Finance Important Concepts by Riaz Ahmed Siddiqi

Riaz Ahmed Siddiqi AJK PAKISTAN
BUSINESS ADMINISTRATION (FINANCE) IMPORTANT CONCEPTS
FINANCE
Finance is a field that deals with the study of investments. It includes the dynamics
of assets and liabilities over time under conditions of different degrees of uncertainty and risk.
Finance can also be defined as the science of money management. Finance aims to price assets
based on their risk level and their expected rate of return. Finance can be broken into three
different sub-categories: public finance, corporate finance and personal finance.
INVESTMENTS
To invest is to allocate money (or sometimes another resource, such as time) in the expectation
of some benefit in the future.
In finance, the benefit from investment is called a return. The return may consist of capital
gain and/or investment income, including dividends, interest, rental income etc. The projected
economic return is the appropriately discounted value of the future returns. The historic return
comprises the actual capital gain (or loss) and/or income over a period of time.
Investment generally results in acquiring an asset, also called an investment. If the asset is
available at a price worth investing, it is normally expected either to generate income, or to
appreciate in value, so that it can be sold at a higher price (or both).
Investors generally expect higher returns from riskier investments. Financial assets range from
low-risk, low-return investments, such as high-grade government bonds, to those with higher risk
and higher expected commensurate reward, such as emerging markets stock investments.
Investors,
particularly
novices,
are
often
advised
to
adopt
strategy and diversify their portfolio. Diversification has the statistical effect
overall risk.
an investment
of reducing
ASSETS
In financial accounting, an asset is an economic resource. Anything tangible or intangible that
can be owned or controlled to produce value and that is held to have positive economic value is
considered an asset. Simply stated, assets represent value of ownership that can be converted
into cash (although cash itself is also considered an asset).
The balance sheet of a firm records the monetary value of the assets owned by the firm. It is
money and other valuables belonging to an individual or business. Two major asset classes
are tangible assets and intangible assets. Tangible assets contain various subclasses, including
current assets and fixed assets. Current assets include inventory, while fixed assets include such
items as buildings and equipment.
Intangible assets are nonphysical resources and rights that have a value to the firm because they
give the firm some kind of advantage in the market place. Examples of intangible assets
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are goodwill, copyrights, trademarks, patents and computer programs, and
including such items as accounts receivable, bonds and stocks.
financial
assets,
LIABILITY
In financial accounting, a liability is defined as the future sacrifices of economic benefits that the
entity is obliged to make to other entities as a result of past transactions or other past events, the
settlement of which may result in the transfer or use of assets, provision of services or other
yielding of economic benefits in the future.
A liability is defined by the following characteristics:
Any type of borrowing from persons or banks for improving a business or personal income
that is payable during short or long time;
A duty or responsibility to others that entails settlement by future transfer or use of assets,
provision of services, or other transaction yielding an economic benefit, at a specified or
determinable date, on occurrence of a specified event, or on demand;
A duty or responsibility that obligates the entity to another, leaving it little or no discretion to
avoid settlement; and,
A transaction or event obligating the entity that has already occurred.
Liabilities in financial accounting need not be legally enforceable; but can be based on equitable
obligations or constructive obligations. An equitable obligation is a duty based on ethical or
moral considerations. A constructive obligation is an obligation that is implied by a set of
circumstances in a particular situation, as opposed to a contractually based obligation.
The accounting equation relates assets, liabilities, and owner's equity
RATE OF RETURN
In finance, return is a profit on an investment. It comprises any change in value
and interest or dividends or other such cash flows which the investor receives from the
investment. It may be measured either in absolute terms (e.g., dollars) or as a percentage of the
amount invested. The latter is also called the holding period return.
PUBLIC FINANCE
Public finance is the study of the role of the government in the economy. It is the branch
of economics which the government revenue and government expenditure of the public
authorities and the adjustment of one or the other to achieve desirable effects and avoid
undesirable ones.
CORPORATE FINANCE
Corporate finance is the area of finance dealing with the sources of funding and the capital
structure of corporations, the actions that managers take to increase the value of the firm to
the shareholders, and the tools and analysis used to allocate financial resources. The primary goal
of corporate finance is to maximize or increase shareholder value. Although it is in principle
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different from managerial finance which studies the financial management of all firms, rather
than corporations alone, the main concepts in the study of corporate finance are applicable to the
financial problems of all kinds of firms.
PERSONAL FINANCE
Personal finance is the financial management which an individual or a family unit performs
to budget, save, and spend monetary resources over time, taking into account various financial
risks and future life events. When planning personal finances, the individual would consider the
suitability to his or her needs of a range of banking products (checking, savings accounts, credit
cards and consumer loans) or investment private equity, (stock market, bonds, mutual funds) and
insurance (life insurance, health insurance, disability insurance) products or participation and
monitoring of individual or employer sponsored retirement plans, social security benefits
and income tax management.
INSURANCE
Insurance is a means of protection from financial loss. It is a form of risk management primarily
used to hedge against the risk of a contingent, uncertain loss.
An entity which provides insurance is known as an insurer, insurance company, or insurance
carrier. A person or entity who buys insurance is known as an insured or policyholder. The
insurance transaction involves the insured assuming a guaranteed and known relatively small
loss in the form of payment to the insurer in exchange for the insurer's promise to compensate
the insured in the event of a covered loss. The loss may or may not be financial, but it must be
reducible to financial terms, and must involve something in which the insured has an insurable
interest established by ownership, possession, or preexisting relationship.
INFLATION
In economics, inflation is a sustained increase in the general price level of goods and services in
an economy over a period of time resulting in a loss of value of currency. When the price level
rises, each unit of currency buys fewer goods and services. Consequently, inflation reflects a
reduction in the purchasing power per unit of money a loss of real value in the medium of
exchange and unit of account within the economy. A chief measure of price inflation is the
inflation rate, the annualized percentage change in a general price index, usually the consumer
price index, over time. The opposite of inflation is deflation.
CAPITAL STRUCTURE
In finance, particularly corporate finance capital structure is the way a corporation finances
its assets through some combination of equity, debt, or hybrid securities.
STOCK
The stock (also capital stock) of a corporation is constituted of the equity stock of its owners. A
single share of the stock represents fractional ownership of the corporation in proportion to the
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total number of shares. In liquidation, the stock represents the residual assets of the company that
would be due to stockholders after discharge of all senior claims such as secured and
unsecured debt. Stockholders' equity cannot be withdrawn from the company in a way that is
intended to be detrimental to the company's creditors.
CAPITAL BUDGETING
Capital budgeting, or investment appraisal, is the planning process used to determine whether
an organization's long term investments such as new machinery, replacement of machinery, new
plants, new products, and research development projects are worth the funding of cash through
the firm's capitalization structure (debt, equity or retained earnings). It is the process of allocating
resources for major capital, or investment, expenditures. One of the primary goals of capital
budgeting investments is to increase the value of the firm to the shareholders.
INVESTMENT MANAGEMENT
Investment management is the professional asset management of various securities (shares,
bonds and other securities) and other assets (e.g., real estate) in order to meet specified
investment goals for the benefit of the investors. Investors may be institutions (insurance
companies, pension funds, corporations, charities, educational establishments etc.) or private
investors (both directly via investment contracts and more commonly via collective investment
schemes e.g. mutual funds or exchange-traded funds).
DURABLE GOOD
In economics, a durable good or a hard good is a good that does not quickly wear out, or more
specifically, one that yields utility over time rather than being completely consumed in one use.
Items like bricks could be considered perfectly durable goods because they should theoretically
never wear out. Highly durable goods such as refrigerators, cars, or mobile phones usually
continue to be useful for 3 or more years of use, so durable goods are typically characterized by
long periods between successive purchases.
Examples of consumer durable goods include automobiles, books, household goods (home
appliances, consumer electronics, furniture, tools etc.), sports equipment, jewelry, medical
equipment, firearms, and toys.
REAL ESTATE
Real estate is "property consisting of land and the buildings on it, along with its natural
resources such as crops, minerals or water; immovable property of this nature; an interest vested
in this (also) an item of real property, (more generally) buildings or housing in general. Also: the
business of real estate; the profession of buying, selling, or renting land, buildings or housing." It
is a legal term used in jurisdictions such as India, the United States, United
Kingdom, Canada, Pakistan, Australia, and New Zealand.
TAX RATE
In a tax system, the tax rate is the ratio (usually expressed as a percentage) at which a business
or person is taxed. There are several methods used to present a tax rate: statutory, average,
marginal, and effective. These rates can also be presented using different definitions applied to a
tax base: inclusive and exclusive.
BUSINESS VALUATION
Business valuation is a process and a set of procedures used to estimate the economic value of
an owner's interest in a business. Valuation is used by financial market participants to determine
the price they are willing to pay or receive to affect a sale of a business. In addition to estimating
the selling price of a business, the same valuation tools are often used by business appraisers to
resolve disputes related to estate and gift taxation, divorce litigation, allocate business purchase
price among business assets, establish a formula for estimating the value of partners' ownership
interest for buy-sell agreements, and many other business and legal purposes such as in
shareholders deadlock, divorce litigation and estate contest. In some cases, the court would
appoint a forensic accountant as the joint expert doing the business valuation.
REAL OPTIONS VALUATION

Real Options Valuation, also often termed real options analysis, (ROV or ROA)
applies option valuation techniques to capital budgeting decisions. A real option itself is the
right but not the obligation to undertake certain business initiatives, such as deferring,
abandoning, expanding, staging, or contracting a capital investment project. For example, the
opportunity to invest in the expansion of a firm's factory, or alternatively to sell the factory, is a
real call or put option, respectively.
Real options are generally distinguished from conventional financial options in that they are not
typically traded as securities, and do not usually involve decisions on an underlying asset that is
traded as a financial security. A further distinction is that option holders here, i.e. management,
can directly influence the value of the option's underlying project; whereas this is not a
consideration as regards the underlying security of a financial option. Moreover, management
cannot lookup for volatility as uncertainty, instead their perceived uncertainty matters in real
options reasoning. Unlike financial options, management also has to create or discover real
options and such creation and discovery process comprises an entrepreneurial or business task.
Real options are most valuable when uncertainty is high; management has significant flexibility
to change the course of the project in a favorable direction and is willing to exercise the options.
FINANCIAL MODELING
Financial modeling is the task of building an abstract representation (a model) of a real
world financial situation. This is a mathematical model designed to represent (a simplified
version of) the performance of a financial asset or portfolio of a business, project, or any other
investment. Financial modeling is a general term that means different things to different users;
the reference usually relates either to accounting and corporate finance applications, or
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to quantitative finance applications. While there has been some debate in the industry as to the
nature of financial modeling whether it is a tradecraft, such as welding, or a science the task of
financial modeling has been gaining acceptance and rigor over the years. Typically, financial
modeling is understood to mean an exercise in either asset pricing or corporate finance, of a
quantitative nature. In other words, financial modeling is about translating a set of hypotheses
about the behavior of markets or agents into numerical predictions; for example, a firm's
decisions about investments (the firm will invest 20% of assets), or investment returns (returns
on "stock A" will, on average, be 10% higher than the market's returns).
INITIAL PUBLIC OFFERING

Initial public offering (IPO) or stock market launch is a type of public offering in which
shares of a company usually are sold to institutional investors that in turn, sell to the general
public, on a securities exchange, for the first time. Through this process, a privately held
company transforms into a public company. Initial public offerings are mostly used by
companies to raise the expansion of capital, possibly to monetize the investments of early private
investors, and to become publicly traded enterprises. A company selling shares is never required
to repay the capital to its public investors. After the IPO, when shares trade freely in the open
market, money passes between public investors. Although IPO offers many advantages, there are
also significant disadvantages, chief among these are the costs associated with the process and
the requirement to disclose certain information that could prove helpful to competitors. The IPO
process is colloquially known as going public.
CREDITOR
A creditor is a party (e.g. person, organization, company, or government) that has a claim on the
services of a second party. It is a person or institution to whom money is owed. The first party, in
general, has provided some property or service to the second party under the assumption (usually
enforced by contract) that the second party will return an equivalent property and service. The
second party is frequently called a debtor or borrower. The first party is the creditor, which is the
lender of property, service or money.
BOND (FINANCE)
In finance, a bond is an instrument of indebtedness of the bond issuer to the holders. The most
common types of bonds include municipal bonds and corporate bonds. It is a debt security, under
which the issuer owes the holders a debt and, depending on the terms of the bond, is obliged to
pay them interest (the coupon) and/or to repay the principal at a later date, termed
the maturity date. Interest is usually payable at fixed intervals (semiannual, annual, and
sometimes monthly). Very often the bond is negotiable, that is, the ownership of the instrument
can be transferred in the secondary market. This means that once the transfer agents at the bank
medallion stamp the bond, it is highly liquid on the second market.
CASH FLOW: A cash flow describes a real or virtual movement of money.

