A·B·C·D·E·F·G·H·I·J·K·L·M·N·O·P·Q·R·S·T·U·V·W·X·Y·Z

Absorption
Assignment of fixed costs to products as they are booked into product cost. The higher the volume, the lower the cost that must be assigned to each unit.

Activity Based Costing (ABC)
ABC is an approach to estimating and managing costs by determining their underlying drivers to ensure certain customers or products are not being subsidized at the expense of others.

Acquisition
A business entity being acquired for cash or stock. See Mergers & Acquisitions.

Asset Leverage
Use of assets to gain the optimum revenue (measured as Revenue divided by Assets).

Amortization
Write off over time of an intangible asset such as goodwill, patents, or copyrights..

Auditable
Organized and complete documentation linking input assumptions unambiguously with output results.

Backflush
Compute the value of goods produced in a specific activity by multiplying the volume produced by the standard cost.

Balance Sheet
Standard financial statement that presents assets, liabilities, and equity as of the end of one or more fiscal periods.

Base Case / Baseline
In a financial analysis, this case estimates future performance for "business as usual" (what is expected to happen without any business improvement activities).

Benefits
The positive effects (usually the purpose of) a business improvement project.

Breakeven Analysis
Involves computation of the point at which profit contribution exactly equals the fixed costs of a company

Business Analysis
Any analysis of business activities, especially those driving financial or non-financial investments and returns (benefits).

Business Case
The analysis supporting a proposed action. Typically, a financial analysis of the investments and returns.

Business Model
A representation of the activities of a business in mathematical or abstract terms. often refers to a computer simulation of financial flows.

Business Unit
Any business organization with identifiable financial statements. Many organizations identify business units to fix financial accountability.

Cannibalization
Occurs when a new product takes some of its market share from its owner's existing products, in effect cannibalizing other planned revenue.

Capital Investments
Systems, machinery and equipment costs, or people-related costs if their work results in an amortized asset (such as software).

Cash Flow / Funds Flow Statement
Standard financial statement that shows how cash was obtained and used in one or more fiscal periods.

Cash Flow versus Earnings Ratio
An indicator of liquidity trends, computed as Net Cash Flow divided by Net Earnings after Tax for a given period.

Charter (or Action Plan)
A document agreed between executives and a project team against which progress will be tracked and decisions will be made.

Chart of Accounts
A hierarchical numerical index of financial elements designed for sub-totaling into meaningful categories.

Confidence
Estimates of future performance always entail a confidence factor, the inverse of uncertainty. It is useful to quantify the confidence to perform Sensitivity Analysis, demonstrating the possible impacts of different levels of performance. See Sensitivity Analysis.

Consolidation
Combining two or more business entities, taking into account their existing interactions to prevent certain transactions from being double-counted.

Currency Conversion
When consolidating financial statements, it is critical that a single currency and order of magnitude is used, and the value of one country's currency may need to be translated into another.

Current Ratio
Current Assets divided by Current Liabilities, a measure of liquidity, or the ability to pay current debts out of current assets. An extreme version, the "Acid Test" ratio, assumes Inventory cannot be converted to cash.

Customer Satisfaction
Satisfied customers are loyal, and reduce the cost of gaining future revenue. Measurement allows companies to continuously improve products and services.

Days of Inventory Supply (DOS) or Days on Hand (DOH)
Another measure to determine whether inventory is being used efficiently, and to predict theoretically how many days a company could keep shipping if incoming materials dried up.

Days Purchases Outstanding
Days Purchases Outstanding is the number of days the average supplier waits from delivery of product to payment, calculated as A/P divided by annual material purchases, times 365.

Days Sales Outstanding (DSO)
A measure of Accounts Receivable, measured as A/R divided by annual Revenue, times 365. DSO theoretically measures how many days we wait after delivering a product to get paid for it.

Debt Ratio
Total Liabilities divided by Total Assets, indicates how much of the company is owed to creditors.

