Business Terms Glossary

accounts receivable. Amounts customers owe a company from sales of goods or services that the company expects to collect within one year. Listed in the current assets section on the statement of financial position.

annual report. A report a company publishes for its stockholders at the end of each fiscal year. The report includes required elements such as an auditors' report and the company's statement of earnings or income statement, statement of financial position, and statement of cash flows. The report also includes elements such as letters and articles by the company's executives, information on its financial condition, and significant events.

assets. Anything companies own. These things might be physical assets such as buildings, trucks, inventories of products, equipment, and cash. Or these things might be intangible assets such as goodwill, trademarks, and patents. Listed as a category on the statement of financial position. See also accounts receivable, current assets, fixed assets, noncurrent assets.

auditor. A firm of certified public accountants a company hires as an independent third party to review its financial information. The auditor's main purpose is to make sure the statement of earnings or income statement, statement of financial position, and statement of cash flows fairly present the company's financial condition, and that they comply with GAAP.

auditors' opinion. A summary of the findings of a firm of certified public accountants that audits, or examines, a company's financial statements. This report is included in the company's annual report. Also called auditors' report and report of independent accountants.

auditors' report. A summary of the findings of a firm of certified public accountants that audits, or examines, a company's financial statements. This report is included in the company's annual report. Also called auditors' opinion and report of independent accountants.

balance sheet. A financial statement that reports a company's assets and the claims against them - liabilities and stockholders' equity - at a set date noted on the statement. Also called statement of financial position.

bond. A form of debt security a government or corporation issues, promising payment of the original investment plus interest on specified future dates. See also marketable securities.

book value. The value of an asset, a liability, or a stockholders' equity account. For a fixed asset, it is typically the cost of the asset minus accumulated depreciation. As companies continue to use fixed assets to generate revenue, the book values lessen, and sometimes ultimately reach zero. See also depreciation.

cash equivalents. Short-term, temporary securities that can be quickly and easily converted to cash. Listed in the current assets section on the statement of financial position. See also cash.

consolidated statements. Financial statements of a company that presents the financial information of all its holdings as one company.

current assets. Assets a company can convert to cash within one year. Examples are accounts receivable and inventories of products to sell.

current liabilities. Obligations a company has to others, such as creditors, suppliers, and tax authorities, payable within one year. Listed in the liabilities category on the statement of financial position. See also accounts payable, debt, income taxes.

debt. Money a company has borrowed and must repay, frequently with interest. Listed in the liabilities category on the statement of financial position.

depreciation. An allowance for wear or age made to the value of a fixed asset, allocating its cost over its estimated useful life. Listed in the assets category on the statement of financial position. See also book value.

dividends. Cash or stock payments from a company's profits distributed to stockholders, an equal amount for each share of stock owned. Listed as dividends on the statement of stockholders' equity.

earnings report. A financial statement that reports the results of a company's business operations (revenue and expenses) for a set period, usually one year. Also called an income statement, statement of earnings or income statement, statement of operations, and statement of profit and loss.

equity. The part of a company's assets that belongs to the stockholders. In other words, the amount that would remain if a company sold all of its assets and paid off all of its liabilities. Listed as stockholders' equity on the statement of financial position and on the statement of stockholders' equity.

expenses. Costs such as salaries, rent, office supplies, advertising, and taxes. Listed in the operating expenses category on the statement of earnings or income statement.

fixed assets. Anything companies use for more than one year to manufacture, display, store, and transport products. Often called "Property, plant, and equipment" because that's what fixed assets usually are. Listed after current assets in the assets category on the statement of financial position. See also assets, noncurrent assets.

footnotes. An annual report section that provides information essential to fully understanding the financial statements. Notes explain the financial statements' numbers and any significant events affecting them. Notes also provide additional detail and provide supplementary financial information. Also called notes.

Form 10-K. A financial report the SEC requires companies to submit yearly. This audited form contains more detailed information than the financial statements in the annual report.