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CASH
In economics, cash is money in the physical form of currency, such as banknotes and coins.
In bookkeeping and finance, cash is current assets comprising currency or currency equivalents
that can be accessed immediately or near immediately (as in the case of money market accounts).
Cash is seen either as a reserve for payments, in case of a structural or incidental negative cash
flow or as a way to avoid a downturn on financial markets.
WORKING CAPITAL
Working capital (abbreviated WC) is a financial metric which represents operating
liquidity available to a business, organization or other entity, including governmental entity.
Along with fixed assets such as plant and equipment, working capital is considered a part of
operating capital. Gross working capital equals to current assets. Working capital is calculated
as current assets minus current liabilities. If current assets are less than current liabilities, an
entity has a working capital deficiency, also called a working capital deficit.
CORPORATE FINANCE
Corporate finance is the area of finance dealing with the sources of funding and the capital
structure of corporations, the actions that managers take to increase the value of the firm to
the shareholders, and the tools and analysis used to allocate financial resources. The primary goal
of corporate finance is to maximize or increase shareholder value. Although it is in principle
different from managerial finance which studies the financial management of all firms, rather
than corporations alone, the main concepts in the study of corporate finance are applicable to the
financial problems of all kinds of firms.
WORKING CAPITAL MANAGEMENT

Managing the corporation's working capital position to sustain ongoing business operations is
referred to as working capital management. These involve managing the relationship between a
firm's short-term assets and its short-term liabilities. In general this is as follows: As above, the
goal of Corporate Finance is the maximization of firm value. In the context of long term, capital
budgeting, firm value is enhanced through appropriately selecting and funding NPV positive
investments. These investments, in turn, have implications in terms of cash flow and cost of
capital. The goal of Working Capital (i.e. short term) management is therefore to ensure that the
firm is able to operate, and that it has sufficient cash flow to service long-term debt, and to
satisfy both maturing short-term debt and upcoming operational expenses. In so doing, firm
value is enhanced when, and if, the return on capital exceeds the cost of capital; Economic value
added (EVA). Managing short term finance and long term finance is one task of a modern CFO.
WORKING CAPITAL
Working capital is the amount of funds which are necessary to an organization to continue its
ongoing business operations, until the firm is reimbursed through payments for the goods or
services it has delivered to its customers. Working capital is measured through the difference
between resources in cash or readily convertible into cash (Current Assets), and cash
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requirements (Current Liabilities). As a result, capital resource allocations relating to working
capital are always current, i.e. short-term. In addition to time horizon, working capital
management differs from capital budgeting in terms of discounting and profitability
considerations; they are also "reversible" to some extent. (Considerations as to Risk appetite and
return targets remain identical, although some constraints such as those imposed by loan
covenants may be more relevant here).
INVENTORY
Inventory or stock refers to the goods and materials that a business holds for the ultimate
purpose of resale (or repair).
Inventory management is a science primarily about specifying the shape and placement of
stocked goods. It is required at different locations within a facility or within many locations of a
supply network to precede the regular and planned course of production and stock of materials.
DEBTOR
A debtor is an entity that owes a debt to another entity. The entity may be an individual, a firm,
a government, a company or other legal person. The counterparty is called a creditor. When the
counterpart of this debt arrangement is a bank, the debtor is more often referred to as a borrower.
If X borrowed money from his/her bank, X is the debtor and the bank is the creditor. If X puts
money in the bank, X is the creditor and the bank is the debtor.
It is not a crime to fail to pay a debt. Except in certain bankruptcy situations, debtors can choose
to pay debts in any priority they choose. But if one fails to pay a debt, they have broken a
contract or agreement between them and a creditor. Generally, most oral and written agreements
for the repayment of consumer debt - debts for personal, family or household purposes secured
primarily by a person's residence are enforceable.
However, for the most part, debts that are business related must be made in writing to be
enforceable by law. If the written agreement requires the debtor to pay a specific amount of
money, then the creditor does not have to accept any lesser amount, and should be paid in full.
INVESTMENT MANAGEMENT
Investment management is the professional asset management of various securities (shares,
bonds and other securities) and other assets (e.g., real estate) in order to meet specified
investment goals for the benefit of the investors. Investors may be institutions (insurance
companies, pension funds, corporations, charities, educational establishments etc.) or private
investors (both directly via investment contracts and more commonly via collective investment
schemes e.g. mutual funds or exchange-traded funds).

The term asset management is often used to refer to the investment management of collective
investments, while the more generic fund management may refer to all forms of institutional
investment as well as investment management for private investors. Investment managers who
specialize in advisory or discretionary management on behalf of (normally wealthy) private
investors may often refer to their services as money management or portfolio management often
within the context of so-called "private banking".
The provision of investment management services includes elements of financial statement
analysis, asset selection, stock selection, plan implementation and ongoing monitoring of
investments. Coming under the remit of financial services many of the world's largest companies
are at least in part investment managers and employ millions of staff.
The term fund manager (or investment advisor in the United States) refers to both a firm that
provides investment management services and an individual who directs fund management
decisions.
PORTFOLIO (FINANCE)
In finance, a portfolio is a collection of investments held by an investment company, hedge
fund, financial institution or individual. The term portfolio refers to any combination of financial
risk such as stocks, bonds and cash. Portfolios may be held by individual investors and/or
managed by financial professionals, hedge funds, banks and other financial institutions. It is a
generally accepted principle that a portfolio is designed according to the investor's risk tolerance,
time frame and investment objectives. The monetary value of each asset may influence the
risk/reward ratio of the portfolio and is referred to as the asset allocation of the portfolio. When
determining a proper asset allocation one aims at maximizing the expected return and
minimizing the risk. This is an example of a multi objective optimization problem: more
"efficient solutions" are available and the preferred solution must be selected by considering a
tradeoff between risk and return. In particular, a portfolio A is dominated by another portfolio A'
if A' has a greater expected gain and a lesser risk than A. If no portfolio dominates A, A is
a Pareto-optimal portfolio. The set of Pareto-optimal returns and risks is called the Pareto
Efficient Frontier for the Markowitz Portfolio selection problem. Recently, an alternative
approach to portfolio diversification has been suggested in the literature that is based on
maximizing the risk adjusted return.
ACCOUNTING
Accounting or accountancy is the measurement, processing and communication of financial
information about economic entities such as businesses and corporations. The modern field was
established by the Italian mathematician Luca Pacioli in 1494. Accounting, which has been
called the "language of business", measures the results of an organization's economic activities
and conveys this information to a variety of users, including investors, creditors, management,

and regulators. Practitioners of accounting are known as accountants. The terms 'accounting' and
'financial reporting' are often used as synonyms.
Accounting can be divided into several fields including financial accounting, management
accounting, external auditing, and tax accounting. Accounting information systems are designed
to support accounting functions and related activities. Financial accounting focuses on the
reporting of an organization's financial information, including the preparation of financial
statements, to external users of the information, such as investors, regulators and suppliers; and
management accounting focuses on the measurement, analysis and reporting of information for
internal use by management. The recording of financial transactions, so that summaries of the
financials may be presented in financial reports, is known as bookkeeping, of which double-entry
bookkeeping is the most common system.
Accounting is facilitated by accounting organizations such as standard setters, accounting
firms and professional bodies. Financial statements are usually audited by accounting firms, and
are prepared in accordance with generally accepted accounting principles (GAAP). GAAP is set
by various standard-setting organizations such as the Financial Accounting Standards
Board (FASB) in the United States and the Financial Reporting Council in the United Kingdom.
As of 2012, "all major economies" have plans to converge towards or adopt the International
Financial Reporting Standards (IFRS).
FINANCIAL ACCOUNTING
Financial accounting (or financial accountancy) is the field of accounting concerned with the
summary, analysis and reporting of financial transactions pertaining to a business. This involves
the
preparation
of financial
statements available
for
public
consumption. Stockholders, suppliers, banks, employees, government agencies, business owners,
and other stakeholders are examples of people interested in receiving such information for
decision making purposes.
Financial accountancy is governed by both local and international accounting
standards. Generally Accepted Accounting Principles (GAAP) is the standard framework of
guidelines for financial accounting used in any given jurisdiction. It includes the standards,
conventions and rules that accountants follow in recording and summarizing and in the
preparation of financial statements. On the other hand, International Financial Reporting
Standards (IFRS) is a set of pensionable accounting standards stating how particular types of
transactions and other events should be reported in financial statements. IFRS are issued by
the International Accounting Standards Board (IASB). With IFRS becoming more widespread on
the international scene, consistency in financial reporting has become more prevalent between
global organizations. While financial accounting is used to prepare accounting information for
people outside the organization or not involved in the day-to-day running of the
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company, management accounting
decisions to manage the business.
provides accounting information to help managers make
FINANCIAL RISK MANAGEMENT

Financial risk management is the practice of economic value in a firm by using financial
instruments to manage exposure to risk, particularly credit risk and market risk. Other types
include Foreign exchange risk, Shape risk, Volatility risk, Sector risk, Liquidity risk, Inflation
risk, etc. Similar to general risk management, financial risk management requires identifying its
sources, measuring it, and plans to address them.
Financial risk management can be qualitative and quantitative. As a specialization
of risk management, financial risk management focuses on when and how to hedge using
financial instruments to manage costly exposures to risk.
In the banking sector worldwide, the Basel Accords are generally adopted by internationally
active banks for tracking, reporting and exposing operational, credit and market risks.
VALUE (ECONOMICS)
Economic value is a measure of the benefit provided by a good or service to an economic agent.
It is generally measured relative to units of currency, and the interpretation is therefore "what is
the maximum amount of money a specific actor is willing and able to pay for the good or
service"?
Note that economic value is not the same as market price, nor is economic value the same thing
as market value. If a consumer is willing to buy a good, it implies that the customer places a
higher value on the good than the market price. The difference between the value to the
consumer and the market price is called "consumer surplus". It is easy to see situations where the
actual value is considerably larger than the market price: purchase of drinking water is one
example.
BUSINESS
A business (also
known
as
an enterprise,
a company or
a firm)
is
an organizational entity involved
in
the
provision
of goods and services to consumers. Businesses as a form of economic activity are prevalent
in capitalist economies, where most of them are privately owned and provide goods and services
to customers in exchange for other goods, services, or money. Businesses may also be social nonprofit enterprises or state-owned public enterprises charged by governments with specific social
and economic objectives. A business owned by multiple individuals may form as an
incorporated company or jointly organize as a partnership. Countries have different laws that
may ascribe different rights to the various business entities. The word "business" can refer to a
particular organization or to an entire market sector (for example: "the music business") or to the
sum of all economic activity ("the business sector"). Compound forms such as "agribusiness"
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represent subsets of the concept's broader meaning, which encompasses all activity by suppliers
of goods and services. Businesses aim for their sales to exceed their expenditures, resulting in
a profit or gain or surplus.
FINANCIAL INSTRUMENT
Financial instruments are monetary contracts between parties. They can be created, traded,
modified and settled. They can be cash (currency), evidence of an ownership interest in an entity
(share), or a contractual right to receive or deliver cash (bond).
International Accounting Standards IAS 32 and 39 define a financial instrument as "any contract
that gives rise to a financial asset of one entity and a financial liability or equity instrument of
another entity".
FINANCIAL RISK
Financial risk is an umbrella term for multiple types of risk associated with financing,
including financial transactions that include company loans in risk of default. Risk is a term often
used to imply downside risk, meaning the uncertainty of a return and the potential for financial
loss.
A science has evolved around managing market and financial risk under the general title
of modern portfolio theory initiated by Dr. Harry Markowitz in 1952 with his article, "Portfolio
Selection". In modern portfolio theory, the variance (or standard deviation) of a portfolio is used
as the definition of risk.
CREDIT RISK
A credit risk is the risk of default on a debt that may arise from a borrower failing to make
required payments. In the first resort, the risk is that of the lender and includes
lost principal and interest, disruption to cash flows, and increased collection costs. The loss may
be complete or partial. In an efficient market, higher levels of credit risk will be associated with
higher borrowing costs. Because of this, measures of borrowing costs such as yield spreads can
be used to infer credit risk levels based on assessments by market participants.
MARKET RISK
Market risk is the risk of losses in positions arising from movements in market prices.
There is no unique classification as each classification may refer to different aspects of market
risk. Nevertheless, the most commonly used types of market risk are:
Equity risk, the risk that stock or stock indices (e.g. Euro Stoxx 50, etc.) prices or their implied
volatility will change.
Interest rate risk, the risk interest rates (e.g. Libor, Euribor, etc.) or their implied volatility will
change.
Currency risk, the risk that foreign exchange rates (e.g. EUR/USD, EUR/GBP, etc.) or their
implied volatility will change.
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Commodity risk, the risk that commodity prices (e.g. corn, crude oil) or their implied volatility
will change.
Margining risk results from uncertain future cash outflows due to margin calls covering adverse
value changes of a given position.
Shape risk
Holding period risk
Basis risk
FOREIGN EXCHANGE RISK

Foreign exchange risk (also known as FX risk, exchange rate risk or currency risk) is
a financial risk that exists when a financial transaction is denominated in a currency other than
that of the base currency of the company. Foreign exchange risk also exists when the foreign
subsidiary of a firm maintains financial statements in a currency other than the reporting
currency of the consolidated entity. The risk is that there may be an adverse movement in
the exchange rate of the denomination currency in relation to the base currency before the date
when the transaction is completed. Investors and businesses exporting or importing goods and
services or making foreign investments have an exchange rate risk which can have severe
financial consequences; but steps can be taken to manage (i.e., reduce) the risk.
VOLATILITY (FINANCE)
In finance, volatility (symbol ) is the degree of variation of a trading price series over time as
measured by the standard deviation of logarithmic returns.
Historic volatility is derived from time series of past market prices. An implied volatility is
derived from the market price of a market traded derivative (in particular an option).
LIQUIDITY RISK
Liquidity risk is a financial risk that for a certain period of time at a given financial
asset, security or commodity cannot be traded quickly enough in the market without impacting
the market price.
HEDGE (FINANCE)
A hedge is an investment position intended to offset potential losses or gains that may be
incurred by a companion investment. In simple language, a hedge is used to reduce any
substantial losses or gains suffered by an individual or an organization.
A hedge can be constructed from many types of financial instruments,
including stocks, exchange-traded
funds, insurance, forward
contracts, swaps, options,
gambles, many types of over-the-counter and derivative products, and futures contracts.
FINANCIAL ENGINEERING
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Financial engineering is a multidisciplinary field involving financial theory, methods of
engineering, tools of mathematics and the practice of programming. It has also been defined as
the application of technical methods, especially from mathematical finance and computational
finance, in the practice of finance. Despite its name, financial engineering does not belong to any
of the fields in traditional professional engineering even though many financial engineers have
studied engineering beforehand and many universities offering a postgraduate degree in this field
require applicants to have a background in engineering as well. In the United States,
the Accreditation Board for Engineering and Technology (ABET) does not accredit financial
engineering degrees. In the United States, financial engineering programs are accredited by
the International Association of Quantitative Finance.
RISK MANAGEMENT
Risk management is the identification, assessment, and prioritization of risks (defined in ISO
31000 as the effect of uncertainty on objectives) followed by coordinated and economical
application of resources to minimize, monitor, and control the probability and/or impact of
unfortunate events or to maximize the realization of opportunities. Risk managements objective
is to assure uncertainty does not deflect the endeavor from the business goals.
RISK MEASURE
In financial mathematics, a risk measure is used to determine the amount of an asset or set of
assets (traditionally currency) to be kept in reserve. The purpose of this reserve is to make
the risks taken by financial institutions, such as banks and insurance companies, acceptable to
the regulator. In recent years attention has turned towards convex and coherent risk
measurement.
BASEL ACCORDS
The Basel Accords (see alternative spellings below) refer to the banking supervision Accords
(recommendations on banking regulations) Basel I, Basel II and Basel IIIissued by the Basel
Committee on Banking Supervision (BCBS). They are called the Basel Accords as the BCBS
maintains its secretariat at the Bank for International Settlements in Basel, Switzerland and the
committee normally meets there. The Basel Accords is a set of recommendations for regulations
in the banking industry.
FINANCIAL INTERMEDIARY
A financial intermediary is an institution or individual that serves as a middleman for different
parties in a financial transaction. According to classical and neoclassical economics, as well as
most mainstream economics, a financial intermediary is typically a bank that
consolidates deposits and uses the funds to transform them into loans. According to
some heterodox economists and others, financial intermediaries simply do not exist.
14

