Ratios that measure the speed with which a company can turn assets into cash to pay off short-term debt.
liquidity ratios
The internal use of accounting statements by managers in planning and
directing the organization’s activities.
managerial accounting
The profit (or loss) after all expenses including taxes, have been deducted from revenue; also called net earnings.
net income
Assets minus liabilities; all the money that has ever been contributed to a firm and does not have to be paid back.
owners’ equity
Data used by investors to compare the performance of one company with
another on an equal, per share basis.
per share data
Accountants employed by a corporation, government agency, or other
organization to prepare and analyze its financial statements.
private accountants
Net income divided by sales.
profit margin
Ratios that measure the amount of operating income or net income a firm is
able to generate relative to its assets, owners’ equity, and sales.
profitability ratios
A stringent measure of liquidity that eliminates inventory.
quick ratio (acid test)
Calculations that measure an organization’s financial health.
ratio analysis
Sales divided by accounts receivable.
receivables turnover
Net income divided by assets.
return on assets
Net income divided by owners’ equity; also called return on investment.
return on equity
The total amount of money received (or promised) from sales and related
business activities.
revenue
An explanation of how the company’s cash changed from the beginning of the accounting period to the end.
statement of cash flow
Operating income divided by interest expense.
times interest earned ratio
Sales divided by total assets.
total asset turnover
A system that permits payments such as deposits or withdrawals to be made to and from a bank account by magnetic computer tape.
automated clearinghouses (ACHs)
The most familiar form of electronic banking, which dispenses cash, accepts
deposits, and allows balance inquiries and cash transfers from one account to another.
automated teller machine (ATM)
Firms that buy and sell stocks, bonds, and other securities for their customers and provide other financial services.
brokerage firms
Savings accounts that guarantee a depositor a set interest rate over a specified interval as long as the funds are not withdrawn before the end of the period.
certificates of deposit (CDs)
Money stored in an account at a bank or other financial institution that can be
withdrawn without advance notice; also called a demand deposit.
checking account
The largest and oldest of all financial institutions, which perform a variety of
financial services but rely mainly on checking and savings accounts as sources of funds for loans to businesses and individuals.
commercial banks
Means of access to preapproved lines of credit granted by a bank or a finance company; they allow cardholders to promise to pay for products at a later date.
credit cards
The Fed’s authority to establish and enforce credit rules for financial
institutions and some private investors.
credit controls
A financial institution owned and controlled by its depositors, who usually
have a common employer, profession, trade group, or religion.
credit union
A card that looks like a credit card but works like a check; using it results in a
direct, immediate, electronic payment from the cardholder’s checking account to a merchant or third party.
debit card
The interest rate the Fed charges to loan money to any banking institution to
meet reserve requirements.
discount rate
Any movement of funds by means of an electronic terminal, telephone,
computer, or magnetic tape.
electronic funds transfer (EFT)
An insurance fund established in 1933 to insure individual bank accounts.
Federal Deposit Insurance Corporation (FDIC)
The guardian of the U.S. financial system; an independent agency of the
federal government established in 1913 to regulate the nation’s banking and
financial industry.
Federal Reserve Board
The study of money: how it’s made, how it’s lost, and how it’s managed.
finance
Businesses that offer short-term loans at higher rates of interest than banks.
finance companies
Businesses that protect their clients against financial losses from certain
specified risks (death, accident, and theft, for example) in exchange for a fee, called a premium.
insurance companies
Means by which the Fed controls the amount of money available in the
economy.
monetary policy
Anything generally accepted in exchange for goods and services.
money
Accounts that are similar to interest-bearing checking accounts, but which
offer higher interest rates and have greater restrictions.
money market accounts
An investment company that pools individual investor dollars and invests them in large numbers of well-diversified securities.
mutual fund
Financial institutions that are similar to savings and loan associations but, like credit unions, are owned by their depositors.
mutual savings banks
An agency that regulates and charters credit unions and insures their deposits through its National Credit Union Insurance Fund.
National Credit Union Association (NCUA)
Decisions by the Fed to buy or sell U.S. Treasury bills and other investments
in the open market.
open market operations
Managed investment pools set aside by individuals, corporations, unions, and some nonprofit organizations to provide retirement income for members.
pension funds
The percentage of deposits that banking institutions must hold in reserve.
reserve requirements
Accounts with funds that usually cannot be withdrawn without advance notice;
also known as time deposits.
savings accounts
Financial institutions that primarily offer savings accounts and make long-term loans for residential mortgages; also called thrifts.
savings and loan associations (S&Ls)
Debt instruments that larger companies sell to raise long-term funds.
bonds
The process of analyzing the needs of a business and selecting the assets that will maximize its value.
capital budgeting
CDs issued by commercial banks and brokerage companies, available in
minimum amounts of $100,000, which may be traded prior to maturity.
commercial certificates of deposit (CDs)
A written promise from one company to another to pay a specific amount of
money.
commercial paper
