sales forecast

Definition

Projection of achievable sales revenue, based on historical sales data, analysis of market surveys and
trends, and salespersons' estimates. Also called sales budget, it forms the basis of a business plan
because the level of sales revenue affects practically every aspect of a business. See also sales target.

subsidiary ledger

Definition

Special or supporting ledger (such as cost ledger, purchases ledger, sales ledger) that provides more
detailed information about individual accounts than a general ledger. Used by firms with larger
number of customers (or creditors), these ledgers divide masses of financial data into more
manageable parts. Total of all individual accounts in a subsidiary ledger equals the balance of the
corresponding summary account (called control account) in the general ledger.

articles of incorporation

Definition

US term for the basic legal document which, similar to the UK's memorandum of association, gives
birth to a corporation. Together with the certificate of incorporation (corporation's 'birth certificate') it
constitutes the charter that gives the corporation an independent existence as a legal entity. Also
called articles of formation or articles of organization.

duty of care

Definition

Responsibility or the legal obligation of a person or organization to avoid acts or omissions (which can
be reasonably foreseen) to be likely to cause harm to others. Duty of care is owed by an accountant in
correctly preparing a firm's accounts, by an auditor in confirming an firm's financial statements
correctly present its financial position, by a director to shareholders in husbanding the enterprise's
resources, by a manufacturer to consumers for the safety of product, and by every party to a contract
to the other contracting parties. See also standard of care.
recourse

Definition 1

Loan agreements: Legal right of a lender to seek repayment of the loan from the borrower's (and/or
the guarantor's) unpledged personal property, in addition to the property pledged to the lender as
collateral.

Definition 2

Negotiable instrument: Legal right of the holder to demand and require payment from the drawer,
maker, or endorser if the instrument (such as a check, draft, promissory note) is dishonored. See also
with recourse and without recourse.

public limited company

Definition

Incorporated, limited liability firm whose securities are traded on a stock exchange and can be bought
and sold by anyone. Public companies are strictly regulated, and are required by law to publish their
complete and true financial position so that investors can determine the true worth of its stock
(shares). Also called publicly held company.

advertising campaign

Definition

Coordinated series of linked advertisements (broadcast usually through several media channels) that
(1) focus on a common theme and one or few brands or products, (2) are directed at a particular
segment of the population (targeted audience), and (3) are aimed at achieving a specific objective
(such as awareness or market share). Successful advertising campaigns achieve far more than the
sporadic advertising, and may last from a few weeks and months to years.

Today's Term of the Day - weighted average maturity

WAM. The average maturity of all mortgages held in a mortgage-backed security.

It is calculated by taking the value of each mortgage, dividing it by the total value
of all mortgages (which finds the weight), and then multiplying that value by the
number of years left on the mortgage. For example, a mortgage-backed security
comprised of a $5000 note due in 2 years and a $2000 note due in 3 years has a
weighted average maturity of ($5000/$7000)*2 + ($2000/$7000)*3, or 2.28. A
high WAM means that the mortgages comprising the security will not mature for a
long time.

Today's Term of the Day - statutory stock option

A type of employee stock option which provides tax advantages for the employer
that a non-qualified stock option does not, but which is subject to more stringent
requirements. In general, an incentive stock option must only be granted to
employees, under a specific plan document that states how many options will be
given to each employee, within 10 years of receiving shareholder approval and the
exercise price must equal or exceed the market price at the time of grant. The
option can only be exercised within 10 years of receipt, and there are several rules
governing how exercise of the option affects the employer's tax burden.

voidable contract

Definition

Contract that has legal effect and force when it is made, but is liable to be subsequently annulled or
set aside by the courts through the process of rescission. Circumstances or features that make a
contract voidable include (1) non-disclosure of one or more material facts, (2) misrepresentation, (3)
mutual mistake, (4) lack of free will of a contracting party, or presence of one contracting party's
undue influence over the other, and (5) a material breach of the terms of the contract. Contract that is
voidable in only one or few parts may be saved by the process of severance. Not to be confused with
void contract.

