Finance Concepts Overview

Interest calculated only on the original amount of the loan or principal, ignoring any accumulated interest.

A financial security note issued by businesses, corporations, or governments to raise long-term funds. It represents a loan from investors to the issuer.

A series of uniform payments made at regular intervals of time. Each payment is the same amount and occurs at the same frequency.

A method of depreciation that accelerates the depreciation expense in the early years of an asset's life.

The ratio of gross profit to net sales. It indicates how much profit a company makes on each dollar of sales.

The difference between the present value of an amount and its future value. It represents the 'time value' of money.

The ratio of the market price per share of a company's stock to its earnings per share. It indicates how much investors are willing to pay for each dollar of earnings.

The allocation of the initial cost of a capitalized asset over its useful life by periodic charges to operations. It is a way of reflecting the asset's decreasing value over time.

The interest rate on a loan or investment, expressed as a percentage of the principal. It represents the cost of borrowing funds or the reward for lending funds.

The true value of an interest rate, calculated using formulas for compound interest over a one-year period. It represents the actual return on an investment, taking into account compounding.

The resources owned by a business or individual. These resources can be used to generate revenue.

Another term for Acid-Test Ratio, which measures a company's ability to pay off short-term liabilities with its most liquid assets.

Funds supplied by others for which a fixed rate of interest must be paid, and the debt is repaid at a specific time.

Raw materials or primary products used in manufacturing or consumption. Examples include cloth, wool, flour, coffee, etc.

Not an essential element of an ordinary annuity. An ordinary annuity has payments made at the end of each period.

The physical counting and verification of materials on hand at a specific point in time.

The number of days considered in a year for calculating simple interest.

A depreciation method where the depreciation expense is the same amount each year. The value of the asset decreases linearly over its useful life.

The reduction in the value of an asset over time due to wear and tear, obsolescence, or other factors.

A temporary suspension of debt or interest payments for a specified period.

A method of depreciation that results in a higher depreciation expense in the early years of an asset's life than a straight-line method.

The discount rate on a principal amount for one unit of time, providing a rate of return.

The profit generated from a project or business without considering obligations to financial contributions or other claims based on profit.

A market structure where there are only a few sellers, controlling a significant portion of the market.

A fund where annual deposits are made to accumulate a certain amount of money in the future.

A method of recording financial transactions that involves recording the dual effects of each transaction. The basic equation is Assets = Liabilities + Equity.

A bond in which the issuing corporation pledges its equipment as security for the bond.

The factor (1+i)^-N used in the formula P = F*(1+i)^-N, where P is the present value, F is the future value, i is the interest rate, and N is the number of periods.

A series of uniform payments that continue indefinitely. This is also known as a perpetual annuity.

The ratio of net income to owners' equity that measures the return earned on the owners' investment.

The decrease in an asset's value, especially due to the extraction of its content, such as mines or natural resources.

Extra information about contract documents issued to bidders before the bidding deadline.

A ratio that evaluates a company's growth potential. It shows the market's perception of the company's future earnings.

A transaction that doesn't affect the owner's stake in the company. This usually involves operational expenses or adjustments.

The flow of profit plus depreciation back from a project. It represents the actual cash generated by the project.

The actual interest earned on a given principal amount, taking compounding into account.

The need, want, or desire for a product, backed with the funds to purchase it. It drives the market for goods and services.

The interest rate that equates the present worth of future cash flows to zero. This is also the rate of return on an investment.

A type of bond secured by a mortgage on specific assets of the issuing corporation.

The worth of a property calculated by subtracting accumulated depreciation from the original cost.

A bond issued jointly by two or more corporations.

The present value of the probable future net earnings of a company or project. It reflects the future profitability of an investment.

An artificial entity created by law, with its own legal rights and responsibilities. It is separate from its owners.

The amount of money paid for the use of borrowed capital. It is the cost of borrowing funds or the reward for lending them.

A decline in the value of one currency relative to others. It typically applies to currencies with floating exchange rates.

A type of accounting that focuses on the cost of production. This is often used for inventory valuation and determining profitability.

A stock of a product held by a government or trade body to regulate its price. It can be used to stabilize supply and prevent shortages.

The ratio of net income to owner's equity. It measures the return on investment for the owners of the company.

A provision that allows the issuer of a bond to redeem it before it matures. This gives flexibility to the issuer, but may cause uncertainty for the bondholder.

A type of depreciation that results from an asset becoming obsolete or outdated due to technological advancements or changes in market demand.

A method used to evaluate municipal projects. It compares the benefits received by the community to the costs involved in constructing and operating the project.

The main reason why the sinking fund method of computing depreciation is not widely used. This method tends to underestimate depreciation in the early years of an asset's life.

A business structure that allows two or more individuals to share ownership and profits. It is often simpler to establish than a corporation.

The ability to quickly convert assets into cash. It reflects the company's ability to meet short-term obligations.

The basic equation that underlies all accounting. It states that the total assets of a company are equal to the sum of its liabilities and owner's equity.

The ability of a company or individual to meet its financial obligations as they become due. It reflects the company's financial health and ability to repay debt.