Form 10-Q. A financial report the SEC requires companies to submit quarterly. This unaudited form includes briefer, less detailed financial statements than those in the annual report.

goodwill. An intangible asset that adds value to the worth of a company; for example, the reputation of its products, services, or personnel. Listed in the assets category (sometimes as "Investments and sundry assets") on the statement of financial position. See also assets, intangible assets, noncurrent assets.

gross income. The difference between a company's total sales and its cost of sales. Listed as a category on the statement of earnings or income statement. Also called gross profit.

gross profit. The difference between a company's total sales and its cost of sales. Listed as a category on the statement of earnings or income statement. Also called gross income.

gross profit and income statement. A financial statement use in the UK and some other European countries that reports the results of a company's business operations (turnover / revenue and expenses) for a set period, usually one year. Also called an earnings report, statement of earnings or income statement, statement of operations, and statement of profit and loss.

gross profit margin. The gross profit divided by total sales or revenue. It is the profit margin of the product after direct costs (cost of goods sold) are deducted. A deteriorating trend in gross profit margin can indicate many things to include increased competition, raising inventory costs, poor pricing, etc.

income taxes. Fees placed by federal, state, local, and foreign governments on a company's earnings. Listed on the statement of earnings or income statement.

intangible assets. Anything nonphysical, such as goodwill, trademarks, and patents, that have value for a company. Listed in the assets category (sometimes as "Investments and sundry assets") on the statement of financial position. See also assets, fixed assets, goodwill.

inventories. All goods and materials available for sale (in the case of wholesalers, retailers, and distributors) or raw materials and supplies, work in process, and finished goods (in the case of manufacturers). Listed in the current assets section on the statement of financial position.

inventory turns. The average rate at which inventory moves out of the company and is replaced during the period. This ratio can reveal excess inventory, which can be caused by either poor inventory management or poor sales. By dividing the cost of goods sold by the inventory on the books at the end of a specific period you will get the number of times the inventory turned for that period.

investments. A company's equity ownership in unconsolidated subsidiaries and affiliates. Listed in the category of assets (for example, "Investments and sundry assets") on the statement of financial position.

investor relations. The division of a company that answers stockholders' questions and sends them regular updates about the company's performance.

liabilities. A company's debts to a lender, a supplier of goods and services, a tax authority, a landlord, and others. Listed as a category on the statement of financial position.

liquid asset. An asset that can be quickly converted into cash. Examples include cash and marketable securities. See also cash equivalents.

long-term debt. Debt a company will repay after one year. Listed in the liabilities category on the statement of financial position.

market value. The amount two unrelated parties agree one of them will pay for something the other has. Also, the value of a company determined by multiplying the total number of outstanding shares by the market price per share. For example, if a company has 4,000,000 shares of stock outstanding and the current price per share is $50, the company's market value is 4,000,000 x $50 or $200 million.

marketable securities. Financial assets, such as stocks and bonds, that companies can convert to cash. Listed as assets on the statement of financial position.

net income. A company's total revenue less total expenses, showing what a company earned (or lost, called net loss) for a set period, usually one year. Listed often literally as the "bottom line" on the statement of earnings or income statement. Also called net earnings and net profit.

net profit. A company's total revenue less total expenses, showing what a company earned (or lost, called net loss) for a set period, usually one year. Listed often literally as the "bottom line" on the statement of earnings or income statement. Also called net earnings and net income.

net profit margin. (aka: return on sales)The net income expressed as a percentage of sales. This ratio shows the bottom line or the percentage of income a company is able to keep as profit. If the gross and operating profit margins are fine, deterioration in the net profit margin may indicate an increase interest, tax or extraordinary expense.

net sales. A company's total sales less returned merchandise and discounts. Listed on the statement of earnings or income statement.

net worth. The amount of a company's stockholders' equity. Listed as total stockholders' equity on the statement of financial position.

noncurrent assets. Anything of long-term value to a company, including fixed assets and intangible assets. Listed in the assets category (after current assets) on the statement of financial position. See also fixed assets, goodwill, intangible assets.

notes. An annual report section that provides information essential to fully understanding the financial statements. Notes explain the financial statements' numbers and any significant events affecting them. Notes also provide additional detail and provide supplementary financial information. Also called footnotes.

