYFE). common size
statement A statement in which all items are expressed as a percentage of a base figure, useful for purposes of
analyzing trends and the changing relationship between financial statement items. For example, all items in
each year's income statement could be presented as a percentage of net sales.


An accounting statement that summarizes information about a company in the following format:
net sales
– Cost of goods sold
Gross profit
– Operating expenses
Earnings before income tax
– Income tax
= net income or (net loss)
Formally called a “consolidated earnings statement,” it covers a period of time such as a quarter or a year.


The profit a company makes after cost of goods sold, expenses, and taxes are subtracted from net sales.

Net operating margin

The ratio of net operating income to net sales.


(also called average collection period). The number of days of net sales that are tied up in credit sales (accounts receivable) that haven’t been collected yet.

Operating profit margin

The ratio of operating margin to net sales.

Profit margin

Indicator of profitability. The ratio of earnings available to stockholders to net sales.
Determined by dividing net income by revenue for the same 12-month period. Result is shown as a

Total asset turnover

The ratio of net sales to total assets.

approximated net realizable value at split-off allocation

a method of allocating joint cost to joint products using a
simulated net realizable value at the split-off point; approximated
value is computed as final sales price minus
incremental separate costs

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Conditional sales contracts

Similar to equipment trust certificates except that the lender is either the
equipment manufacturer or a bank or finance company to whom the manufacturer has sold the conditional
sales contract.

Contingent deferred sales charge (CDSC)

The formal name for the load of a back-end load fund.

Cost of sales

The manufacture or purchase price of goods sold in a period or the cost of providing a service.

Days' sales in inventory ratio

The average number of days' worth of sales that is held in inventory.

Days' sales outstanding

Average collection period.

Domestic International Sales Corporation (DISC)

A U.S. corporation that receives a tax incentive for
export activities.

European Monetary System (EMS)

An exchange arrangement formed in 1979 that involves the currencies
of European Union member countries.

Exposure netting

Offsetting exposures in one currency with exposures in the same or another currency,
where exchange rates are expected to move in such a way that losses or gains on the first exposed position
should be offset by gains or losses on the second currency exposure.

Firm's net value of debt

Total firm value minus total firm debt.

Foreign Sales Corporation (FSC)

A special type of corporation created by the Tax Reform Act of 1984 that
is designed to provide a tax incentive for exporting U.S.-produced goods.

Gross sales

The total sales recorded prior to sales discounts and returns.

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International Monetary Fund

An organization founded in 1944 to oversee exchange arrangements of
member countries and to lend foreign currency reserves to members with short-term balance of payment

International Monetary Fund (IMF)

Organization originally established to manage the postwar fixed exchange rate system.

International Monetary Market (IMM)

A division of the CME established in 1972 for trading financial
futures. Related: Chicago Mercantile Exchange (CME).

Internet business model

a model that involves
(1) few physical assets,
(2) little management hierarchy, and
(3) a direct pipeline to customers


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


School of economic thought stressing the importance of the money supply in the economy. Adherents believe that the economy is inherently stable, so that policy is best undertaken through adoption of a policy rule.

Monetarist Rule

Proposal that the money supply be increased at a steady rate equal approximately to the real rate of growth of the economy. Contrast with discretionary policy.

Monetary Aggregate

Any measure of the economy's money supply.

Monetary Base

See money base.

Monetary gold

Gold held by governmental authorities as a financial asset.

Monetary / non-monetary method

Under this translation method, monetary items (e.g. cash, accounts
payable and receivable, and long-term debt) are translated at the current rate while non-monetary items (e.g.
inventory, fixed assets, and long-term investments) are translated at historical rates.

Monetary policy

Actions taken by the Board of Governors of the Federal Reserve System to influence the
money supply or interest rates.

Monetary Policy

Actions taken by the central bank to change the supply of money and the interest rate and thereby affect economic activity.

Monetizing the Debt

See printing money.

Net adjusted present value

The adjusted present value minus the initial cost of an investment.

Net advantage of refunding

The net present value of the savings from a refunding.

Net advantage to leasing

The net present value of entering into a lease financing arrangement rather than
borrowing the necessary funds and buying the asset.

Net advantage to merging

The difference in total post- and pre-merger market value minus the cost of the merger.

net asset value

The value of all the holdings of a mutual fund, less the fund's liabilities.

Net asset value (NAV)

The value of a fund's investments. For a mutual fund, the net asset value per share
usually represents the fund's market price, subject to a possible sales or redemption charge. For a closed end
fund, the market price may vary significantly from the net asset value.

Net assets

The difference between total assets on the one hand and current liabilities and noncapitalized longterm
liabilities on the other hand.

Net benefit to leverage factor

A linear approximation of a factor, T*, that enables one to operationalize the
total impact of leverage on firm value in the capital market imperfections view of capital structure.

Net book value

The current book value of an asset or liability; that is, its original book value net of any
accounting adjustments such as depreciation.

Net Cash after Operations

Cash flow available for debt service—the payment of interest and principal on loans. Generally calculated as cash provided by operating activities before interest

Net cash balance

Beginning cash balance plus cash receipts minus cash disbursements.