Through the process of financial intermediation, certain assets or liabilities are transformed into
different assets or liabilities. As such, financial intermediaries channel funds from people who
have extra money or surplus savings (savers) to those who do not have enough money to carry
out a desired activity (borrowers). A financial intermediary is typically an institution that
facilitates the channeling of funds between lenders and borrowers indirectly. That is, savers
(lenders) give funds to an intermediary institution (such as a bank), and that institution gives
those
funds
to
spenders
(borrowers).
This
may
be
in
the
form
of loans or mortgages. Alternatively, they may lend the money directly via the financial markets,
and eliminate the financial intermediary, which is known as financial disintermediation.
BANK
A bank is a financial institution that accepts deposits from the public and creates credit. Lending
activities can be performed either directly or indirectly through capital markets. Due to their
importance in the financial stability of a country, banks are highly regulated in most countries.
Most nations have institutionalized a system known as fractional reserve banking under which
banks hold liquid assets equal to only a portion of their current liabilities. In addition to other
regulations intended to ensure liquidity, banks are generally subject to minimum capital
requirements based on an international set of capital standards, known as the Basel Accords.
ASSET
In financial accounting, an asset is an economic resource. Anything tangible or intangible that
can be owned or controlled to produce value and that is held to have positive economic value is
considered an asset. Simply stated, assets represent value of ownership that can be converted
into cash (although cash itself is also considered an asset).
BOND MARKET
The bond market (also debt market or credit market) is a financial market where participants
can issue new debt, known as the primary market, or buy and sell debt securities, known as
the secondary market. This is usually in the form of bonds, but it may include notes, bills, and so
on.
BUSINESS ADMINISTRATION
Business administration is management of a business. It includes all aspects of overseeing and
supervising business operations.
BUSINESS OPERATIONS
The outcome of business operations is the harvesting of value from assets owned by a business.
Assets can be either physical or intangible. An example of value derived from a physical asset,
like a building, is rent. An example of value derived from an intangible asset, like an idea, is a
royalty. The effort involved in "harvesting" this value is what constitutes business operations
cycles.
15
EQUITY (FINANCE)
In accounting, equity (or owner's equity) is the difference between the value of the assets and
the cost of the liabilities of something owned. For example, if someone owns a car worth
$15,000 but owes $5,000 on a loan against that car, the car represents $10,000 equity. Equity can
be negative if liability exceeds assets. Shareholders' equity (or stockholders' equity, shareholders'
funds, shareholders' capital or similar terms) represents the equity of a company as divided
among shareholders of common or preferred stock. Negative shareholders' equity is often
referred to as a shareholders' deficit.
INSTITUTIONAL INVESTOR
Institutional investor is a term for entities which pool money to purchase securities, real
property, and other investment assets or originate loans. Institutional investors
include banks, insurance
companies, pensions, hedge
funds, REITs, investment
advisors, endowments, and mutual funds. Operating companies which invest excess capital in
these types of assets may also be included in the term. Activist institutional investors may also
influence corporate governance by exercising voting rights in their investments.
PENSION FUND
A pension fund, also known as a superannuation fund in some countries, is any plan, fund, or
scheme which provides retirement income. Pension funds typically have large amounts of money
to invest and are the major investors in listed and private companies. They are especially
important to the stock market where large institutional investors dominate. The largest 300
pension funds collectively hold about $6 trillion in assets. In January 2008, The
Economist reported that Morgan Stanley estimates that pension funds worldwide hold over
US$20 trillion in assets, the largest for any category of investor ahead of mutual funds, insurance
companies, currency reserves, sovereign wealth funds, hedge funds, or private equity.
ANGEL INVESTOR
An angel investor (also known as a business angel, informal investor, angel funder, private
investor, or seed investor) is an affluent individual who provides capital for a business start-up,
usually in exchange for convertible debt or ownership equity. A small but increasing number of
angel investors invest online through equity crowd funding or organize themselves into angel
groups or angel networks to share research and pool their investment capital, as well as to
provide advice to their portfolio companies.
ECONOMICS
Economics (/iknmks/, /knmks/, /knmks/, /iknmks/
is
a social
science concerned
with
the
factors
that
determine
the production, distribution,
and consumption of goods and services. The term economics comes from the Ancient
Greek from (oikos, pronounced eekos, "house") and (nomos, "custom" or
"law"), hence "rules of the house (hold for good management)". 'Political economy' was the
16

earlier name for the subject, but economists in the late 19th century suggested "economics" as a
shorter term for "economic science" to establish itself as a separate discipline outside of political
science and other social sciences.
Economics focuses on the behaviour and interactions of economic agents and
how economies work. Consistent with this focus, primary textbooks often distinguish between
microeconomics and macroeconomics. Microeconomics examines the behaviour of basic
elements in the economy, including individual agents and markets, their interactions, and the
outcomes of interactions. Individual agents may include, for example, households, firms, buyers,
and sellers. Macroeconomics analyzes the entire economy (meaning aggregated production,
consumption, savings, and investment) and issues affecting it, including unemployment of
resources (labour, capital, and land), inflation, economic growth, and the public policies that
address these issues (monetary, fiscal, and other policies).
VARIABLE (MATHEMATICS)
In elementary mathematics, a variable is an alphabetic character representing a number, called
the value of the variable, which is either arbitrary or not fully specified or unknown.
Making algebraic computations with variables as if they were explicit numbers allows one to
solve a range of problems in a single computation. A typical example is the quadratic formula,
which allows one to solve every quadratic equation by simply substituting the numeric values of
the coefficients of the given equation to the variables that represent them.
The concept of variable is also fundamental in calculus. Typically, a function y = f(x) involves
two variables, y and x, representing respectively the value and the argument of the function. The
term "variable" comes from the fact that, when the argument (also called the "variable of the
function") varies, then the value varies accordingly.
PRICE
In ordinary usage, price is the quantity of payment or compensation given by one party to
another in return for goods or services.
INTEREST RATE
An interest rate, is the amount of interest due per period, as a proportion of the amount lent,
deposited or borrowed (called the principal sum). The total interest on an amount lent or
borrowed depends on the principal sum, the interest rate, the compounding frequency, and the
length of time over which it is lent, deposited or borrowed.
It is defined as the proportion of an amount loaned which a lender charges as interest to the
borrower, normally expressed as an annual percentage. It is the rate a bank or other lender
charges to borrow its money, or the rate a bank pays its savers for keeping money in an account.
17
GOODS AND SERVICES

In economics, products can be classified into goods and services. Goods are items that are tangible,
such as books, pens, salt, shoes, hats and folders. Services are activities provided by other people,
such as doctors, lawn care workers, dentists, barbers, waiters, or online servers. According to
economic theory, consumption of goods and services is assumed to provide utility (satisfaction) to
the consumer or end-user, although businesses also consumer goods and services in the course of
producing other goods and services.
FINANCIAL MARKET
A financial market is a market in which people trade financial securities, commodities, and
other fungible items of value at low transaction costs and at prices that reflect supply and
demand. Securities include stocks and bonds, and commodities include precious metals or
agricultural products.
ECONOMIC MODEL
In economics, a model is a theoretical construct representing economic processes by a set
of variables and a set of logical and/or quantitative relationships between them. The
economic model is a simplified framework designed to illustrate complex processes, often but not
always using mathematical techniques. Frequently, economic models posit structural parameters.
Structural parameters are underlying parameters in a model or class of models.[1] A model may have
various parameters and those parameters may change to create various properties. Methodological
uses of models include investigation, theorizing, and fitting theories to the world.
FINANCIAL MODELING
Financial modeling is the task of building an abstract representation (a model) of a real
world financial situation. This is a mathematical model designed to represent (a simplified version
of) the performance of a financial asset or portfolio of a business, project, or any other investment.
Financial modeling is a general term that means different things to different users; the reference
usually relates either to accounting and corporate finance applications, or to quantitative
finance applications. While there has been some debate in the industry as to the nature of financial
modeling whether it is a tradecraft, such as welding, or a science the task of financial modeling has
been gaining acceptance and rigor over the years. Typically, financial modeling is understood to
mean an exercise in either asset pricing or corporate finance, of a quantitative nature. In other words,
financial modeling is about translating a set of hypotheses about the behavior of markets or agents
into numerical predictions; for example, a firm's decisions about investments (the firm will invest
20% of assets), or investment returns (returns on "stock A" will, on average, be 10% higher than the
market's returns).
ACCOUNTING
In corporate finance, investment banking, and the accounting profession financial modeling is
largely synonymous with financial statement forecasting. This usually involves the preparation
of detailed company specific models used for decision making purposes and financial analysis.
18
RATIONAL PRICING
Rational pricing is the assumption in financial economics that asset prices (and hence asset
pricing models) will reflect the arbitrage-free price of the asset as any deviation from this price
will be "arbitraged away". This assumption is useful in pricing fixed income securities,
particularly bonds, and is fundamental to the pricing of derivative instruments.
EFFICIENT-MARKET HYPOTHESIS
In financial economics, the efficient-market hypothesis (EMH) states that asset prices fully reflect
all available information. A direct implication is that it is impossible to "beat the market" consistently
on a risk-adjusted basis since market prices should only react to new information or changes in
discount rates (the latter may be predictable or unpredictable).
MODERN PORTFOLIO THEORY

"Portfolio analysis" redirects here. For theorems about the mean-variance efficient frontier,
see Mutual fund separation theorem. For non-mean-variance portfolio analysis, see Marginal
conditional stochastic dominance.
Modern portfolio theory (MPT), or mean-variance analysis, is a mathematical framework for
assembling a portfolio of assets such that the expected return is maximized for a given level of
risk, defined as variance. Its key insight is that an asset's risk and return should not be assessed
by itself, but by how it contributes to a portfolio's overall risk and return.
Economist Harry Markowitz introduced MPT in a 1952 essay, for which he was later awarded
a Nobel Prize in economics.
CAPITAL ASSET PRICING MODEL

In finance, the capital asset pricing model (CAPM) is a model used to determine a theoretically
appropriate required rates of return of an asset, to make decisions about adding assets to a well
diversified portfolio.
CERTAINTY
Certainty is perfect knowledge that has total security from error, or the mental state of being
without doubt.
Objectively defined, certainty is total continuity and validity of all foundational inquiry, to the
highest degree of precision. Something is certain only if no skepticism can occur. Philosophy (at
least, historical Cartesian philosophy) seeks this state.
FINANCIAL ECONOMETRICS
Financial econometrics is the subject of research that has been defined as the application of
statistical methods to financial market data. Financial econometrics is a branch of financial
economics, in the field of economics. Areas of study include capital markets, financial
19

institutions, corporate finance and corporate governance. Topics often revolve around asset
valuation of individual stocks, bonds, derivatives, currencies and other financial instruments.
Financial econometrics is different from other forms of econometrics because the emphasis is
usually on analyzing the prices of financial assets traded at competitive, liquid markets. People
working in the finance industry or researching the finance sector often use econometric
techniques in a range of activities for example, in support of portfolio management and in the
valuation of securities. Financial econometrics is essential for risk management when it is
important to know how often 'bad' investment outcomes are expected to occur over future days,
weeks, months and years.
MATHEMATICAL FINANCE
Mathematical finance, also known as quantitative finance, is a field of applied mathematics,
concerned with financial markets. Generally, mathematical finance will derive and extend
the mathematical or numerical models without necessarily establishing a link to financial theory,
taking observed market prices as input. Mathematical consistency is required, not compatibility
with economic theory. Thus, for example, while a financial economist might study the structural
reasons why a company may have a certain share price, a financial mathematician may take the
share price as a given, and attempt to use stochastic calculus to obtain the corresponding value
of derivatives of the stock (see: Valuation of options; Financial modeling). The fundamental
theorem of arbitrage-free pricing is one of the key theorems in mathematical finance, while
the BlackSchools equation and formula are amongst the key results.
EXPERIMENTAL FINANCE
The goals of experimental finance are to understand human and market behavior in settings
relevant to finance. Experiments are synthetic economic environments created by researchers
specifically to answer research questions. This might involve, for example, establishing different
market settings and environments to observe experimentally and analyze agents' behavior and
the resulting characteristics of trading flows, information diffusion and aggregation, price setting
mechanism and returns processes.
BEHAVIORAL ECONOMICS
Behavioral economics, along with the related sub-field behavioral finance, studies the effects
of psychological, social, cognitive, and emotional factors on the economic decisions of
individuals and institutions and the consequences for market prices, returns, and resource
allocation, although not always that narrowly, but also more generally, of the impact of different
kinds of behavior, in different environments of varying experimental values.
Risk tolerance is a crucial factor in personal financial decision making. Risk tolerance is defined
as individuals willingness to engage in a financial activity whose outcome is uncertain.
20