Debt / Equity Ratio
Total Liabilities divided by Total Equity, indicates the balance of the stakes held between owners and creditors.

Dependencies
Related events or plans that could significantly affect the outcome of a project.

Discount Rate
The rate of interest used to calculate the Net Present Value (NPV) of investments. This could also be a company's "Hurdle" Rate, or minimum acceptable return.

Divestiture
The sale of a business unit or business entity.

Dividend Payout
Per cent of Net Profit after Tax paid out to shareholders in the form of Dividends or Distributions (Dividends divided by NPAT).

Dividend Yield
The value of Dividends paid compared to the Market Value of a stock.

Due Diligence
Appropriate care investigating the business condition of an acquisition target. It can be difficult for an outsider to learn enough about an operation to make an informed decision, but it is critically important.

Duplication
Competing products may cannibalize each other, or competing improvement projects may claim the same benefits.

EBITDA (Earnings before Interest, Taxes, Depreciation, and Amortization)
This measure is commonly used by investors to understand a company's ability to incur and service debt.

Economic life
The period during which an asset provides value to a company. Not necessarily linked to an asset's market value or its physical life.

Economic Order Quantity
The right amount to order to optimize the trade-off between volume discounts or similar quantity incentives, and the carrying cost of inventory.

Elimination
When combining business entities, certain intra-company transactions are subtracted to avoid double-counting.

EOQ (Economic Order Quantity)
EOQ is the right amount of an item to order to minimize the trade-off between ordering costs and the carrying cost of inventory.

Excel Security
Early VBA viruses prompted Microsoft to create the security feature and to set it on "High" as the initial configuration, automatically blocking any file with VBA. The "Medium" setting will notify the user if VBA is attached to an Excel file, and provide the option to enable or disable the macros (VBA).

Financial Accounting Standards Board (FASB)
A non-governmental body that sets accounting standards for CPAs in the United States.

Financial Analysis
Any analysis of the revenues, costs, assets, or liabilities of a business. See Business Case.

Financial Case
The financial analysis of investments and returns supporting a proposed action. See Business Case.

Financial Elements
The categories of revenue, cost, assets, liabilities, and equities that comprise the Chart of Accounts. Summaries of these are used in financial statements to depict the company's strength and financial direction.

Financial Leverage
Financial Leverage refers to the capacity to borrow (Assets divided by Book Value) and depends on a company's leverage with lending sources and the stock market.

Financial Model
A representation of the financial inputs and outputs of a business in mathematical or abstract terms. See Business Model.

Financial Statements
Financial statements have evolved over the years to show in standard, easy to read format what a company owns and owes (Balance Sheet), whether it is making or losing money (P&L), and whether its cash flow is positive or negative (Cash or Funds Flow).

Fiscal Year
The twelve month period a company uses to plan, budget, and report its business. A company's fiscal year may start on the first of any month, ending the last day of the twelfth month following, typically labeled as "For the Year Ending June 30, 2004."

Fixed Cost
Costs that don't change with changes in volume

Free Cash Flow
Cash available to pay to owners and lenders, calculated by subtracting Dividends and After Tax Interest from Net Cash Flow for a period.

Full Time Equivalent (FTE)
The equivalent of a full time person on staff. For example, if ten people work 25% of the time, that is equivalent to 2.5 full time people.

Generally Accepted Accounting Principles (GAAP)
Standards, conventions, and rules issued by FASB and followed by accountants to record and summarize transactions and prepare reports.

Gross Profit and Gross Profit Margin
Gross Profit is the contribution made toward corporate expenses by the sale of products, calculated as Revenue less Cost of Goods Sold. Gross Profit Margin is a percentage, Gross Profit divided by Revenue.

Goodwill
An intangible asset generated when an entity is purchased for more than its book value, assumed to be for reputation and customer base.

Head Count
Actual number of people on staff. As a primary driver of cost in many operations, the head count measurement is often used to manage cost. Full Time Equivalents [see above], period averages, or period end measures may be used.