A method of depreciation that assumes a sinking fund is created to accumulate enough money over time to replace the asset at the end of its useful life. This method is less common today due to its complexity.

A type of depreciation that occurs when an asset loses its value due to reduced demand for the function it was designed to perform.

A synonym for salvage value. This refers to the estimated value of an asset at the end of its useful life.

The unrecovered depreciation cost that results from inaccurate estimations about the asset's useful life.

The partnership's assets (excluding partner personal assets) are used to pay off liabilities in case of bankruptcy. This means partners are only liable for the amount they invested in the partnership.

The simplest form of business organization. It is owned and run by a single individual, with no legal distinction between the business and the owner.

A secondary accounting book where information is summarized and recorded from the journal. It provides detailed information about individual accounts.

Common methods for calculating depletion charges. The unit method allocates depletion based on the amount of resources extracted, while the percentage method uses a predetermined percentage of the asset's value.

A financial security note issued by businesses, corporations, or governments to raise long-term funds. It represents a loan from investors to the issuer.

The total cost of a project, including all initial expenses and ongoing costs over its entire life cycle.

A depreciation method where the depreciation expense is the same amount each year. The value of the asset decreases linearly over its useful life.

A market structure where there is only one seller of a product, and there are no close substitutes for the product. This gives the seller substantial market power.

Funds supplied by others on which a fixed rate of interest must be paid, and the debt is repaid at a specific time.

The total cost of a project, including all initial expenses and ongoing costs over its entire life cycle.

A depreciation method where the amount to recover is spread uniformly over the asset's estimated life, either in terms of periods or units of output.

The factor (1+i)^-N used in the formula P = F*(1+i)^-N, where P is the present value, F is the future value, i is the interest rate, and N is the number of periods.

A general decline in the overall price level of goods and services in an economy. This is often associated with a decrease in economic activity and consumer spending.

A Depreciation method that cannot have a salvage value of zero. It results in a higher depreciation expense in the early years and a lower depreciation expense in later years.

A type of interest calculated using the actual number of days in a given year, 365 or 366. This is more accurate than ordinary simple interest.

A method of depreciation where a fixed sum of money is regularly deposited into a real or imaginary fund to accumulate enough money to replace the asset at the end of its useful life.

A method used to compare different investment alternatives that achieve the same objective but may have different useful lives. It helps to make informed decisions about which alternative is most cost-effective over time.

The quantity of a product that is available in the market for purchase. It is influenced by factors such as production costs, market demand, and government regulations.

A measure of how efficiently a company collects its accounts receivable. It indicates the average number of days it takes to collect money from customers.

A type of stock that gives its holders priority in receiving cash dividends before common stockholders. However, preferred stockholders typically do not have voting rights.

A depreciation method where the value of an asset decreases at a constant rate. The depreciation expense is calculated as a percentage of the asset's book value.

A type of obligation without any conditions attached. It is typically a voluntary act of providing a benefit to someone else, without expecting anything in return.

An economic principle that states that as one factor of production is increased while others remain fixed, the increase in output will eventually diminish. This occurs because the fixed factors become increasingly constrained.

A type of bond that has coupons attached to it, representing the interest payments due and the dates when the interest is to be paid. These coupons can be detached and redeemed to receive the interest payment.

The length of time it takes for an investment or project to generate enough cash flow to recover its initial cost. It is a measure of how long it takes to recoup the investment.

The residual value of a company's assets after all outside liabilities (excluding shareholders) have been accounted for. It represents the amount of value that belongs to the owners of the company.

A type of interest earned on the principal amount plus the accumulated interest. It is where interest is calculated on both the original principal and any accumulated interest.

The buying or selling of goods between different markets to profit from price differences. This involves taking advantage of discrepancies between the prices of the same asset in different markets.

A group of producers who agree to coordinate their prices and production levels to control the market. This can lead to reduced competition and higher prices for consumers.

The process of using economic principles and theories to analyze and evaluate the financial consequences of engineering applications, designs, and projects. It helps in making informed decisions about the economic feasibility and profitability of projects.

A market structure where there is only one buyer of a product, and they have significant power to influence the price and terms of purchase.

The two main categories of goods and services. Consumer goods are intended for direct consumption by individuals, while producer goods are used in the production of other goods or services.

Another term for the Acid-Test Ratio. This is a liquidity ratio that measures a company's ability to pay off its current liabilities with its most liquid assets, such as cash and equivalents.

A clause in a contract that allows for adjustments in material and labour costs during the project's duration. It helps to protect both the contractor and the client from rising inflation or unexpected cost increases.

Another term for perfect competition, which is a market structure where there are many buyers and sellers, and no individual firm can influence the market price. There is free entry and exit to the market, and products are homogeneous.

A certificate of indebtedness issued by a corporation, usually for a period of at least 10 years, and backed by a mortgage on specific corporate assets. It represents a long-term loan from investors to the corporation.

A document that shows proof of ownership of a financial security, such as a bond or stock. It typically includes the name of the issuer, the security type, and the ownership details.

A type of stock specifies a portion of ownership in a corporation. All common stockholders have equal rights, including voting rights and the potential to receive dividends.

A market structure where there is only one seller of a product, and there are no close substitutes for the product. This gives the seller substantial market power.