Behavioral economics is primarily concerned with the bounds of rationality of economic
agents. Behavioral
models typically
integrate
insights
from psychology, neuroscience and microeconomic theory; in so doing, these behavioral models
cover a range of concepts, methods, and fields.
The study of behavioral economics includes how market decisions are made and the mechanisms
that drive public choice. The use of the term "behavioral economics" in U.S. scholarly papers has
increased in the past few years, as shown by a recent study.
There are three prevalent themes in behavioral finances:
Heuristics: People often make decisions based on approximate rules of thumb and not strict
logic.
Framing: The collection of anecdotes and stereotypes that make up the mental emotional filters
individuals rely on to understand and respond to events.
Market inefficiencies: These include miss-pricing and non-rational decision making.
JOURNAL OF BEHAVIORAL FINANCE

The Journal of Behavioral Finance is a quarterly peer-reviewed academic journal that covers
research related to the field of behavioral finance. It was established in 2000 as The Journal of
Psychology and Financial Markets. The founding Board of Editors was Brian Bruce, David
Dreman, Paul Slovic, Nobel Laureate Vernon Smith and Arnold Wood. The editor-inchief was Gunduz Caginalp (2000-2005); Brian Bruce (Hillcrest Asset Management) is the
current editor.
21
HUMAN RESOURCE MANAGEMENT

Human resource management (HRM or simply HR) is the management of human resources. It
is a function in the organizations designed to maximize employee performance in service of an
employer's strategic objectives. HR is primarily concerned with the management of people
within organizations, focusing on policies and on systems. HR departments and units in
organizations typically undertake a number of activities, including employee benefits design,
employee recruitment, training and development, performance appraisal, and rewarding (e.g.,
managing pay and benefit systems). HR also concerns itself with organizational change
and industrial relations, that is, the balancing of organizational practices with requirements
arising from collective bargaining and from governmental laws.
HR is a product of the human relations movement of the early 20th century, when researchers
began documenting ways of creating business value through the strategic management of the
workforce. The function was initially dominated by transactional work, such
as payroll and benefits administration, but due to globalization, company consolidation,
technological advances, and further research, HR as of 2015 focuses on strategic initiatives
like mergers and acquisitions, talent management, succession planning, industrial and labor
relations, and diversity and inclusion.
HUMAN RESOURCES
Human resources are the people who make up the workforce of an organization, business
sector, or economy. "Human capital" is sometimes used synonymously with "human resources",
although human capital typically refers to a more narrow view (i.e., the knowledge the
individuals embody and economic growth). Likewise, other terms sometimes used include
"manpower", "talent", "labour", "personnel", or simply "people"
PERFORMANCE MANAGEMENT
Performance management (PM) includes activities which ensure that goals are consistently
being met in an effective and efficient manner. Performance management can focus on the
performance of an organization, a department, employee, or even the processes to build a
product or service, as well as many other areas.
PM is also known as a process by which organizations align their resources, systems and
employees to strategic objectives and priorities.
POLICY
A policy is a deliberate system of principles to guide decisions and achieve rational outcomes. A
policy is a statement of intent, and is implemented as a procedure or protocol. Policies are
generally adopted by the Board of or senior governance body within an organization where as
procedures or protocols would be developed and adopted by senior executive officers. Policies
can assist in both subjective and objective decision making. Policies to assist in subjective
22

decision making would usually assist senior management with decisions that must consider the
relative merits of a number of factors before making decisions and as a result are often hard to
objectively test e.g. work-life balance policy. In contrast policies to assist in objective decision
making are usually operational in nature and can be objectively tested e.g. password policy.
SYSTEM
A system is a set of interacting or interdependent component parts forming a complex or intricate
whole. Every system is delineated by its spatial and temporal boundaries, surrounded and
influenced by its environment, described by its structure and purpose and expressed in its
functioning.
Alternatively, and usually in the context of complex social systems, the term is used to describe
the set of rules that govern structure or behavior.
EMPLOYEE BENEFITS
Employee benefits and (especially in British English) benefits in kind (also called fringe
benefits, perquisites, or perks) include various types of non-wage compensation provided
to employees in addition to their normal wages or salaries. In instances where an employee
exchanges (cash) wages for some other form of benefit is generally referred to as a 'salary
packaging' or 'salary exchange' arrangement. In most countries, most kinds of employee benefits
are taxable to at least some degree.
Examples of these benefits include: housing (employer-provided or employer-paid), group
insurance
(health, dental, life etc.), disability
income protection, retirement
benefits, daycare, tuition reimbursement, sick leave, vacation (paid and non-paid), social
security, profit sharing, employer student loan contributions, and other specialized benefits.
RECRUITMENT
Recruitment (hiring) is a core function of human resource management. Recruitment refers to
the overall process of attracting, selecting and appointing suitable candidates for jobs (either
permanent or temporary) within an organization. Recruitment can also refer to processes
involved in choosing individuals for unpaid positions, such as voluntary roles or unpaid trainee
roles. Managers, human resource generalists and recruitment specialists may be tasked with
carrying out recruitment, but in some cases public-sector employment agencies, commercial
recruitment agencies, or specialist search consultancies are used to undertake parts of the
process. Internet-based technologies to support all aspects of recruitment have become
widespread.
TRAINING AND DEVELOPMENT

Human resource management regards training and development as a function concerned with
organizational activity aimed at bettering the job performance of individuals and groups
23

in organizational settings. Training and development can be described as "an educational process
which involves the sharpening of skills, concepts, changing of attitude and gaining more
knowledge to enhance the performance of employees". The field has gone by several names,
including "Human Resource Development", "Human Capital Development" and "Learning and
Development".
PERFORMANCE APPRAISAL
A performance appraisal (PA), also referred to as a performance review, performance
evaluation, (career) development discussion, or employee appraisal is a method by which
the job performance of an employee is documented and evaluated. Performance appraisals are
a part of career development and consist of regular reviews of employee performance
within organizations.
INDUSTRIAL RELATIONS
Industrial
relations are
a
multidisciplinary
field
that
studies
the employment relationship. Industrial relations is increasingly being called employment
relations or employee relations because of the importance of non-industrial employment
relationships; this move is sometimes seen as further broadening of the human resource
management trend. Indeed, some authors now define human resource management as
synonymous with employee relations. Other authors see employee relations as dealing only with
non-unionized workers, whereas labour relations are seen as dealing with unionized
workers. Industrial relations studies examine various employment situations, not just ones with a
unionized workforce. However, according to Bruce E. Kaufman "To a large degree, most
scholars regard trade unionism, collective bargaining and labor-management relations, and the
national labor policy and labor law within which they are embedded, as the core subjects of the
field."
BUSINESS VALUE
In management, business value is an informal term that includes all forms of value that
determine the health and well-being of the firm in the long run. Business value expands concept
of value of the firm beyond economic value (also known as economic profit, economic value
added, and shareholder value) to include other forms of value such as employee value, customer
value, supplier value, channel partner value, alliance partner value, managerial value, and
societal value. Many of these forms of value are not directly measured in monetary terms.
STRATEGIC MANAGEMENT
Strategic management involves the formulation and implementation of the major goals and
initiatives taken by a company's top management on behalf of owners, based on consideration
of resources and an assessment of the internal and external environments in which the
organization competes.
24

Strategic management provides overall direction to the enterprise and involves specifying the
organization's objectives, developing policies and plans designed to achieve these objectives, and
then allocating resources to implement the plans. Academics and practicing managers have
developed numerous models and frameworks to assist in strategic decision making in the context
of complex environments and competitive dynamics. Strategic management is not static in
nature; the models often include a feedback loop to monitor execution and inform the next round
of planning.
PAYROLL
A payroll is a company's list of its employees, but the term is commonly used to refer to:
1. The total amount of money that a company pays to its employees
2. A company's records of its employees' salaries and wages, bonuses, and withheld taxes
3. The company's department that calculates and pays these.
Payroll in the sense of "money paid to employees" plays a major role in a company for several
reasons.
From an accounting perspective, payroll is crucial because payroll and payroll taxes considerably
affect the net income of most companies and because they are subject to laws and regulations
(e.g. in the US, payroll is subject to federal, state, and local regulations).
GLOBALIZATION
Globalization is the process of international integration arising from the interchange of world
views, products, ideas, and other aspects of culture. Advances in transportation (such as
the steam
locomotive, steamship, jet
engine,
and container
ships)
and
in telecommunications infrastructure (including the rise of the telegraph and its modern
offspring, the Internet, and mobile phones) have been major factors in globalization, generating
further interdependence of economic and cultural activities. Though many scholars place
the origins of globalization in modern times, others trace its history long before
the European Age of Discovery and voyages to the New World. Some even trace the origins to
the third millennium BC. Large-scale globalization began in the 19th century. In the late 19th
century and early 20th century, the connectivity of the world's economies and cultures grew very
quickly.
TALENT MANAGEMENT
Talent management refers to the anticipation of required human capital for an organization and
the planning to meet those needs. The field increased in popularity after McKinsey's 1997
research and the 2001 book on The War for Talent. Talent management in this context does not
refer to the management of entertainers.
25
STRATEGIC MANAGEMENT
Strategic management involves the formulation and implementation of the major goals and
initiatives taken by a company's top management on behalf of owners, based on consideration
of resources and an assessment of the internal and external environments in which the
organization competes.
Strategic management provides overall direction to the enterprise and involves specifying the
organization's objectives, developing policies and plans designed to achieve these objectives, and
then allocating resources to implement the plans. Academics and practicing managers have
developed numerous models and frameworks to assist in strategic decision making in the context
of complex environments and competitive dynamics. Strategic management is not static in
nature; the models often include a feedback loop to monitor execution and inform the next round
of planning.
STRATEGIC HUMAN RESOURCE PLANNING

Human resources planning is a process that identifies current and future human
resources needs for an organization to achieve its goals. Human resources planning should serve
as a link between human resources management and the overall strategic plan of an organization.
Aging worker populations in most western countries and growing demands for qualified workers
in developing economies have underscored the importance of effective human resources
planning.
As defined by Bulla and Scott, human resource planning is 'the process for ensuring that the
human resource requirements of an organization are identified and plans are made for satisfying
those requirements'. Reilly defined workforce planning as: 'A process in which an organization
attempts to estimate the demand for labour and evaluate the size, nature and sources of supply
which will be required to meet the demand.' Human resource planning includes creating an
employer brand, retention strategy, absence management strategy, flexibility strategy, talent
management strategy, recruitment and selection strategy.
26
MANAGEMENT
Management (or managing) is the administration of an organization, whether it is a business, a
not-for-profit organization, or government body. Management includes the activities of setting
the strategy of an organization and coordinating the efforts of its employees or volunteers to
accomplish
its objectives through
the
application
of
available resources,
such
as financial, natural, technological, and human resources. The term "management" may also refer
to the people who manage an organization.
Henri Fayol (18411925) considers management to consist of six functions:
1. Forecasting
2. Planning
3. Organizing
4. Commanding
5. Coordinating
6. Controlling
ORGANIZATION
An organization is an entity comprising multiple people, such as an institution or an association
that has a collective goal and is linked to an external environment.
The word is derived from the Greek word organon, which means "organ"
GOAL
A goal is a desired result or possible outcome that a person or a system envisions, plans and commits
to achieve: a personal or organizational desired end-point in some sort of assumed development.
Many people endeavor to reach goals within a finite time by setting deadlines.
FACTORS OF PRODUCTION
In economics, factors of production, resources, or inputs are what are used in the production
process to produce output that is, finished goods and services. The utilized amounts of the
various inputs determine the quantity of output according to a relationship is called
the production
function.
There
are
three basic resources
or
factors
of
production: land, labor and capital. The factors are also frequently labeled "producer goods or
services" to distinguish them from the goods or services purchased by consumers, which are
frequently labeled "consumer goods". All three of these are required in combination at a time to
produce a commodity.
NATURAL RESOURCE
Natural resources are resources that exist without actions of humankind. This includes all
valued characteristics such as magnetic, gravitational, and electrical properties and forces. On
earth it includes: sunlight, atmosphere, water, land (includes all minerals) along with
27

all vegetation and animal life that naturally subsists upon or within the heretofore identified
characteristics and substances.
BOARD OF DIRECTORS
A board of directors is a body of elected or appointed members who jointly oversee the
activities of a company or organization, which can include a non-profit organization or a
government agency or corporation. Boards of directors activities are determined by the powers,
duties, and responsibilities delegated to it or conferred on it by an authority outside itself. These
matters are typically detailed in the organization's constitution and bylaws. These documents
commonly also specify the number of members of the board, how they are to be chosen, and how
often they are to meet. However, the constitution and bylaws rarely address a board's powers
when faced with a corporate turnaround, restructuring, or emergencies, where board members
need to act as agents of change in addition to their traditional fiduciary responsibilities.
CHIEF EXECUTIVE OFFICER