Indirect Labor
Labor supporting production.

Insource
See Outsource / Insource.

Interest Coverage
Ability to meet all interest obligations out of earnings calculated as Earnings Before Interest and Tax divided by Interest.

Interest Rate
The rate banks charge for the funds they lend.

Internal Rate of Return (IRR)
An iterated calculation to approximate the interest rate at which Net Present Value (NPV) equals zero.

Inventory Carrying Cost
A per cent of inventory value representing the annual expense of moving, storing, and managing inventory. It includes the financial cost (interest) associated with the investment in inventory.

Inventory Turns
Turns measure how fast inventory is used and replaced, computed as Total annual Cost of Goods Sold divided by Inventory. In general, higher turns are better, helping drive down invested capital.

Investments
Funds output for any business purpose. Companies invest in assets and resources, and individual investors invest in companies.

Just-In-Time (JIT)
Inventory replenishment intended to bring exactly the right parts to an assembly process exactly when needed, minimizing inventory requirements and simplifying its flow. In practice, this approach risks line shut downs if information and all delivery systems aren't near-perfect.

Kanban
A high-low inventory measure used to keep the right amount of the right inventory in front of each production process step.

Key Ratios
Various ratios are computed and widely used to evaluate financial strengths and weaknesses, and trends, of a company.

Lean Accounting
Accounting philosophy and practices that support the principles and techniques of lean operations, such as pull manufacturing, elimination of waste, inventory kanbans, and visual workplace.

Life Cycle
Product life from development, through sales growth and decline, to eventual exit and disposal.

Low-hanging Fruit
Business improvement project Benefits [See above] that are easy to obtain quickly.

Market Leverage
Market Leverage refers to the ratio of stock value to profit (Market Value divided by Profit After Tax). It depends on capital markets, and is highly uncertain even for experienced investors.

Mergers and Acquisitions
Mergers and Acquisitions (M&A) are business combinations involving purchases or stock swaps.

Model
Any financial tool used to analyze a type of transaction or a series of transactions.

Net Present Value (NPV)
The value of a stream of cash over time, discounted to a selected "hurdle" rate of interest.

Operating Leverage
Operating Leverage refers to the ability to gain profit from revenue (calculated as Profit after Tax divided by Revenue).

Outsource / Insource
Contract with an outside source to purchase goods or services previously produced in-house / produce in-house goods or services that were previously purchased outside.

Patent
An intangible asset, the exclusive right to sell a product or process for 17 years under government protection.

Payback Curve
Depicts the point in time when the cash returns of an investment exactly equal the earlier cash investments.

Phase Review Process
Typical phases, and the financial analysis involved, are:

1. Feasibility - tops down financial sizing
2. Commitment - detailed revenue and cost estimate
3. Announcement - review and update of detailed review
4. Life Cycle Determination - detailed sizing for planning exit strategy
5. Exit and Disposal - tops down sizing to focus on inventory and asset disposition

Pre-Tax Profit Margin
A percentage calculated as Net Profit before Tax divided by Revenue.

Price/Earning (P/E)
The value of a stock expressed as a multiple of a company's earnings, generally as Earnings per Share of stock outstanding (EPS).

Price Sensitivity
Price usually has an impact on demand. Often when prices are reduced, the volume of goods sold increases. Higher prices may decrease the volume. Optimum profitability may be at low prices with high volumes, or high prices with low volumes, or anywhere in between.

Pricing Integrity (vs Target)
A measure of discounts as a per cent of Revenue, to maintain optimum pricing for maximum profitability. Depending on the industry and the degree of discretion allowed the sales force, it can be very important to carefully control discounting effects.

Prime Rate
The interest rate the Federal Reserve Bank charges its best customers for funds it lends them.

Productivity
Measures of efficiency, usually labor efficiency, calculated as cost of labor as a per cent of revenue or per production unit, or production units per direct employee.