outlay

Definition 1

Accounting: Total cost or expenditure required or incurred in acquiring an asset, achieving an

objective, or executing a decision. Thus, outlay on a machine would include its purchase price and
taxes, delivery charges, and installation and set up costs.

book runner
The primary underwriter in debt and equity deals. The book runner works with other firms who will also take
part in the deal, allowing for the sharing of risks. For example, a large leveraged buyout might involve
several companies, with one company that is responsible for "running" or handling the books.

work order

Definition 1

Contracting: Written order from the customer providing specific or blanket authorization to the
contractor to proceed with the performance of the contract without further instructions. Work orders
differ from job orders in the breadth of the scope.

Definition 2

Manufacturing: Internal authorization to incur costs in the design, development, and production of a
specific product.

work order is in the Accounting & Auditing, Agreements & Contracts and Industries, Manufacturing, &
Technology subjects.

direct selling

Definition

Face to face presentation, demonstration, and sale of products or services, usually at the home or
office of a prospect by the independent direct sales representatives. Employed by firms such as Avon,
Mary Kay, and Tupperware, direct selling differs from network marketing in that it offers little or no
incentives for recruiting ever increasing number of sales representatives.

impairment charge

A specific reduction on a company's balance sheet that adjusts the value of a company's goodwill. Due to
accounting rules, a company must monitor and test the value of its goodwill, to determine if it is overvalued.
If it is, the company must issue an impairment charge on its balance sheet, to take into account the reduced
value of the goodwill.
margin lending

A program though lending institutions that allows an individual to borrow money for the purposes of
investing it. The amount of credit loaned is based upon the amount of assets held by the borrower, which
are pledged as collateral on the loan. This program is often used by individuals who want to invest more
than they currently are investing, and are willing to take on the risk of this type of loan.

automatic exercise

The procedure that prevents in-the-money equity options from expiring and becoming worthless. In this
procedure, the clearing firm will exercise certain kinds of options that are in the money without instruction
from the option holder, thus allowing option holders who may not be monitoring an option to still capture a
profit. Not all options are subject to automatic exercise. Certain options (known as "capped-style options")
become subject to automatic exercise if the price of the underlier hits a certain price (known as the "cap
value"), regardless of when the price is achieved (this is only possible in the case of an American-style
option). Other options will be subject to automatic exercise just before expiration and at no other time. In
such cases, the trigger for automatic exercise is either when the option is in the money, or when it is in
the money by a certain amount.

vertical analysis

Technique for identifying relationship between items in the same financial statement by expressing all
amounts as the percentage of the total amount taken as 100. In a balance sheet, for example, cash and
other assets are shown as a percentage of the total assets and, in an income statement, each expense is
shown as a percentage of the sales revenue. Financial statements using this technique are called
common size financial statements. See also horizontal analysis.

direct write off method

One of the two accounting techniques for charging-off bad debts (the other is called allowance method).
In this method, the actual amount of uncollectible accounts receivable is deducted from the sales revenue
in the accounting period in which they are determined to be uncollectible, instead of creating a provision
for them in the period in which those sales occurred. Although this method is based on facts instead of on
estimates, it goes contrary to the matching concept of accounting and is generally not acceptable for
financial reporting purposes. However, it is the only bad debt write-off method allowed in the tax code
applicable to most US firms. Also called direct charge-off method.

overnight limit

The maximum amount of currency positions that can be carried over from one trading day to another. The
overnight limit is set by the Central Bank regulation the financial institution where the positions are held.

pro forma invoice

Abridged or estimated invoice sent by a seller to a buyer in advance of a shipment or delivery of
goods. It notes the kind and quantity of goods, their value, and other important information such as
weight and transportation charges. Pro forma invoices are commonly used as preliminary invoices with
a quotation, or for customs purposes in importation.