A chief executive officer (CEO) describes the position of the most senior corporate
officer, executive, leader or administrator in charge of managing an organization. CEOs lead a
range of organizations, including public and private corporations, non-profit organizations and
even some government organizations (e.g., Crown corporations). The CEO of
a corporation or company typically reports to the board of directors and is charged with
maximizing the value of the entity, which may include maximizing the share price, market share,
revenues, or another element. In the non-profit and government sector, CEOs typically aim at
achieving outcomes related to the organization's mission, such as reducing poverty, increasing
literacy, etc. Titles also often given to the holder of CEO position include president, chief
executive (CE) and managing director (MD).
SUPERVISOR
Supervisor, when the meaning sought is similar to foreman, foreperson, boss, overseer, cell
coach, facilitator, monitor, or area coordinator, is the job title of a low level management
position that is primarily based on authority over a worker or charge of a workplace. A
Supervisor can also be one of the most senior in the staff at the place of work, such as
a Professor who oversees a PhD dissertation. Supervision, on the other hand, can be performed
by people without this formal title, for example by parents. The term Supervisor itself can be
used to refer to any personnel who have this task as part of their job description.
MISSION STATEMENT
A mission statement, a type of statement of purpose is a statement which is used to communicate
the purpose of an organization. Although most of the time it will remain the same for a long
period of time, it is not uncommon for organizations to update their mission statement; this
generally happens when an organization evolves. Mission statements are normally short and
28

simple statements which outline what the organization's purpose is and are related to the
specific sector an organization operates in.
HUMAN CAPITAL
Human capital is a term popularized by Gary Becker, an economist from the University of
Chicago,
and Jacob
Mincer that
refers
to
the
stock
of knowledge, habits, social and personality attributes, including creativity, embodied in the
ability to perform labor so as to produce economic value.
SOCIAL RELATION
In social science, a social relation or social interaction is any relationship between two or more
individuals. Social relations derived from individual agency form the basis of social structure and
the basic object for analysis by social scientists. Fundamental inquiries into the nature of social
relations feature in the work of sociologists such as Max Weber in his theory of social action.
FACTORY
A factory (previously manufactory) or manufacturing plant is an industrial site, usually
consisting of buildings and machinery, or more commonly a complex having several buildings,
where workers manufacture goods or operate machines processing one product into another.
OWNERSHIP
Ownership of property may be private, collective, or common, and the property may be
of objects, land/real estate or intellectual property. Determining ownership in law involves
determining who has certain rights and duties over the property. These rights and duties,
sometimes called a "bundle of rights", can be separated and held by different parties.
SHAREHOLDER
A shareholder or stockholder is an individual or institution (including a corporation) that
legally owns a share of stock in a public or private corporation. Shareholders may be referred to
as members of a corporation. Legally, a person is not a shareholder in a corporation until his or
her name and other details are entered in the corporation's register of members.
MARKETING MANAGEMENT
Marketing management is the organizational discipline which focuses on the practical
application of marketing orientation, techniques and methods inside enterprises and
organizations and on the management of a firm's marketing resources and activities.
OPERATIONS MANAGEMENT
Operations management is an area of management concerned with designing and controlling
the process of production and redesigning business operations in the production
of goods or services. It involves the responsibility of ensuring that business operations
29

are efficient in terms of using as few resources as needed and effective in terms of meeting
customer requirements. It is concerned with managing the process that converts inputs (in the
forms of raw materials, labor, and energy) into outputs (in the form of goods and/or services).
The relationship of operations management to senior management in commercial contexts can be
compared to the relationship of line officers to highest-level senior officers in military science.
The highest-level officers shape the strategy and revise it over time, while the line officers
make tactical decisions in support of carrying out the strategy. In business as in military affairs,
the boundaries between levels are not always distinct; tactical information dynamically informs
strategy, and individual people often move between roles over time.
30
MARKETING
Marketing is the study and management of exchange relationships. The American Marketing
Association has defined marketing as "the activity, set of institutions, and processes for creating,
communicating, delivering, and exchanging offerings that have value for customers, clients,
partners, and society at large."
The techniques used in marketing include choosing target markets through market analysis
and market segmentation, as well as understanding methods of influence on the consumer
behavior.
TARGET MARKET
A target market is a group of customers a business has decided to aim its marketing efforts and
ultimately its merchandise towards. A well-defined target market is the first element of
a marketing strategy. Product, price, promotion, and place are the four elements of a marketing
mix strategy that determine the success of a product or service in the marketplace. It is proven
that businesses must have a clear definition of their target market as this can help reach its target
consumers and analyze what their needs and suitability are.
MARKET SEGMENTATION
Market segmentation is the process of dividing a broad consumer or business market, normally
consisting of existing and potential customers, into sub-groups of consumers (known
as segments) based on some type of shared characteristics. In dividing or segmenting markets,
researchers typically look for shared characteristics such as common needs, common interests,
similar lifestyles or even similar demographic profiles. The overall aim of segmentation is to
identify high yield segments that is, those segments that are likely to be the most profitable or
that have growth potential so that these can be selected for special attention (i.e. become target
markets).
CONSUMER BEHAVIOR
Consumer behaviour is the study of individuals, groups, or organizations and the processes
they use to select, secure, use, and dispose of products, services, experiences, or ideas to satisfy
their needs and wants. It is also concerned with the social and economic impacts that purchasing
and consumption behaviour has on both the consumer and wider society. Consumer behavior
blends elements from psychology, sociology, social anthropology, marketing and economics,
especially behavioural economics. It examines how emotions, attitudes and preferences affect
buying
behaviour.
Characteristics
of
individual
consumers
such
as demographics, personality lifestyles and behavioural variables such as usage rates, usage
occasion, loyalty, brand advocacy, willingness to provide referrals, in an attempt to understand
people's wants and consumption are all investigated in formal studies of consumer behaviour.
The study of consumer behaviour also investigates the influences, on the consumer, from groups
such as family, friends, sports, reference groups, and society in general.
31
BUSINESS MARKETING
Business marketing is a marketing practice of individuals or organizations (including
commercial businesses, governments and institutions). It allows them to sell products or services
to other companies or organizations that resell them, use them in their products or services or use
them to support their works.
INDUSTRIAL MARKETING
Industrial marketing (or business-to-business marketing) is the marketing of goods and
services by one business to another. Industrial goods are those an industry uses to produce an end
product from one or more raw materials.
SOCIAL MARKETING
Social marketing seeks to develop and integrate marketing concepts with other approaches to
influence behaviors that benefit individuals and communities for the greater social good. It seeks
to integrate research, best practice, theory, audience and partnership insight, to inform the
delivery of competition sensitive and segmented social change programs that are effective,
efficient, equitable and sustainable.
DIGITAL MARKETING
Digital marketing is an umbrella term for the marketing of products or services using digital
technologies, mainly on the Internet, but also including mobile phones, display advertising, and
any other digital medium.
PERSONALIZED MARKETING
Personalized marketing, or one-to-one marketing, is a marketing strategy by which companies
leverage data analysis and digital technology to deliver individualized messages and product
offerings
to
current
or
prospective
customers.
Advancements
in data
collection methods, analytics, digital electronics, and digital economics, have enabled marketers
to deploy more effective real-time and prolonged customer experience personalization tactics.
COMMODITY
In economics, a commodity is a marketable item produced to satisfy wants or needs. Often the item
is fungible. Economic commodities comprise goods and services.
COST
In production, research, retail, and accounting, a cost is the value of money that has been used up
to produce something, and hence is not available for use anymore. In business, the cost may be
one of acquisition, in which case the amount of money expended to acquire it is counted as cost.
In this case, money is the input that is gone in order to acquire the thing. This acquisition cost
may be the sum of the cost of production as incurred by the original producer, and further costs
32

of transaction as incurred by the acquirer over and above the price paid to the producer. Usually,
the price also includes a mark-up for profit over the cost of production.
COMMUNICATION
Communication (from Latin commnicre, meaning "to share") is the act of conveying
intended meanings from one entity or group to another through the use of mutually
understood signs and semiotic rules.
MARKETING CHANNEL
A marketing channel is a set of practices or activities necessary to transfer the ownership of
goods from the point of production to the point of consumption. It is the way products and
services get to the end-user, the consumer; and is also known as a distribution channel. A
marketing channel is a useful tool for management, and is crucial to creating an effective and
well-planned marketing strategy.
CO-MARKETING
Co-marketing (Collaborate marketing) is a marketing practice where two companies cooperate
with separate distribution channels, sometimes including profit sharing. It is frequently confused
with co-promotion. Also commensally (symbiotic) marketing is a marketing on which both
corporation and a corporation, a corporation and a consumer, country and a country, human and
nature can live. The Cs Compass Model is a framework of Co-marketing (Commensally
marketing or Symbiotic marketing). Also the Co-creative marketing of a company and
consumers are contained in the co-marketing.
MARKET ECONOMY
A market economy is an economic system where decisions regarding investment, production,
and distribution are based on the interplay of supply and demand, which determines the prices
of goods and services. The major defining characteristic of a market economy is that investment
decisions, or the allocation of producer good, are primarily made through capital and financial
markets. This is contrasted with a planned economy, where investment and production decisions
are embodied in an integrated plan of production established by a state or other organizational
body that controls the factors of production.
GOODS
In economics, goods are materials that satisfy human wants and provide utility, for example, to
a consumer making a purchase of a satisfying product. A common distinction is made between
goods that are tangible property, and services, which are non-physical. A good is a consumable
item that is useful to people but scarce in relation to its demand, so that human effort is required
to obtain it. In contrast, free goods, such as air, are naturally in abundant supply and need no
conscious effort to obtain them.
33
SERVICE (ECONOMICS)
In economics, a service is a transaction in which no physical goods are exchanged. The benefits
of such a service are held to be demonstrated by the buyer's willingness to make the exchange.
Public services are those that society (nation state, fiscal union, and region) as a whole pays for.
Using resources, skill, ingenuity, and experience, service providers benefit service consumers.
DEMAND
In economics, demand is the utility for a goods or service of an economic agent, relative to his/her
income. (Note: This distinguishes "demand" from "quantity demanded", where demand is a listing or
graphing of quantity demanded at each possible price. In contrast to demand, quantity demanded is
the exact quantity demanded at a certain price. Changing the actual price will change the quantity
demanded, but it will not change the demand, because demand is a listing of quantities that would be
bought at various prices, not just the actual price.)
POSITIONING (MARKETING)
Positioning refers to the place that a brand occupies in the mind of the customer and how it is
distinguished from products from competitors. In order to position products or brands,
companies may emphasize the distinguishing features of their brand (what it is, what it does and
how, etc.) or they may try to create a suitable image (inexpensive or premium, utilitarian or
luxurious, entry-level or high-end, etc.) through the marketing mix. Once a brand has achieved a
strong position, it can become difficult to reposition it.
GRAIN OF SALT
"(With) a grain of salt", (or "a pinch of salt") is an idiom of the English language, which means
to view something with skepticism, or to not take it literally.
DISTRIBUTION (BUSINESS)
Distribution (or place) is one of the four elements of the marketing mix. Distribution is the
process of making a product or service available for the consumer or business user that needs it.
This can be done directly by the producer or service provider, or using indirect channels
with intermediaries.
PRICING
Pricing is the process whereby a business sets the price at which it will sell its products and
services, and may be part of the business's marketing plan. In setting prices, the business will
take into account the price at which it could acquire the goods, the manufacturing cost, the
market place, competition, market condition, brand, and quality of product.
34
ACCOUNTING
Accounting or accountancy is the measurement, processing and communication of financial
information about economic entities such as businesses and corporations. The modern field was
established by the Italian mathematician Luca Pacioli in 1494. Accounting, which has been
called the "language of business", measures the results of an organization's economic activities
and conveys this information to a variety of users, including investors, creditors, management,
and regulators. Practitioners of accounting are known as accountants. The terms 'accounting' and
'financial reporting' are often used as synonyms.
Accounting can be divided into several fields including financial accounting, management
accounting, external auditing, and tax accounting. Accounting information systems are designed
to support accounting functions and related activities. Financial accounting focuses on the
reporting of an organization's financial information, including the preparation of financial
statements, to external users of the information, such as investors, regulators and suppliers; and
management accounting focuses on the measurement, analysis and reporting of information for
internal use by management. The recording of financial transactions, so that summaries of the
financials may be presented in financial reports, is known as bookkeeping, of which double-entry
bookkeeping is the most common system.
Accounting is facilitated by accounting organizations such as standard-setters, accounting
firms and professional bodies. Financial statements are usually audited by accounting firms, and
are prepared in accordance with generally accepted accounting principles (GAAP). GAAP is set
by various standard-setting organizations such as the Financial Accounting Standards
Board (FASB) in the United States and the Financial Reporting Council in the United Kingdom.
As of 2012, "all major economies" have plans to converge towards or adopt the International
Financial Reporting Standards (IFRS).
MANAGEMENT ACCOUNTING
In management accounting or managerial accounting, managers use the provisions
of accounting information in order to better inform themselves before they decide matters within
their organizations, which aids their management and performance of control functions.
One simple definition of management accounting is the provision of financial and non-financial
decision-making information to managers.
According to the Institute of Management Accountants (IMA): "Management accounting is a
profession that involves partnering in management decision making, devising planning and
performance management systems, and providing expertise in financial reporting and control to
assist management in the formulation and implementation of an organization's strategy"
FINANCIAL ACCOUNTING
Financial accounting (or financial accountancy) is the field of accounting concerned with the
summary, analysis and reporting of financial transactions pertaining to a business. This involves
35

the
preparation
of financial
statements available
for
public
consumption. Stockholders, suppliers, banks, employees, government agencies, business owners,
and other stakeholders are examples of people interested in receiving such information for
decision making purposes.
Financial accountancy is governed by both local and international accounting
standards. Generally Accepted Accounting Principles (GAAP) is the standard framework of
guidelines for financial accounting used in any given jurisdiction. It includes the standards,
conventions and rules that accountants follow in recording and summarizing and in the
preparation of financial statements. On the other hand, International Financial Reporting
Standards (IFRS) is a set of passion able accounting standards stating how particular types of
transactions and other events should be reported in financial statements. IFRS are issued by
the International Accounting Standards Board (IASB). With IFRS becoming more widespread on
the international scene, consistency in financial reporting has become more prevalent between
global organizations.
While financial accounting is used to prepare accounting information for people outside the
organization or not involved in the day-to-day running of the company, management
accounting provides accounting information to help managers make decisions to manage the
business.
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES

