BUSINESS COMPENDIUM
This is a collection of the key terminologies and concepts used in modern business. If you have a comfortable grasp over these, you will definitely fare well in GK, Group Discussions, and Personal Interviews. A vast range of terminologies has been compiled just for YOUR benefit. Use this seriously.
ABC METHOD
ABC is a method of stock control in which each item is designated by the letter A, B or C depending upon its value relative to the total expenditure of production-materials. A goods are low-volume,high-cost items and C goods are the numerous low.-cost items. Also called split inventory method, it is a simple & effective method of inventory gradation.
ABSOLUTE MONOPOLY
The exclusive control of the output of a commodity or service, for which no substitute is available, vested in a single product or supplier. This will create an unfair advantage for the producer who can charge exorbitant premiums, render poor services and still exploit the hapless consumers.An advantage of a -free market economy is the creation of competition with lower chances of absolute monopolies getting a Stronghold. Example of present day absolute monopolies -Indian insurance sector which is a monopoly of the government.
ACCOUNTING PERIOD
The period of time covered by business, financial and management accounts.Financial accounts are generally prepared once or twice in twelve calendar months, but the interval for management accounts must be much shorter in order to ensure adequate management control over the regular operations.
ACCUMULATED PROFIT
Profit which is not paid as dividend (to the shareholder) but is carried into the accounts of the following year.
ACQUISITION
Big fish eating little fish; one company taking over controlling interest in another company.Since high prices are often paid to acquire shares of the target company, clever investors often make a neat profit by exploiting the situation. Example : Acquisition of TOMCO by HLL.
ACTIVE MARKET
A market in which there is a lot of buying and selling. It generally indicates investor confidence and high liquidity conditions. The market could be of stocks, metals, grains, etc.
ACTIVE PARTNER
A part-owner in a business partnership who is actively involved in the normal working operations of the business. Also called general partner. One who doesn’t participate is a Sleeping partner.
ACTIVE SHARES
Shares in which there are frequent and day-to-day dealings, as distinguished from partly active shares in which dealings are not so frequent. Most shares of leading companies would be active,particularly those which are sensitive to economic and political events and are, therefore, subject to sudden price movements. Some market analysts would define active shares as those which, are bought and sold at least three times a week. Easy to buy or sell.
ACT OF GOD
A sudden or violent act of nature which is neither caused by, nor can be prevented by, human intervention and cannot reasonably be expected to have been foreseen. Contracts are frequently not enforceable where failure to perform is due to an act of God.
AFFIDAVIT
A sworn statement made before a commissioner of oaths. It is sometimes needed by a company when a deed of transfer is signed by power of attorney.
ALLOTMENT
The second stage in the offer of company shares to the public. After the public has applied for the shares, they are allotted to them by the company. If the share issue has been oversubscribed, various criteria may be used for the allotment, such as by ballot, to small investors or to employees. Applicants who are allotted shares are advised in allotment letters.
AMALGAMATION
The combining of _ all or some of the assets and liabilities of two or more businesses into a single organization. This is accomplished by the formation of a single new business or by the absorption by one business of the other.
AMERICAN DEPOSITORY RECEIPTS
Public offerings by non-US companies (and we’re most concerned with Indian companies) in the US are called American Depository Receipts. ADRs are negotiable receipts issued to investors by an authorized depository, normally a US bank or depository, in lieu of shares of the foreign company, which are actually held by the depository. ADRs can be listed and traded in a US-based stock exchange and help the Indian company to be known in the highly liquid US stock exchanges.ADRs also help the US-based and other foreign investors to have the twin benefits of having shareholding in a high growth Indian company and the convenience of trading in a highly liquid and well-known stock market.
AMERICAN STOCK EXCHANGE (AMEX) At 86 Trinity Place, New York, the second largest stock exchange in America. Till 1921, it was known as the Curb’(= Brit. Kerb) Exchange.