SIMPLE 401(k) Plan

A retirement plan sponsored by employers which is attractive for employers because it avoids some of the
administrative fees and paperwork of plans such as a 401(k) plan. Employers benefit from the tax-
deductible contributions made to the plan, and employees may elect to have salary deferrals in order to
contribute to the plan. The employer has the option of matching a certain portion of the employee's
deferrals or making non-elective contributions to all eligible employees (an annual limit applies in both
cases). A minimum compensation eligibility requirement exists for employees who want to join this plan,
and employees cannot establish any other qualified retirement plans at the same time.

task analysis

Definition

Systematic identification of the fundamental elements of a job, and examination of knowledge and
skills required for the job's performance. This information is used in human resource management for
developing institutional objectives, training programs, and evaluation tools. See also activity analysis,
job analysis, and performance analysis.

broad money

One measure of the money supply that includes M1, plus savings and small time deposits, overnight repos
at commercial banks, and non-institutional money market accounts. This is a key economic indicator used to
forecast inflation, since it is not as narrow as M1 and still relatively easy to track. All the components of M2
are very liquid, and the non-cash components can be converted into cash very easily.

fundamentals

Definition

Characteristics of a firm (reflected in its financial statements) that indicate its innate, basic strengths
such as (1) competitive advantage, (2) earnings growth, (3) sales revenue growth, (4) market share,
(6) financial reserves, and (6) quality of management. According to the proponents of fundamental
analysis, these are the true measures of a firm's earnings potential and of the future value of its
securities.

chargeback

Definition 1
Accounting: Allocation of costs and resource usage based on actual usage or a predetermined amount.
See also chargeout.

Definition 2

Electronic commerce: Withdrawal by the credit card issuer of the amount credited to the merchant's
account (plus a chargeback fee) when a card-holder disputes a transaction charged on his or her card.
The merchant usually has 10 days to submit proof of purchase and proof of delivery to reclaim the
charged back amount.

request for quotations (RFQ)

Definition

Document used in soliciting price and delivery quotations that meet minimum quality specifications for
a specific quantity of specific goods and/or services. RFQ are usually not advertised publicly, and are
used commonly for (1) standard, off-the-shelf items, (2) items built to known specifications, (3) items
required in small quantities, or (4) items whose purchase price falls below sealed-bidding threshold.
Suppliers respond to a RFQ with firm quotations, and generally the lowest-priced quotation is awarded
the contract. See also invitation to bid (ITB), request for tenders, and request for proposals.

authorized share capital

Definition

Maximum value of securities that a firm can legally issue. This number is specified in the
memorandum of association (or articles of incorporation in the US) when a firm is incorporated, but
can be changed later with shareholders' approval. Authorized share capital may be divided into (1)
Issued capital: par value of the shares actually issued. (2) Paid up capital: money received from the
shareholders in exchange for shares. (3) Uncalled capital: money remaining unpaid by the
shareholders for the shares they have bought. Also called authorized capital, authorized stock,
nominal capital, nominal share capital, or registered capital.

opinion

Definition 1

Accounting: Accountant's or auditor's judgment on financial or operative facts regarding an

organization.

Definition 2

Law: (1) Attorney's written advice to a client on a particular question (called legal opinion, opinion of
counsel, or opinion letter). (2) Judge's written explanation of a judgment in a lawsuit (called judicial
opinion). Where a bench consists of three or more judges, a concurring opinion agrees with the
majority opinion, and a dissenting opinion disagrees.
indirect investment

A way of investing in real estate without actually investing in the property. Indirect investment can be done
in many ways, including securities, funds, or private equity. Most investors interested in indirect investment
would do so through a company or advisor who has experience in this type of investing.

face amount

Definition 1

Banking: (1) Amount written on a check the sum its payee is entitled to draw. (2) Principal sum
advanced under a loan or mortgage agreement.

Definition 2

Insurance: Sum of money for which an insurance cover is obtained, usually shown on the top sheet
(face) of the policy. In life insurance, face amount is the sum paid on the policy's maturity date, on
the death of the insured, or (if the policy terms permit) on his or her total disability.

job description

Definition

Broad, general, and written statement of a specific job, based on the findings of a job analysis. It
generally includes duties, purpose, responsibilities, scope, and working conditions of a job along with
the job's title, and the name or designation of the person to whom the employee reports. Job
description usually forms the basis of job specification.