Generally accepted accounting principles (GAAP) are the standard framework of guidelines
for financial accounting used in any given jurisdiction; generally known as accounting
standards or standard accounting practice. These include the standards, conventions, and rules
that accountants follow in recording and summarizing and in the preparation of financial
statements. Many businesses choose to "opt out" of GAAP practices as they operate on a cash
basis, as opposed to an accrual basis. A comparison would be the way that most people balance
their checkbooks: when a check is written, its amount is deducted from the total balance even
though the funds have not yet left the account. Financial decisions made after the check is
written are based on the balance after the check is deducted.
AUDIT
An audit is a systematic and independent examination of books, accounts, statutory records,
documents and vouchers of an organization to ascertain how far the financial statements as well
as non-financial disclosures present a true and fair view of the concern. It also attempts to ensure
that the books of accounts are properly maintained by the concern as required by law. Auditing
has become such a ubiquitous phenomenon in the corporate and the public sector that academics
started identifying an "Audit Society". The auditor perceives and recognizes the propositions
before them for examination, obtains evidence, evaluates the same and formulates an opinion on
the basis of his judgment which is communicated through their audit report.
36

Any subject matter may be audited. Audits provide third party assurance to
various stakeholders that the subject matter is free from material misstatement. The term is most
frequently applied to audits of the financial information relating to a legal person. Other areas
which are commonly audited include: secretarial & compliance audit, internal controls, quality
management, project management, water management, and energy conservation.
TAX ACCOUNTING IN THE UNITED STATES

U.S. tax accounting refers to accounting for tax purposes in the United States. Unlike most
countries, the United States has a comprehensive set of accounting principles for tax purposes,
prescribed by tax law, which are separate and distinct from Generally Accepted Accounting
Principles.
ACCOUNTING INFORMATION SYSTEM

An accounting information system (AIS) is a system of collecting, storing and processing
financial and accounting data that are used by decision makers. An accounting information
system is generally a computer-based method for tracking accounting activity in conjunction
with information technology resources. The resulting financial reports can be used internally by
management or externally by other interested parties including investors, creditors and tax
authorities. Accounting information systems are designed to support all accounting functions and
activities including auditing, financial accounting & reporting, managerial/ management
accounting and tax. The most widely adopted accounting information systems are auditing and
financial reporting modules.
FINANCIAL STATEMENT
A financial statements (or financial report) are a formal record of the financial activities and
position of a business, person, or other entity.
Relevant financial information is presented in a structured manner and in a form easy to
understand. They typically include basic financial statements, accompanied by a management
discussion and analysis:
1. A balance sheet also referred to as a statement of financial position, reports on a
company's assets, liabilities, and owners equity at a given point in time.
2. An income statement, also known as a statement of comprehensive income, statement of
revenue & expense, P&L or profit and loss report, reports on a company's income, expenses,
and profits over a period of time. A profit and loss statement provides information on the
operation of the enterprise. These include sales and the various expenses incurred during the
stated period.
3. A Statement of changes in equity, also known as equity statement or statement of retained
earnings, reports on the changes in equity of the company during the stated period.
37

4. A cash flow statement reports on a company's cash flow activities, particularly its
operating, investing and financing activities.
For large corporations, these statements may be complex and may include an extensive set
of footnotes to the financial statements and management discussion and analysis. The notes
typically describe each item on the balance sheet, income statement and cash flow statement in
further detail. Notes to financial statements are considered an integral part of the financial
statements.
CASH METHOD OF ACCOUNTING

The cash method of accounting, also known as cash-basis accounting, cash receipts and
disbursements
method
of
accounting or cash
accounting (the EU
VAT
directive vocabulary Article 226) records revenue when cash is received, and expenses when
they are paid in cash. As a basis of accounting, this is in contrast to the
alternative accrual method which records income items when they are earned and records
deductions when expenses are incurred regardless of the flow of cash.
ACCRUAL
Accrual (accumulation) of something is, in finance, the adding together of interest or
different investments over a period of time. It holds specific meanings in accounting, where it
can refer to accounts on a balance sheet that represent liabilities and non-cash-based assets used
in accrual-based accounting. These types of accounts include, among others, accounts
payable, accounts receivable, goodwill, deferred tax liability and future interest expense.
BALANCE SHEET
In financial accounting, a balance sheet or statement of financial position is a summary of the
financial balances of an individual or organization, whether it be a sole proprietorship, a business
partnership,
a corporation, Private
limited
company or
other
organization
such
as Government or not-for-profit entity. Assets, liabilities and ownership equity are listed as of a
specific date, such as the end of its financial year. A balance sheet is often described as a
"snapshot of a company's financial condition". Of the four basic financial statements, the balance
sheet is the only statement which applies to a single point in time of a business' calendar year.
A standard company balance sheet has two sides: assets, on the left and financing, which itself
have two parts, liabilities and ownership equity, on the right. The main categories of assets are
usually listed first and typically in order of liquidity. Assets are followed by the liabilities. The
difference between the assets and the liabilities is known as equity or the net assets or the net
worth or capital of the company and according to the accounting equation, net worth must equal
assets minus liabilities.
38
INTERNATIONAL FINANCIAL REPORTING STANDARDS

International Financial Reporting Standards (IFRS) are designed as a common global
language for business affairs so that company accounts are understandable and comparable
across international boundaries. They are a consequence of growing international shareholding
and trade and are particularly important for companies that have dealings in several countries.
They are progressively replacing the many different national accounting standards. They are the
rules to be followed by accountants to maintain books of accounts which are comparable,
understandable, reliable and relevant as per the users internal or external.
IFRS, with the exception of IAS 29 Financial Reporting in Hyperinflationary
Economies and IFRIC 7 Applying the Restatement Approach under IAS 29, are authorized in
terms of the historical cost paradigm. IAS 29 and IFRIC 7 are authorized in terms of the units of
constant purchasing power paradigm
MATERIALITY (AUDITING)
Materiality is a concept or convention within auditing and accounting relating to the
importance/significance of an amount, transaction, or discrepancy. The objective of
an audit of financial statements is to enable the auditor to express an opinion whether
the financial statements are prepared, in all material respects, in conformity with an identified
financial reporting framework such as Generally Accepted Accounting Principles (GAAP).
As a simple example, an expenditure of ten cents on paper is generally immaterial, and, if it were
forgotten or recorded incorrectly, then no practical difference would result, even for a very small
business. However, a transaction of many millions of dollars is almost always material, and if it
were forgotten or recorded incorrectly, then financial managers, investors, and others would
make incorrect decisions as a result of this error. The assessment of what is material where to
draw the line between a transactions that is big enough to matter or small enough to be
immaterial depends upon factors such as the size of the organization's revenues and expenses,
and is ultimately a matter of professional judgment
STAKEHOLDER (CORPORATE)
A stakeholder or stakeholders, as defined in its first usage in a 1963 internal memorandum at
the Stanford Research Institute, are "those groups without whose support the organization would
cease to exist." The theory was later developed and championed by R. Edward Freeman in the
1980s. Since then it has gained wide acceptance in business practice and in theorizing relating
to strategic management, corporate governance, business purpose and corporate social
responsibility (CSR). A corporate stakeholder can affect or be affected by the actions of a
business as a whole.
The term has been broadened to include anyone who has an interest in a matter.
39
INCOME
Income is the consumption and savings opportunity gained by an entity within a specified
timeframe, which is generally expressed in monetary terms. However, for households and
individuals, "income is the sum of all the wages, salaries, profits, interests payments, rents, and
other forms of earnings received... in a given period of time."
In the field of public economics, the term may refer to the accumulation of both monetary and
non-monetary consumption ability, with the former (monetary) being used as a proxy for total
income.
EXPENSE
In common usage, an expense or expenditure is an outflow of money to another person or group
to pay for an item or service, or for a category of costs. For a tenant, rent is an expense. For
students or parents, tuition is an expense. Buying food, clothing, furniture or an automobile is
often referred to as an expense. An expense is a cost that is "paid" or "remitted", usually in
exchange for something of value. Something that seems to cost a great deal is "expensive".
Something that seems to cost little is "inexpensive". "Expenses of the table" are expenses
of dining, refreshments, a feast, etc.
In accounting, expense has a very specific meaning. It is an outflow of cash or other valuable
assets from a person or company to another person or company. This outflow of cash is generally
one side of a trade for products or services that have equal or better current or future value to the
buyer than to the seller. Technically, an expense is an event in which an asset is used up or
a liability is incurred. In terms of the accounting equation, expenses reduce owners' equity.
The International Accounting Standards Board defines expenses as
...decreases in economic benefits during the accounting period in the form of outflows or
depletions of assets or incurrence of liabilities that result in decreases in equity, other than those
relating to distributions to equity participants.
PROFIT (ACCOUNTING)
Profit is an income distributed to the owner in a profitable market production process (business).
Profit is a measure of profitability which is the owners major interest in income formation
process of market production. There is several profit measures in common use.
Income formation in market production is always a balance between income generation and
income distribution. The income generated is always distributed to the stakeholders of
production as economic value within the review period. The profit is the share of income
formation the owner is able to keep to himself in the income distribution process. Profit is one of
the major sources of economic well-being because it means incomes and opportunities to
develop production. The words income, profit and earnings are substitutes in this context.
40
FISCAL YEAR
A fiscal year (or financial year, or sometimes budget year) is the period used by governments for
accounting and budget purposes, which vary between countries. It is also used for financial
reporting by business and other organizations. Laws in many jurisdictions require company
financial reports to be prepared and published on a generally annual basis, but generally do not
require that the reporting period be calendar year, 1 January to 31 December. Taxation laws
generally require accounting records to be maintained and taxes calculated on an annual basis,
which usually corresponds to the fiscal year used for government purposes. The calculation of
tax on an annual basis is especially relevant for direct taxation, such as income tax. Many annual
government fees- such as Council rates, license fees, etc.are also levied on a fiscal year basis,
while others are charged on an anniversary basis.
Revenue
In accounting, revenue is the income that a business has from its normal business activities,
usually from the sale of goods and services to customers. Revenue is also referred to
as sales or turnover. Some companies receive revenue from interest, royalties, or other
fees. Revenue may refer to business income in general, or it may refer to the amount, in
a monetary unit, received during a period of time, as in "Last year, Company X had revenue of
$42 million". Profits or net income generally imply total revenue minus total expenses in a given
period. In accounting, revenue is often referred to as the "top line" due to its position on
the income statement at the very top. This is to be contrasted with the "bottom line" which
denotes net income (gross revenues minus total expenses).
ACCRUAL
Accrual (accumulation) of something is, in finance, the adding together of interest or
different investments over a period of time. It holds specific meanings in accounting, where it
can refer to accounts on a balance sheet that represent liabilities and non-cash-based assets used
in accrual-based accounting. These types of accounts include, among others, accounts
payable, accounts receivable, goodwill, deferred tax liability and future interest expense.
GOODWILL (ACCOUNTING)
Goodwill in accounting is an intangible asset that arises when a buyer acquires an existing
business. Goodwill represents assets that are not separately identifiable. Goodwill does not
include identifiable assets that are capable of being separated or divided from the entity and sold,
transferred, licensed, rented, or exchanged, either individually or together with a related contract,
identifiable asset, or liability regardless of whether the entity intends to do so. Goodwill also
does not include contractual or other legal rights regardless of whether those are transferable or
separable from the entity or other rights and obligations. Examples of identifiable assets that are
not goodwill include a companys brand name, customer relationships, artistic intangible assets,
and any patents or proprietary technology. The goodwill amounts to the excess of the "purchase
consideration" (the money paid to purchase the asset or business) over the total value of the
41

assets and liabilities. It is classified as an intangible asset on the balance sheet, since it can
neither be seen nor touched. Under US GAAP and IFRS, goodwill is never amortized. Instead,
management is responsible for valuing goodwill every year and to determine if an impairment is
required. If the fair market value goes below historical cost (what goodwill was purchased for),
impairment must be recorded to bring it down to its fair market value. However, an increase in
the fair market value would not be accounted for in the financial statements. Private companies
in the United States, however, may elect to amortize goodwill over a period of ten years or less
under an accounting alternative from the Private Company Council of the FASB.
ACCOUNTING PERIOD
An accounting period, in bookkeeping, is the period with reference to which accounting books of
any entity are prepared.
INTERNATIONAL ACCOUNTING STANDARDS BOARD

The International Accounting Standards Board (IASB) is the independent, accounting standardsetting body of the IFRS Foundation.
The IASB was founded on April 1, 2001, as the successor to the International Accounting
Standards Committee (IASC). It is responsible for developing International Financial Reporting
Standards (IFRS), previously known as International Accounting Standards (IAS) and promoting
the use and application of these standards.
INVESTMENT
To invest is to allocate money (or sometimes another resource, such as time) in the expectation
of some benefit in the future.
In finance, the benefit from investment is called a return. The return may consist of capital
gain and/or investment income, including dividends, interest, rental income etc. The projected
economic return is the appropriately discounted value of the future returns. The historic return
comprises the actual capital gain (or loss) and/or income over a period of time.
Investment generally results in acquiring an asset, also called an investment. If the asset is
available at a price worth investing, it is normally expected either to generate income, or to
appreciate in value, so that it can be sold at a higher price (or both).
Investors generally expect higher returns from riskier investments. Financial assets range from
low-risk, low-return investments, such as high-grade government bonds, to those with higher risk
and higher expected commensurate reward, such as emerging markets stock investments.
Investors,
particularly
novices,
are
often
advised
to
adopt
strategy and diversify their portfolio. Diversification has the statistical effect
overall risk.
42
an investment
of reducing
DIVIDEND
A dividend is a payment made by a corporation to its shareholders, usually as a distribution
of profits. When a corporation earns a profit or surplus, the corporation is able to re-invest the
profit in the business (called retained earnings) and pay a proportion of the profit as a dividend to
shareholders. Distribution to shareholders may be in cash (usually a deposit into a bank account)
or, if the corporation has a dividend reinvestment plan, the amount can be paid by the issue of
further shares or share repurchase
INTEREST
Interest is payment from a borrower or deposit-taking financial institution to a lender or
depositor of an amount above repayment of the principal sum (i.e. the amount borrowed). It is
distinct from a fee which the borrower may pay the lender or some third party.
INVESTMENT STRATEGY
In finance, an investment strategy is a set of rules, behaviors or procedures, designed to guide an
investor's selection of an investment portfolio. Individuals have different profit objectives, and
their individual skills make different tactics and strategies appropriate. Some choices involve a
tradeoff between risk and return. Most investors fall somewhere in between, accepting some risk
for the expectation of higher returns.
DIVERSIFICATION (FINANCE)
In finance, diversification is the process of allocating capital in a way that reduces the exposure
to any one particular asset or risk. A common path towards diversification is to reduce risk or
volatility by investing in a variety of assets. If asset prices do not change in perfect synchrony, a
diversified portfolio will have less variance than the weighted average variance of its constituent
assets, and often less volatility than the least volatile of its constituents.
GOVERNMENT BOND
A government bond is a bond issued by a national government, generally with a promise to pay
periodic interest payments and to repay the face value on the maturity date. Government bonds
are usually denominated in the country's own currency. Government bonds are sometimes
referred to as "'sovereign bonds"'. If a government or sovereign is close to default on its debt the
media often refer to this as a sovereign debt crisis.
The terms on which a government can sell bonds depend on how creditworthy the market
considers it to be. International credit rating agencies will provide ratings for the bonds, but
market participants will make up their own minds about this.
INVESTOR
An investor allocates capital with the expectation of a future financial return. Types of
investments include: equity, debt securities, real estate, currency, commodity, derivatives such as
put and call options, futures, forwards, etc. This definition makes no distinction between those in
43