AMORTIZATION The gradual extinction of a debt or liability by means of periodic repayment or redemption, usually through the operation of a sinking fund.
ANNUAL DEPRECIATION The reduction in book value of an asset at a certain percentage rate per annum.
ANNUAL GENERAL MEETING A meeting of the members of a business organization held once every calendar year to consider the general state of the organization, including its financial position. Matters discussed at such meetings include the financial accounts of the company, together with directors’ and auditors’ reports, the appointment of directors & auditors, & the declaration of dividends. In recent times, the small shareholders’ conduct . at AGMs has been a problem for most managements!
ANNUITY A type of pension in which an insurance company pays an annual income in return for a lump-sum payment. This annual income may be for a certain period only, for the individual’s lifetime, or in perpetuity.
APPLIED ECONOMICS A branch of economics which relates the principles of economic theory and the techniques of economic analysis to the practical problems of business, government, etc.
APPRECIATION An increase in the value of an asset over its purchase price or book value. (Also - the process of valuing an asset.)
ARBITRAGE
1. Profiting from differences in price of the same share traded on two or more stock exchanges. An arbitraguer makes money by buying in the lower market and immediately thereafter or simultaneously selling in the higher market, thereby making a profit.
2. Buying shares in companies whose share price is likely to rise because of possible takeover deals.
3. The moving of funds from one market to another to benefit from price differentials. The price differential must be large enough to cover any transaction costs. Arbitrage ensures that currency exchange rates are in harmony throughout the world, since otherwise there would be wholesale movements of capital between the world’s financial centres.
ARBITRATION Arbitration is an alternative dispute resolutionmechanism provided by a stock exchange for resolving disputes between the trading members and their clients in respect of trades done on the exchange. This process of resolving a dispute is comparatively faster than other means of redressal.
ASSESSMENT The valuation placed on property for rating purposes. Example - Income tax assessment,
ASSET 1. Any business resource -both tangible and intangible - acquired at a monetary cost and which is expected to be of benefit to the business for a period of time, such as buildings, machinery, etc. Intangibles include goodwill etc. 2. Any resource of a deceased or insolvent person from which claims may be met.
ASSET LIFE The time period during which an asset is expected to contribute value to the operations of a business.
ASSET STRIPPING The taking over of a company with share values below their asset value, usually for the purpose of closing it down and selling off the assets.
ASSET VALUE or NET ASSET VALUE (NAV) Term used by MUTUAL FUNDS, MASTERSHARES, and other investment trusts, to indicate the net tangible asset value of each share. Calculated by taking the total value of an investment portfolio on market rates on a certain date and dividing it by the number of outstanding shares. The net asset value of a mutual fund share indicates how well or badly the fund managers have played the stock market.
AT A PREMIUM At a price higher than that printed on the share certificate, i.e., above par. When a well-established company issues new shares, either as rights or to the public, it may ask for a higher price. The difference between the face value and the price at which a share is now being issued is called the premium.
AT PAR A price equal to the face value of a share, i.e., if the face value of a share is Rs 10 or Rs 100 it is being issued or selling at Rs 10 or Rs 100.
ATTACHMENT ORDER
1. A court order obtained by a creditor whereby money due to the debtor by third parties becomes the property of the creditor. The order may also prevent the disposal of the debtor’s goods which are held by third parties.
2. An order for the imprisonment of a person who is in contempt of court.
AUCTION The sale of property by competition. Subject to a possible reserve price, the property is sold to that party making the highest bid, the contract being binding upon the fall of the hammer. Ex - Property auctions by the IT department.
AUDIT The systematic examination of the records, books of account and financial documents of a business in order to determine the accuracy of the recording of transactions and to verify the statements and reports prepared during the period under review. This facilitates honest and proper tax payments.
AUTHORIZED SHARE CAPITAL The maximum number of shares that a company may issue, stated in the memorandum and articles of association of the company. A company may initially issue fewer shares. The authorized capital can be increased with the consent both of the shareholders and the SEBI.