operating income (or loss). The result of deducting the cost of all sales and operating expenses from a company's net sales. Listed on the statement of earnings or income statement.

operating profit margin. The operating income expressed as a percentage of sales. This ratio takes into consideration indirect operating expenses (such as salaries, supplies, legal expenses, and depreciation expenses). Deterioration in the OPM not explained in the GPM indicates a growth in these indirect expenses without a commensurate increase in sales. Excessive salary increases, unwarranted additional hiring, increased travel and entertainment could cause the increase.

operating ratios. Ratios derived from the income statement. The most common and related measures compare income levels to sales levels. Income becomes expressed as a percentage of sales (the margin) putting raw income figures into perspective and, when compared from period to period, is an excellent indicator of trends.

report of independent accountants. A summary of the findings of a firm of independent certified public accountants that audits, or examines, a company's financial statements. This report is included in the company's annual report. Also called auditors' report and auditors' opinion.

retained earnings. The total amount of a company's net earnings since its inception, minus any payments made to stockholders. Retained earnings are actually part of stockholders' equity and represents the portion of a company's assets that are financed from profitable operations rather than from selling stock to investors or borrowing from external sources. Listed on the statement of financial position.

return on assets. A measurement of return on investment. Return on equity is calculated by showing net income for a specific time period (balance sheet) as a percentage of assets.

return on equity. A measurement of return on investment. Return on equity is calculated by showing net income for a specific time period (balance sheet) as a percentage of equity.

return on sales. (aka NPM) The net income expressed as a percentage of sales. This ratio shows the bottom line or the percentage of income a company is able to keep as profit. If the gross and operating profit margins are fine, deterioration in the return on sales may indicate an increase interest, tax or extraordinary expense.

revenue. The total flow of funds into a company, mostly for sales of its goods or services. Listed as the first category on the statement of earnings or income statement.

SEC Form 10-K. A financial report the SEC requires companies to submit yearly. This audited form contains more detailed information than the financial statements in the annual report.

SEC Form 10-Q. A financial report the SEC requires companies to submit quarterly. This unaudited form includes briefer, less detailed financial statements than those in the annual report.

Securities and Exchange Commission (SEC). A U.S. government agency responsible for, among other things, ensuring publicly held companies report financial information to stockholders regularly.

securities. Investments, including stocks and bonds. Listed as assets on the statement of financial position.

share. A certificate of ownership in a company. Also called stock.

statement of cash flows. A financial statement that reports the flow of cash in and out of a company for a set period, usually one year. It reports the operating activities, investing activities and financing activities of the company.

statement of earnings or income statement. A financial statement that reports the results of a company's business operations (revenue and expenses) for a set period, usually one year. Also called an earnings report, income statement, statement of operations, and statement of profit and loss.

statement of financial position. A financial statement that reports a company's assets and the claims against them - liabilities and stockholders' equity - at a set date noted on the statement. Also called the balance sheet.

statement of operations. A financial statement that reports the results of a company's business operations (revenue and expenses) for a set period, usually one year. Also called an earnings report, income statement, statement of earnings or income statement, and statement of profit and loss.

statement of owners' equity. A financial statement that reports the changes in the owners' interests (equity); for example, by detailing changes in net earnings or dividends paid to stockholders. This statement is usually separate but a company may prepare a statement of retained earnings instead. Also called statement of stockholders' equity.

statement of profit and loss. A financial statement that reports the results of a company's business operations (revenue and expenses) for a set period, usually one year. Also called an earnings report, income statement, statement of earnings or income statement, and statement of operations.

statement of stockholders' equity. A financial statement that reports the changes in the owners' interests (equity); for example, by detailing changes in net earnings or dividends paid to stockholders. This statement is usually separate but a company may prepare a statement of retained earnings instead. Also called statement of owners' equity.

stock. A certificate of ownership in a company. Also called share.

stockholder. An owner of part of a company. Also called a shareholder.

turnover. Also known as sales or revenue turnover is the amount of income derived from a company's provision of mainstream goods and services. Term used on UK Gross Profit and Income Statements.