the primary and secondary markets. That is, someone who provides a business with capital and
someone who buys a stock are both investors. An investor who owns a stock is a shareholder.
REGULATORY AGENCY
A regulatory agency (also regulatory authority, regulatory body or regulator) is a public
authority or government agency responsible for exercising autonomous authority over some area
of human activity in a regulatory or supervisory capacity. An independent regulatory agency is a
regulatory agency that is independent from other branches or arms of the government.
SUPPLY CHAIN
A supply chain is a system of organizations, people, activities, information, and resources
involved in moving a product or service from supplier to customer. Supply chain activities
involve the transformation of natural resources, raw materials, and components into a finished
product that is delivered to the end customer. In sophisticated supply chain systems,
used products may re-enter the supply chain at any point where residual value is recyclable.
Supply chains link value chains.
BOOKKEEPING
Bookkeeping is the recording of financial transactions, and is part of the process
of accounting in business. It is the only word in the English language with three consecutive
groups of a repeating letter. Transactions include purchases, sales, receipts, and payments by an
individual person or an organization/corporation. There are several standard methods of
bookkeeping, such as the single-entry bookkeeping system and the double-entry bookkeeping
system, but, while they may be thought of as "real" bookkeeping, any process that involves the
recording of financial transactions is a bookkeeping process.
Bookkeeping is usually performed by a bookkeeper. A bookkeeper (or book-keeper) is a person
who records the day-to-day financial transactions of a business. He or she is usually responsible
for writing the daybooks, which contain records of purchases, sales, receipts, and payments. The
bookkeeper is responsible for ensuring that all transactions whether it is cash transaction or credit
transaction are recorded in the correct daybook, supplier's ledger, customer ledger, and general
ledger; an accountant can then create reports from the information concerning the financial
transactions recorded by the bookkeeper.
The bookkeeper brings the books to the trial balance stage: an accountant may prepare
the income statement and balance sheet using the trial balance and ledgers prepared by the
bookkeeper.
DOUBLE-ENTRY BOOKKEEPING SYSTEM

Double-entry bookkeeping, in accounting, is a system of bookkeeping so named because every
entry to an account requires a corresponding and opposite entry to a different account. For
44

instance, recording earnings of $100 would require making two entries: a debit entry of $100 to
an account called "Cash" and a credit entry to an account called "Revenue."
In deciding which account has to be debited and which account has to be credited, the golden
rules of accounting are used. This is also accomplished using the accounting
equation: Equity = Assets Liabilities. The accounting equation serves as an error detection
tool. If at any point the sum of debits for all accounts does not equal the corresponding sum of
credits for all accounts, an error has occurred. It follows that the sum of debits and the sum of the
credits must be equal in value.
Double-entry bookkeeping is not a guarantee that no errors have been made for example, the
wrong ledger account may have been debited or credited, or the entries completely reversed.
SINGLE-ENTRY BOOKKEEPING SYSTEM

A single-entry bookkeeping system or single-entry accounting system is a method of
bookkeeping relying on a one sided accounting entry to maintain financial information.
INCOME STATEMENT
An income statement or profit and loss account (also referred to as a profit and loss
statement (P&L), statement of profit or loss, revenue statement, statement of financial
performance, earnings statement, operating statement, or statement of operations) is one of
the financial statements of a company and shows the companys revenues and expenses during a
particular period. It indicates how the revenues (money received from the sale of products and
services before expenses are taken out, also known as the top line) are transformed into the net
income (the result after all revenues and expenses have been accounted for, also known as net
profit or the bottom line). It displays the revenues recognized for a specific period, and
the cost and expenses charged
against
these
revenues,
including writeoffs (e.g., depreciation and amortization of various assets) and taxes. The purpose of the income
statement is to show managers and investors whether the company made or lost money during
the period being reported.
TAX
A tax (from the Latin taxo) is a financial charge or other levy imposed upon a taxpayer (an
individual or legal entity) by a state or the functional equivalent of a state to fund various public
expenditures.[1] A failure to pay, or evasion of or resistance to taxation, is usually punishable by
law. Taxes consist of direct or indirect taxes and may be paid in money or as its labour
equivalent. Most countries have a tax system in place to pay for public/common/agreed national
needs and government functions: some levy a flat percentage rate of taxation on personal annual
income, some on a scale based on annual income amounts, and some countries impose almost no
taxation at all, or a very low tax rate for a certain area of taxation. Some countries also charge a
tax on corporate income, dividends, or distributions this is often referred to as double taxation as
45

the individual shareholder(s) receiving this payment from the company will also be levied some
tax on that personal income.
GENERAL LEDGER
A general ledger contains all the accounts for recording transactions relating to a company's
assets, liabilities, owners' equity, revenue, and expenses. In modern accounting software or ERP,
the general ledger works as a central repository for accounting data transferred from all sub
ledgers or modules like accounts payable, accounts receivable, cash management, fixed assets,
purchasing and projects. The general ledger is the backbone of any accounting system which
holds financial and non-financial data for an organization. The collection of all accounts is
known as the general ledger. Each account is known as a ledger account. In a manual or noncomputerized system this may be a large book.
The statement of financial position and the statement of income and comprehensive income are
both derived from the general ledger. Each account in the general ledger consists of one or more
pages. The general ledger is where posting to the accounts occurs. Posting is the process of
recording amounts as credits (right side), and amounts as debits (left side), in the pages of the
general ledger. Additional columns to the right hold a running activity total (similar to a
chequebook).
The listing of the account names is called the chart of accounts. The extraction of account
balances is called a trial balance. The purpose of the trial balance is, at a preliminary stage of
the financial statement preparation process, to ensure the equality of the total debits and credits.
DEBITS AND CREDITS

In double entry bookkeeping, debits and credits (abbreviated Dr and Cr, respectively) are
entries made in account ledgers to record changes in value resulting from business transactions.
Generally speaking, the source account for the transaction is credited (that is, an entry is made on
the right side of the account's ledger) and the destination account is debited (that is, an entry is
made on the left side). Total debits must equal total credits for each transaction; individual
transactions may require multiple debit and credit entries to record.
The difference between the total debits and total credits in a single account is the
account's balance. If debits exceed credits, the account has a debit balance; if credits exceed
debits, the account has a credit balance. For the company as a whole, the totals of debit balances
and credit balances must be equal as shown in the trial balance report, otherwise an error has
occurred.
Accountants use the trial balance to prepare financial statements (such as the balance
sheet and income statement)which communicate information about the company's financial
activities in a generally accepted standard format.
46
RESEARCH
Research comprises "creative work undertaken on a systematic basis in order to increase the
stock of knowledge, including knowledge of humans, culture and society, and the use of this
stock of knowledge to devise new applications." It is used to establish or confirm facts, reaffirm
the results of previous work, solve new or existing problems, support theorems, or develop
new theories. A research project may also be an expansion on past work in the field. To test the
validity of instruments, procedures, or experiments, research may replicate elements of prior
projects or the project as a whole. The primary purposes of basic research (as opposed to applied
research) are documentation, discovery, interpretation, or the research and development (R&D)
of methods and systems for the advancement of human knowledge. Approaches to research
depend on epistemologies, which vary considerably both within and between humanities and
sciences.
There
are
several
forms
of
research: scientific, humanities, artistic, economic, social, business, marketing, practitioner
research, life, technological, etc.
FORMS OF RESEARCH
Scientific research is a systematic way of gathering data and harnessing curiosity. This research
provides scientific information and theories for the explanation of the nature and the properties
of the world. It makes practical applications possible. Scientific research is funded by public
authorities, by charitable organizations and by private groups, including many companies.
Scientific research can be subdivided into different classifications according to their academic
and application disciplines. Scientific research is a widely used criterion for judging the standing
of an academic institution, such as business schools, but some argue that such is an inaccurate
assessment of the institution, because the quality of research does not tell about the quality of
teaching (these do not necessarily correlate).
Research
in
the
humanities involves
different
methods
such
as
for
example hermeneutics and semiotics. Humanities scholars usually do not search for the ultimate
correct answer to a question, but instead, explore the issues and details that surround it. Context
is always important, and context can be social, historical, political, cultural, or ethnic. An
example of research in the humanities is historical research, which is embodied in historical
method. Historians use primary sources and other evidence to systematically investigate a topic,
and then to write histories in the form of accounts of the past. Other studies aim to merely
examine the occurrence of behaviours in societies and communities, without particularly looking
for reasons or motivations to explain these. These studies may be qualitative or quantitative, and
can use a variety of approaches, such as queer theory or feminist theory.
Artistic research, also seen as 'practice-based research', can take form when creative works are
considered both the research and the object of research itself. It is the debatable body of thought
which offers an alternative to purely scientific methods in research in its search for knowledge
and truth.
47
ETYMOLOGY
The word research is derived from the Middle French "recherche", which means "to go about
seeking", the term itself being derived from the Old French term "recerchier" a compound word
from "re-" + "cerchier", or "sercher", meaning 'search'. The earliest recorded use of the term was
in 1577.
DEFINITIONS
A broad definition of research is given by Godwin Colibao - "In the broadest sense of the word,
the definition of research includes any gathering of data, information, and facts for the
advancement of knowledge."
Another definition of research is given by John W. Creswell who states that Research is a
process of steps used to collect and analyze information to increase our understanding of a topic
or issue". It consists of three steps: Pose a question, collect data to answer the question, and
present an answer to the question.
The Merriam-Webster Online Dictionary defines research in more detail as "a studious inquiry or
examination; especially investigation or experimentation aimed at the discovery and
interpretation of facts, revision of accepted theories or laws in the light of new facts, or practical
application of such new or revised theories or laws".
STEPS IN CONDUCTING RESEARCH

Research is often conducted using the hourglass model structure of research. The hourglass
model starts with a broad spectrum for research, focusing in on the required information through
the method of the project (like the neck of the hourglass), then expands the research in the form
of discussion and results. The major steps in conducting research are:
1. Identification of research problem
2. Literature review
3. Specifying the purpose of research
4. Determine specific research questions
5. Specification of a conceptual framework, usually a set of hypotheses
6. Choice of a methodology (for data collection)
7. Data collection
8. Verify data
9. Analyzing and interpreting the data
10. Reporting and evaluating research
11. Communicating the research findings and, possibly, recommendations
The steps generally represent the overall process; however, they should be viewed as an everchanging iterative process rather than a fixed set of steps. Most research begins with a general
48

statement of the problem, or rather, the purpose for engaging in the study. The literature review
identifies flaws or holes in previous research which provides justification for the study. Often,
a literature review is conducted in a given subject area before a research question is identified. A
gap in the current literature, as identified by a researcher, then engenders a research question.
The research question may be parallel to the hypothesis. The hypothesis is the supposition to be
tested. The researcher(s) collects data to test the hypothesis. The researcher(s) then analyzes and
interprets the data via a variety of statistical methods, engaging in what is known as empirical
research. The results of the data analysis in confirming or failing to reject the Null hypothesis are
then reported and evaluated. At the end, the researcher may discuss avenues for further research.
However, some researchers advocate for the flip approach: starting with articulating findings and
discussion of them, moving "up" to identification research problem that emerging in the findings
and literature review introducing the findings. The flip approach is justified by the transactional
nature of the research endeavor where research inquiry, research questions, research method,
relevant research literature, and so on are not fully known until the findings fully emerged and
interpreted.
Rudolph Rummel says, "... no researcher should accept any one or two tests as definitive. It is
only when a range of tests are consistent over many kinds of data, researchers, and methods can
one have confidence in the results."
Plato in Meno talks about an inherent difficulty, if not a paradox, of doing research that can be
paraphrase in the following way, "If you know what you're searching for, why do you search for
it?! i.e., you have already found it. If you don't know what you're searching for, what are you
searching for?!"
SCIENTIFIC RESEARCH
Generally, research is understood to follow a certain structural process. Though step order may
vary depending on the subject matter and researcher, the following steps are usually part of most
formal research, both basic and applied:
1. Observations and formation of the topic: Consists of the subject area of one's interest and
following that subject area to conduct subject related research. The subject area should not be
randomly chosen since it requires reading a vast amount of literature on the topic to determine
the gap in the literature the researcher intends to narrow. A keen interest in the chosen subject
area is advisable. The research will have to be justified by linking its importance to already
existing knowledge about the topic.
2. Hypothesis: A testable prediction which designates the relationship between two or more
variables.
3. Conceptual definition: Description of a concept by relating it to other concepts.
49