Net change

This is the difference between a day's last trade and the previous day's last trade.

net cost of normal spoilage

the cost of spoiled work less the estimated disposal value of that work

Net Domestic Product

GDP minus depreciation.

Net errors and omissions

In balance of payments accounting, net errors and omissions record the statistical
discrepancies that arise in gathering balance of payments data.

Net Exports

Exports minus imports.

Net financing cost

Also called the cost of carry or, simply, carry, the difference between the cost of financing
the purchase of an asset and the asset's cash yield. Positive carry means that the yield earned is greater than
the financing cost; negative carry means that the financing cost exceeds the yield earned.

Net float

Sum of disbursement float and collection float.

net float

Difference between payment float and availability float.

Net income

The company's total earnings, reflecting revenues adjusted for costs of doing business,
depreciation, interest, taxes and other expenses.

Net income

The last line of the Income Statement; it represents the amount that the company earned during a specified period.

Net income

The excess of revenues over expenses, including the impact of income taxes.

net income (also called the bottom line, earnings, net earnings, and net

operating earnings)
This key figure equals sales revenue for a period
less all expenses for the period; also, any extraordinary gains and losses
for the period are included in this final profit figure. Everything is taken
into account to arrive at net income, which is popularly called the bottom
line. net income is clearly the single most important number in business
financial reports.

Net inventory

The current inventory balance, less allocated or reserved items.

Net investment

Gross, or total, investment minus depreciation.

Net Investment

Investment spending minus depreciation.

Net lease

A lease arrangement under which the lessee is responsible for all property taxes, maintenance
expenses, insurance, and other costs associated with keeping the asset in good working condition.

Net National Product

GNP minus depreciation.

Net operating losses

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

Net Pay

The amount of an employee’s wages payable after all tax and other deductions have been removed.

Net period

The period of time between the end of the discount period and the date payment is due.

Net present value

A discounted cash flow methodology that uses a required rate of
return (usually a firm’s cost of capital) to determine the present value of a stream of
future cash flows, resulting in a net positive or negative value.

net present value method

a process that uses the discounted
cash flows of a project to determine whether the
rate of return on that project is equal to, higher than, or
lower than the desired rate of return

Net present value (NPV)

The present value of the expected future cash flows minus the cost.

Net present value (NPV)

A discounted cash flow technique used for investment appraisal that calculates the present value of future cash flows and deducts the initial capital investment.

net present value (NPV)

Equals the present value (PV) of a capital investment
minus the initial amount of capital that is invested, or the entry cost
of the investment. A positive NPV signals an attractive capital investment
opportunity; a negative NPV means that the investment is substandard.

Net Present Value (NPV)

The present value of all future cash inflows minus the present value
of all cash outflows

net present value (NPV)

the difference between the present values of all cash inflows and outflows for an investment project

net present value (NPV)

Present value of cash flows minus initial investment.

Net Present Value (NPV) Method

A method of ranking investment proposals. NPV is equal to the present value of the future returns, discounted at the marginal cost of capital, minus the present value of the cost of the investment.

Net present value of future investments

The present value of the total sum of NPVs expected to result from
all of the firm's future investments.

Net present value of growth opportunities

A model valuing a firm in which net present value of new
investment opportunities is explicitly examined.

Net present value rule

An investment is worth making if it has a positive NPV. Projects with negative NPVs
should be rejected.

Net profit

See operating profit.

Net profit margin

net income divided by sales; the amount of each sales dollar left over after all expenses
have been paid.

Net Realizable Value

Selling price of an asset less expenses of bringing the asset into a saleable state and expenses of the sale.

net realizable value approach

a method of accounting for by-products or scrap that requires that the net realizable value of these products be treated as a reduction in the cost of the primary products; primary product cost may be reduced by decreasing either
(1) cost of goods sold when the joint products are sold or
(2) the joint process cost allocated to the joint products

net realizable value at split-off allocation

a method of allocating joint cost to joint products that uses, as the proration base, sales value at split-off minus all costs necessary
to prepare and dispose of the products; it requires
that all joint products be salable at the split-off point

Net realizeable value

The expected revenue to be gained from the sale of an item or
service, less the costs of the sale transaction.

Net salvage value

The after-tax net cash flow for terminating the project.

Net working capital

Current assets minus current liabilities. Often simply referred to as working capital.

net working capital

Current assets minus current liabilities.

Net worth

Common stockholders' equity which consists of common stock, surplus, and retained earnings.

net worth

Generally refers to the book value of owners’ equity as reported
in a business’s balance sheet. If liabilities are subtracted from assets, the
accounting equation becomes: assets - liabilities = owners’ equity. In this
version of the accounting equation, owners’ equity equals net worth, or
the amount of assets after deducting the liabilities of the business.

net worth

Book value of common stockholders’ equity plus preferred stock.

Net Worth

The difference between the total assets and total liabilities of a company. Note: The value of the preferred shares is deducted from the net worth because the preferred's are usually redeemed before any value is paid to the common shareholders.


Reducing transfers of funds between subsidiaries or separate companies to a net amount.

Netting out

To get or bring in as a net; to clear as profit.







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