Profit & Loss (P&L)
Standard financial statement that presents revenue, costs, and the resulting profits for one or more fiscal periods.

Profit Margin
Profit Margin is a percentage calculated as Net Profit after Tax divided by Revenue.

Profit per Employee
This is a measure of the efficient use of human resources in generating profit for an organization.

Purchasing Effectiveness
Cost of purchasing as a per cent of revenue or purchases, or purchases per purchasing employee, tracked for continuous product cost improvement. Solid metrics allow companies to improve the cost of materials and supplies continuously. Improvements can also be realized in the consolidation of purchasing activities, by upgrading skills and consolidating buying power.

Quality Teams
Building on Japanese concepts, many companies have instituted teams focused on continuous improvement. Advanced significantly by Motorola, there are many well designed tools to effectively focus this team energy. See also Six Sigma.

Revenue per Employee
A measure of the efficient use of human resources in securing income for an organization.

Risks
Risk factors are any potential events that could significantly affect an investment. Risks can be better understood by reviewing optimistic, expected, and pessimistic cases, and mitigated by specific action plans.

ROI (Return on Investment)
Investments are made in order to receive returns (benefits). There are many ways to calculate ROI, on a cash basis or a profit basis, with or without tax effects, or over varying time periods. Different approaches are helpful for differing purposes.

ROIC (Return on Invested Capital)
One of the most effective metrics for holding operating managers accountable is ROIC, measured each year to focus on the after-tax earnings on the average assets employed.

Roles and Responsibilities
Clear delineation of who is Accountable or Responsible for, or must be Consulted or Informed of, actions and results.

Sales and Spin Offs
In a spin off, a complete business with its own stock is constructed and removed. In a sale, any price may be paid for assets being divested, potentially impacting cash and equity.

Scenario
A complete set of planned actions and their consolidated outcomes.

Seasonality
Seasonal businesses gain a significant portion of their annual revenue in a single quarter, but their purchases and inventories may lead the revenues in a significantly different pattern.

Sensitivity Analysis / Sensitivity Cases
Sensitivity tests consider what might happen if an investment under or over performs, and to develop contingency plans.

Shareholder Value
Shareholder value can be defined as market value of the company's stock divided by the book value of the company, representing the premium stock purchasers are willing to pay for the assets of the company under its current management.

Six Sigma
Six Sigma refers to the statistical area under a probability curve in which the probability is 3.4 out of 1 million occurrences. Sigma is calculated mathematically as a variance from the mean result. Six Sigma teams attempt to apply statistical and quality improvement tools to a wide variety of business inefficiencies.

Standard Industrial Classification (SIC) Code
Codes assigned to most industries in the United states for statistical analysis of the health of the economy. These codes are being supplanted by the North American Industrial Classification System (NAICS).

Strategic Business Unit (SBU)
Generally refers to a business within a business, often operated with some autonomy due to its identifiably different market focus.

Synergy
Complementary products may boost each other's sales, or complementary improvement projects may gain more than the sum of their benefits.

Tax Rate
For taxes paid to any taxing authority, national, state, or local. This is a complex area and generally warrants advice from professional tax advisors.

Turns or Turnover
See Inventory Turns.

Uncertainty
Estimates of future performance always entail uncertainty, the inverse of confidence. It is useful to quantify the uncertainty to perform Sensitivity Analysis, demonstrating the possible impacts of different levels of performance. See Sensitivity Analysis.

Value Added / Non-Value Added
Often used to distinguish between activities that directly add value to a product (such as assembly labor) from activities that support product manufacturing.

Variable Cost
Cost that varies with sales volume.

Waste Activities
In the lean operations environment, waste is any unnecessary work.

Working Capital
Capital tied up in Cash, Accounts Receivable and Inventories, less Accounts Payable.

Zero-based Budgets
Budgets built from scratch, replacing justification based on historical spending with justification based on requirements of current value-adding activities.