4. Operational definition: Details in regards to defining the variables and how they will be
measured/assessed in the study.
5. Gathering of data: Consists of identifying a population and selecting samples, gathering
information from and/or about these samples by using specific research instruments. The
instruments used for data collection must be valid and reliable.
6. Analysis of data: Involves breaking down the individual pieces of data in order to draw
conclusions about it.
7. Data Interpretation: This can be represented through tables, figures, and pictures, and then
described in words.
8. Test, revising of hypothesis
9. Conclusion, reiteration if necessary
A common misconception is that a hypothesis will be proven (see, rather, null hypothesis).
Generally, a hypothesis is used to make predictions that can be tested by observing the outcome
of an experiment. If the outcome is inconsistent with the hypothesis, then the hypothesis is
rejected. However, if the outcome is consistent with the hypothesis, the experiment is said to
support the hypothesis. This careful language is used because researchers recognize that
alternative hypotheses may also be consistent with the observations. In this sense, a hypothesis
can never be proven, but rather only supported by surviving rounds of scientific testing and,
eventually, becoming widely thought of as true.
A useful hypothesis allows prediction and within the accuracy of observation of the time, the
prediction will be verified. As the accuracy of observation improves with time, the hypothesis
may no longer provide an accurate prediction. In this case, a new hypothesis will arise to
challenge the old, and to the extent that the new hypothesis makes more accurate predictions than
the old, the new will supplant it. Researchers can also use a null hypothesis, which states no
relationship or difference between the independent or dependent variables. A null hypothesis
uses a sample of all possible people to make a conclusion about the population.
RESEARCH METHODS
The goal of the research process is to produce new knowledge or deepen understanding of a topic
or issue. This process takes three main forms (although, as previously discussed, the boundaries
between them may be obscure):
1. Exploratory research, which helps to identify and define a problem or question.
2 Constructive research, which tests theories and proposes solutions to a problem or question.
50

3. Empirical research, which tests the feasibility of a solution using empirical evidence.
There are two major types of empirical research design: qualitative research and quantitative
research. Researchers choose qualitative or quantitative methods according to the nature of the
research topic they want to investigate and the research questions they aim to answer.
QUALITATIVE RESEARCH
Understanding of human behavior and the reasons that govern such behavior. Asking a broad
question and collecting data in the form of words, images, video etc that is analyzed and
searching for themes. This type of research aims to investigate a question without attempting to
quantifiably measure variables or look to potential relationships between variables. It is viewed
as more restrictive in testing hypotheses because it can be expensive and time-consuming and
typically limited to a single set of research subjects. Qualitative research is often used as a
method of exploratory research as a basis for later quantitative research hypotheses. Qualitative
research is linked with the philosophical and theoretical stance of social construction.
QUANTITATIVE RESEARCH
Systematic empirical investigation of quantitative properties and phenomena and their
relationships. Asking a narrow question and collecting numerical data to analyze
utilizing statistical methods. The quantitative research designs are experimental, co relational,
and survey (or descriptive). Statistics derived from quantitative research can be used to establish
the existence of associative or causal relationships between variables. Quantitative research is
linked with the philosophical and theoretical stance of positivism.
The quantitative data collection methods rely on random sampling and structured data collection
instruments that fit diverse experiences into predetermined response categories. These methods
produce results that are easy to summarize, compare, and generalize. Quantitative research is
concerned with testing hypotheses derived from theory and/or being able to estimate the size of a
phenomenon of interest. Depending on the research question, participants may be randomly
assigned to different treatments (this is the only way that a quantitative study can be considered a
true experiment). If this is not feasible, the researcher may collect data on participant and
situational characteristics in order to statistically control for their influence on the dependent, or
outcome, variable. If the intent is to generalize from the research participants to a larger
population, the researcher will employ probability sampling to select participants.
In either qualitative or quantitative research, the researcher(s) may collect primary or secondary
data. Primary data is data collected specifically for the research, such as through interviews or
questionnaires. Secondary data is data that already exists, such as census data, which can be reused for the research. It is good ethical research practice to use secondary data wherever
possible.
51

Mixed-method research, i.e. research that includes qualitative and quantitative elements, using
both primary and secondary data, is becoming more common.
Big data has brought big impacts on research methods that now researchers do not put much
effort on data collection, and also methods to analyze easily available huge amount of data have
also changed.
Non empirical refers to an approach that is grounded in theory as opposed to using observation
and experimentation to achieve the outcome. As such, non empirical research seeks solutions to
problems using existing knowledge as its source. This, however, does not mean that new ideas
and innovations cannot be found within the pool existing and established knowledge. Non
empirical is not an absolute alternative to empirical research because they may be used together
to strengthen a research approach. Neither one is less effective than the other since they have
their particular purpose within life and in science. A simple example of a non empirical task
could the prototyping of a new drug using a differentiated application of existing knowledge;
similarly, it could be the development of a business process in the form of a flow chart and texts
where all the ingredients are from established knowledge. Empirical research, on the other hand,
seeks to create new knowledge through observations and experiments in which established
knowledge can either be contested or supplements.
RESEARCH METHOD CONTROVERSIES

There have been many controversies about research methods stemmed from a
philosophical positivism promise to distinguish the science from other practices (especially religion)
by its method. This promise leads to methodological hegemony and methodology wars where diverse
researchers, often coming from opposing paradigms, try to impose their own methodology on the
entire field or even on the science practice in general as the only legitimate one.
Anti-methodology
According to this view, general scientific methodology does not exist and an attempt to impose it on
scientists is counterproductive. Each particular research with its emerging particular inquiries
requires and should produce its own way (method) of researching. Similar to the art practice, the
notion of methodology has to be replaced with the notion of research mastery.
PROBLEMS IN RESEARCH
Western dominance
Research disciplines have been dominated by academics from Western countries, particularly by
Americans. Geopolitical power dynamics have placed Western scholars as the elite gatekeepers of
academia, relegating scholars from periphery countries to inferior positions.
Patriarchal dominance
Many researchers have acknowledged how patriarchal structures and understandings dominate
research. These assumptions regarding people and their connections in society can influence the
52

research methods. To counter this, some studies find it more appropriate to adopt feminist or queer
theories and approaches as these are seen to be a conscious effort to alleviate any biases.
METHODS OF RESEARCH
Linguicism In many disciplines, Western methods of conducting research are
predominant. Researchers are overwhelmingly taught Western methods of data collection and study.
The increasing participation of indigenous peoples as researchers has brought increased attention to
the lacuna in culturally-sensitive methods of data collection. Non-Western methods of data collection
may not be the most accurate or relevant for research on non-Western societies. For example, Hua
Oranga was created as a criterium for psychological evaluation in Maori populations, and is based
on dimensions of mental health important to the Maori people "taha wairua (the spiritual dimension),
taha hinengaro (the mental dimension), taha tinana (the physical dimension), and taha whanau (the
family dimension).
Periphery scholars face the challenges of exclusion and linguicism in research and academic
publication. As the great majority of mainstream academic journals are written in English,
multilingual periphery scholars often must translate their work in order to be accepted to elite
Western-dominated journals. Multilingual scholars influences from their native communicative
styles can be assumed to be incompetence instead of difference.
Publication
Publications from periphery countries rarely rise to the same elite status as those of North America
and Europe primarily because of fewer material resources, rendering them less able to meet practical
conventions of publishing such as paper weight and graphic quality. These subdue the voices of
periphery scholars and prevent their contributions to collective knowledge.
Influence of the open-access movement

The open access movement assumes that all information generally deemed useful should be free and
belongs to a public domain, that of humanity. This idea gained prevalence as a result of Western
colonial history and ignores alternative conceptions of knowledge circulation. For instance, most
indigenous communities consider that access to certain information proper to the group should be
determined by relationships.
There is a double standard found in the Western knowledge system. On the one hand, digital right
management used to restrict access to personal information on social networking platforms are
celebrated as a protection of privacy, while simultaneously when similar functions are utilized by
cultural groups (i.e. indigenous communities) this is denounced as access control and reprehended
as censorship.
53
Future perspectives
Even though Western dominance seems to be prominent in research, some scholars, such as Simon
Marginson, argue for the need for a plural university world. Marginson argues that the East Asian
Confucian model could take over the Western model.
This could be due to changes in funding for research both in the East and the West. Focussed on
emphasizing educational achievement, East Asian cultures, mainly in China and South Korea, have
encouraged the increase of funding for research expansion. In contrast, in the Western academic
world, notably in the United Kingdom as well as in some state governments in the United States,
funding cuts for university research is observed which may lead to the future decline of Western
dominance in research.
RESEARCH FUNDING
Most funding for scientific research comes from three major sources: corporate research and
development departments; private foundations, for example, the Bill and Melinda Gates Foundation;
and government research councils such as the National Institutes of Health in the USA and
the Medical Research Council in the UK. These are managed primarily through universities and in
some cases through military contractors. Many senior researchers (such as group leaders) spend a
significant amount of their time applying for grants for research funds. These grants are necessary
not only for researchers to carry out their research but also as a source of merit.
The Social Psychology Network provides a comprehensive list of U.S. Government and private
foundation funding sources.
ORIGINAL RESEARCH
Original research is research that is not exclusively based on a summary, review or synthesis of
earlier publications on the subject of research. This material is of a primary source character. The
purpose of the original research is to produce new knowledge, rather than to present the existing
knowledge in a new form (e.g., summarized or classified).
DIFFERENT FORMS
Original research can take a number of forms, depending on the discipline it pertains to.
In experimental work, it typically involves direct or indirect observation of the researched subject(s),
e.g., in the laboratory or in the field, documents the methodology, results, and conclusions of an
experiment or set of experiments, or offers a novel interpretation of previous results.
In analytical work, there are typically some new (for example) mathematical results produced, or a
new way of approaching an existing problem. In some subjects who do not typically carry out
experimentation or analysis of this kind, the originality is in the particular way existing
understanding is changed or re-interpreted based on the outcome of the work of the researcher.
54

The degree of originality of the research is among major criteria for articles to be published
in academic journals and usually established by means of peer review. Graduate students are
commonly required to perform original research as part of a dissertation.
ARTISTIC RESEARCH
The controversial trend of artistic teaching becoming more academics-oriented is leading to artistic
research being accepted as the primary mode of enquiry in art as in the case of other disciplines. One
of the characteristics of artistic research is that it must accept subjectivity as opposed to the classical
scientific methods. As such, it is similar to the social sciences in using qualitative research and inters
subjectivity as tools to apply measurement and critical analysis.
Artistic research has been defined by the University of Dance and Circus (Dans och
Cirkushgskolan, DOCH), Stockholm in the following manner "Artistic research is to investigate and
test with the purpose of gaining knowledge within and for our artistic disciplines. It is based on
artistic practices, methods, and criticality. Through presented documentation, the insights gained
shall be placed in a context." Artistic research aims to enhance knowledge and understanding with
presentation of the arts. For a survey of the central problematics of today's Artistic Research,
see Giaco Schiesser.
According to artist Hakan Topal, in artistic research, "perhaps more so than other disciplines,
intuition is utilized as a method to identify a wide range of new and unexpected productive
modalities". Most writers, whether of fiction or non-fiction books, also have to do research to support
their creative work. This may be factual, historical, or background research. Background research
could include, for example, geographical or procedural research.
55

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BUSINESS ADMINISTRATION (FINANCE) IMPORTANT CONCEPTS

Riaz Ahmed Siddiqi AJK PAKISTAN

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Riaz Ahmed Siddiqi AJK PAKISTAN

Riaz Ahmed Siddiqi AJK PAKISTAN

REAL OPTIONS VALUATION

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INITIAL PUBLIC OFFERING

CASH FLOW: A cash flow describes a real or virtual movement of money.

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WORKING CAPITAL MANAGEMENT

Riaz Ahmed Siddiqi AJK PAKISTAN

Riaz Ahmed Siddiqi AJK PAKISTAN

Riaz Ahmed Siddiqi AJK PAKISTAN

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provides accounting information to help managers make

FINANCIAL RISK MANAGEMENT

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FOREIGN EXCHANGE RISK

Riaz Ahmed Siddiqi AJK PAKISTAN

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Riaz Ahmed Siddiqi AJK PAKISTAN

Riaz Ahmed Siddiqi AJK PAKISTAN

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GOODS AND SERVICES

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MODERN PORTFOLIO THEORY

CAPITAL ASSET PRICING MODEL

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Riaz Ahmed Siddiqi AJK PAKISTAN

JOURNAL OF BEHAVIORAL FINANCE

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HUMAN RESOURCE MANAGEMENT

Riaz Ahmed Siddiqi AJK PAKISTAN

TRAINING AND DEVELOPMENT

Riaz Ahmed Siddiqi AJK PAKISTAN

Riaz Ahmed Siddiqi AJK PAKISTAN

Riaz Ahmed Siddiqi AJK PAKISTAN

STRATEGIC HUMAN RESOURCE PLANNING

Riaz Ahmed Siddiqi AJK PAKISTAN

Riaz Ahmed Siddiqi AJK PAKISTAN

CHIEF EXECUTIVE OFFICER

Riaz Ahmed Siddiqi AJK PAKISTAN

Riaz Ahmed Siddiqi AJK PAKISTAN

Riaz Ahmed Siddiqi AJK PAKISTAN

Riaz Ahmed Siddiqi AJK PAKISTAN

Riaz Ahmed Siddiqi AJK PAKISTAN

Riaz Ahmed Siddiqi AJK PAKISTAN

Riaz Ahmed Siddiqi AJK PAKISTAN

Riaz Ahmed Siddiqi AJK PAKISTAN

GENERALLY ACCEPTED ACCOUNTING PRINCIPLES

Riaz Ahmed Siddiqi AJK PAKISTAN

TAX ACCOUNTING IN THE UNITED STATES

ACCOUNTING INFORMATION SYSTEM

Riaz Ahmed Siddiqi AJK PAKISTAN

CASH METHOD OF ACCOUNTING

Riaz Ahmed Siddiqi AJK PAKISTAN

INTERNATIONAL FINANCIAL REPORTING STANDARDS

Riaz Ahmed Siddiqi AJK PAKISTAN

Riaz Ahmed Siddiqi AJK PAKISTAN

Riaz Ahmed Siddiqi AJK PAKISTAN