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.
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