Part one of “Financial Terms You Should Know”
- Acid-test ratio – The ratio of current assets less inventories to total current liabilities. This ratio is the most stringent measure of how well the company is covering its short-term obligations, since the ratio only considers that part of current assets which can be turned into cash immediately (thus the exclusion of inventories). The ratio tells creditors how much of the company’s short term debt can be met by selling all the company’s liquid assets at very short notice. also called acid-test ratio.
- Accounts receivable aging – A periodic report showing all outstanding receivable balances, broken down by customer and month due.
- Aging of payables – Process of determining which suppliers are being paid on time, which are not, and how far their bills are behind the payment date. This analysis indicates which supplier(s) must be paid first in order to avoid any credit or supply problem.
- Asset turnovers – Net sales divided by total assets. This is a measure of how well assets are being used to produce revenue. also called total asset turnover.
- Assets per share – Total assets of a company, less any Intangible Asset such as goodwill, patents, and trademarks, less all liabilities and the par value of preferred stock, divided by the number of common shares outstanding.
- Balance sheet – A quantitative summary of a company’s financial condition at a specific point in time, including assets, liabilities and net worth. The first part of a balance sheet shows all the productive assets a company owns, and the second part shows all the financing methods (such as liabilities and shareholders’ equity). also called statement of condition.
- Book value – The value of an asset as it appears on a balance sheet, equal to cost minus accumulated depreciation.
- Bottom line – Gross sales minus taxes, interest, depreciation, and other expenses. also called net earnings or net income or net profit.
- Budget – An itemized forecast of an individual’s or company’s income and expenses expected for some period in the future.
- Burden – Encumbrances such as taxes, interest charges, penalties or costs, that cannot be assigned or attributed as direct costs such as overheads.
- Burden rate – Expense or load over and above a standard limit or total, such as employment taxes and employee benefits in excess of salaries and wages.