Terms in Business

1. Variable cost / expense

The cost that varies with the level of activity is called variable cost. For example- direct materials cost will be double if output doubles; business taxes. Another example- cost of producing per TV is tk 500. If the production of TV increases, the cost will increase and if the production decreases, the cost will decrease. Here, cost changes with the level of production / output. So this cost is variable cost.

2. Fixed cost / expense

The cost that remains unchanged and that does not vary with the level of activity is called fixed cost. For example, rent expense, interest expense. Even if the production level is zero, the rent must be paid. And in case of high level of production the rent expense is same.

3. Inflation
The percentage rate increase in the general price level is called inflation. For example the price of a commodity was tk. 20 and the price of the commodity is tk. 30 now. So the inflation is = % increase in the price level =

= 50%

The rise in the average level of prices for all goods and services in a particular time period, with a corresponding decline in the purchasing power of money

4. Market
The actual and probable buyers of a product or service

5. Balance sheet
A statement that shows a firms accounting value on a particular point of time

6. Asset
Anything that the firm owns and that generates future benefits is called asset.

Md. Nasir Uddin, BBA (Finance), DU. Cell: 01924 75 65 94.

Page 1

Terms in Business
7. Liability
The claim on the firms asset by third parties is called liability.

8. Equity
The claim on the firms asset by the owner is called equity / owners equity.

9. Time value of money

The change in the value of money overtime

10.

Required rate of return

The minimum rate of return that an investor expects from his/her investment

11.

Investment

The commitment of fund for a certain time period that will generate adequate fund to compensate for three factors time value of money, inflation, and risk

12.

Liquidity / marketability

The speed and ease with which an asset can be converted into cash with minimum loss of value.

13.

Money

Anything that is generally accepted to make the payment of loan or goods/services purchased.

14.

Mixed economy

An economy in which both the govt. and private sector produce and distribute goods and services

15.

Finance

The study of money within the firm; the business function responsible for finding funds, managing them, and determining their best use

16.

Barter

The exchange of goods without using money Md. Nasir Uddin, BBA (Finance), DU. Cell: 01924 75 65 94.
Page 2

Terms in Business
17.
Business The exchange of goods, services, or money for mutual benefit or profit

18.

Business enterprise

An organization involved in exchanging goods, services, or money to earn profit

19.

Capital budgeting

The process of comparing and evaluating alternatives in order to budget funds for future

20.

Economics

The study of how a society chooses to use scarce resources to produce goods and services and to distribute them to people for consumption

21.

Human resource management (HRM)

The process of acquiring, retaining, terminating, developing, and properly using the human resources in an organization

22.

Junk bond

A low grade bond that carries a very high risk because it is issued by financially weak companies with no solid collateral, to fund internal expansion or corporate acquisitions and buyouts

23.

Opportunity cost

The cost of forgoing an opportunity

24.

Common stock

Stock that has voting rights but doesnt have preferential rights of dividends or claims against the assets of the firm

25.

Preferred stock

Stock that has preference over common stock in the payment of dividends and in claims against the assets of the firm, but doesnt have the voting rights

26.

Span of control Md. Nasir Uddin, BBA (Finance), DU. Cell: 01924 75 65 94.
Page 3

Terms in Business
The principle of organization that specifies the number of subordinates reporting to a supervisor

27.

Unity of command

The principle of organization that no employee should report to more than one superior

28.

Stagflation

A stalled economy faced with rising prices (inflation) for goods and services

29.

Utility

The ability of a product to satisfy consumers needs

30.

Factoring

Sale of a firms accounts receivable to a financial institution

31.

Factor

A financial institution that buys a firms accounts receivables and collects the debts

32.

Asset beta

The sensitivity of a firms asset value to that of the overall economy

33.

Bankruptcy

State of being unable to pay debts

34.

Capital structure / financial structure

The mix of various debt and equity capital maintained by a firm

35.

Cash cow

A company that pays out a substantial portion of earnings to stockholders as dividends

36.

Collateral

Assets that are pledged as security for payment of debt

37.

Coupon Md. Nasir Uddin, BBA (Finance), DU. Cell: 01924 75 65 94.
Page 4

Terms in Business
The stated interest on a debt instrument

38.

Covariance

A statistical measure of the degree to which random variables move together

39.

Cum dividend

With dividend

40.

Credit period

Time allowed a credit purchaser to remit the full payment for credit purchases

41.

Debenture

An unsecured bond

42.

Dilution

Loss in existing shareholders value is called dilution.

There are several kinds of dilution: dilution of ownership, dilution of market value, dilution of book value and earnings.

43.

Equity beta

The asset beta adjusted for leverage

44.

Financial risk

The additional risk that the firms stockholders bear when the firms stockholders bear when the firm is financed with debt as well as equity

45.

Financial leverage

The extent to which a firm relies on debt

46.

Hedging

Taking a position in two or more securities that are negatively correlated (taking opposite trading positions) to reduce risk

47.

Inventory

A current asset, composed of raw materials to be used in production, work in process, and finished goods Md. Nasir Uddin, BBA (Finance), DU. Cell: 01924 75 65 94.
Page 5

Terms in Business
48.
Invoice
Bill written by a seller of goods or services and submitted to the purchaser

49.

Leverage buyout

Takeover of a company by using borrowed funds, usually by a group including some member of existing management

50.

Money markets

Financial markets for debt securities that pay off in the short term (usually less than one year)

51.

Odd lot

Stock trading unit of less than 100 shares

52.

Round lot

Common stock trading unit of 100 shares or multiples of 100 shares

53.

Payout ratio

Proportion of net income paid out in cash

54.

Preemptive right

The right to share proportionally in any new stock sold

55.

Risk premium

The excess return on the risky asset that is the difference between expected return on risky assets and the return on the risk-free assets

56.

Shareholder

Holder of equity shares

57.

Simple interest

Interest calculated by considering only the original principal amount

58.

Sinking fund

An account managed by the bond trustee for the purpose of repaying the bonds Md. Nasir Uddin, BBA (Finance), DU. Cell: 01924 75 65 94.
Page 6

Terms in Business
59.
Speculating Extremely high risk investing

60.

Stakeholders

Both stockholders and bondholders

61.

Stand alone principle

Investment principle that states a firm should accept or reject a project by comparing it with securities in the same risk class

62.

Sunk cost

A cost that has already occurred and cannot be removed

63.

Swap

Exchange between two securities or currencies.

One type of swap involves the sale (or purchase) of a foreign currency with a simultaneous agreement to repurchase (or sell) it.

64.

Treasury stock

Shares of stock that have been issued and then repurchased by a firm

65.

Target payout ratio

A firms long-run dividend-to-earnings ratio

66.

Wash

Gains equal losses

67.

Capital structure

The mix of different types of capital used by a firm

68.

Target capital structure

The mix of debt, preferred stock, and common equity with which the firm plans to finance its investments

69.

Flotation cost

The expenses incurred when selling new issues of securities

Md. Nasir Uddin, BBA (Finance), DU. Cell: 01924 75 65 94.

Page 7

Terms in Business
70.
Leverage
A firms fixed cost associated either with its sales and production operation or with the type of financing it uses

71.

Financial leverage

The extent to which fixed-income securities are used in a firms capital structure

72.

Operating leverage

Md. Nasir Uddin, BBA (Finance), DU. Cell: 01924 75 65 94.

Page 8