unit 4 business

Businesses

Organizations that provide goods or services.

Producer

A person or business that creates goods or services.

Manufacturer

A business that makes products, usually from raw materials.

Intermediary

A business that connects producers with customers.

Wholesaler

A business that buys products in large quantities and sells them to retailers.

Retailer

A business that sells products directly to consumers.

Financing the Corporation

The process of raising money for a corporation to operate and grow.

Indirect Finance

Getting money through a financial institution, such as a bank, instead of directly from investors.

Debt

Money borrowed that must be paid back.

Bank Loan

Money borrowed from a bank that must be repaid, usually with interest.

Line of Credit

An arrangement that allows a business to borrow money up to a set limit when needed.

Letter of Credit

A bank's promise to pay a seller if the buyer meets certain requirements.

Direct Finance

Raising money directly from investors instead of borrowing through a financial institution.

Equity

Ownership in a business.

Stocks

Shares that represent ownership in a corporation.

Venture Capital

Money invested in new or growing businesses that have high potential but also high risk.

Angel Investors

Wealthy individuals who invest their own money in new businesses.

Bonds

Loans made by investors to a business or government that must be repaid with interest.

Financial Planning

Creating a plan for how a business will earn, spend, save, and manage money.

Revenue

Money a business earns from selling products or services.

Expenses

The costs a business pays to operate.

Profit

Money left over when revenue is greater than expenses.

Accounting

The process of recording, organizing, and reporting financial information.

Generally Accepted Accounting Principles (GAAP)

Standard rules and guidelines businesses follow when preparing financial statements.

Audit

An examination of a company's financial records to check that they are accurate.

Business Entity

A business that is treated as separate from its owners for accounting purposes.

Fiscal Period

A specific period of time used to report a business's financial results.

Budgets

Financial plans showing expected income and expenses.

Sales Forecast Budget

A budget based on how much a business expects to sell.

Sales Forecast

An estimate of how much a business expects to sell in the future.

Start-Up Budget

A plan estimating the money needed to start a business.

Operating Budget

A plan estimating the regular income and expenses needed to run a business.

Cash Budget

A plan estimating the cash a business expects to receive and spend.

Accounting Equation

The formula: Assets = Liabilities + Owner's Equity.

Source Documents

Original records that provide proof of business transactions, such as receipts and invoices.

Sales

The products or services a business sells, or the revenue earned from selling them.

Sale on Account

A sale where the customer receives the product now and pays later.

Purchase on Account

A purchase where the business receives goods or services now and pays later.

Payroll

The process of calculating and paying employees' wages and salaries.

Withholding Allowance

An amount claimed on a tax withholding form that can reduce the income tax withheld from an employee's paycheck.

Employee's Earnings Record

A record showing an individual employee's wages, deductions, and other payroll information.

Payroll Register

A record showing the wages, deductions, and net pay of all employees for a pay period.

Performance Indicators

Measurements used to evaluate how well a business is doing.

Financial Ratio

A comparison of financial numbers used to evaluate a company's performance.

Working Capital

Current assets minus current liabilities; money available for short-term business needs.

Current Asset

An asset expected to be used or turned into cash within one year.

Current Liability

A debt that must be paid within one year.

Current Ratio

A measure of a company's ability to pay short-term debts using current assets.

Debt Ratio

Measures the percentage of a company's assets financed by debt.

Net Profit Ratio

Measures how much net profit a business earns from each dollar of sales.

Operating Ratio

Measures the portion of sales revenue used to pay operating expenses.

Market Price per Share

The current price at which one share of a company's stock is being bought or sold.

Market Cap

The total market value of a company's outstanding shares of stock.

P/E Ratio (Price/Earnings)

A ratio comparing a company's stock price to its earnings per share.

Enterprise Value (EV)

A measure of a company's total value, including debt and cash.

EBITDA

Earnings before interest, taxes, depreciation, and amortization; a measure of business operating performance.

Depreciation

The gradual decrease in the recorded value of a physical asset over time.

Amortization

The gradual spreading out of the cost of an intangible asset over time.

Enterprise Multiple

A ratio comparing a company's enterprise value to its EBITDA.

Debt-to-EBITDA Ratio

Measures how much debt a company has compared with its EBITDA.

Return on Assets (ROA)

Measures how efficiently a company uses its assets to generate profit.

EPS Forecast

An estimate of how much profit a company will earn per share in the future.

Forward P/E

A ratio comparing a company's current stock price to its expected future earnings per share.

PEG Ratio (Price/Earnings-to-Growth)

A ratio that compares a company's P/E ratio with its expected earnings growth.

Tax

Money paid to the government to fund public services.

Income Tax

A tax on money earned by individuals or businesses.

Capital Gains Tax

A tax on the profit made from selling an asset or investment for more than it cost.

Double Taxation

When the same income is taxed twice, such as corporate profits and shareholder dividends.

Multinational Corporation

A company that operates in more than one country.

Licensing

Allowing another business to use your brand, product, or technology in exchange for payment.

Franchising

Allowing another person to operate a business using your company's name and business system.

Franchisor

The company that owns the brand and grants another person the right to operate a franchise.

Franchisee

The person or business that pays to operate a franchise using another company's brand and system.

Joint Venture

When two or more businesses work together on a specific project or business activity.

Financial Institutions

Organizations that provide financial services, such as banking, lending, and investing.

Depository Institutions

Financial institutions that accept deposits and provide services such as checking and savings accounts.

Commercial Banks

Banks that accept deposits, make loans, and provide financial services to individuals and businesses.

Credit Unions

Financial institutions owned by their members that provide banking services.

Savings & Loans (S&Ls)

Financial institutions that mainly accept savings deposits and provide loans, especially home mortgages.

Mutual Savings Bank

A bank owned by its depositors that mainly accepts savings deposits and makes loans.

Nondepository Institutions

Financial institutions that provide financial services but do not accept regular customer deposits like banks.

Insurance Company

A business that provides financial protection in exchange for payments called premiums.

Securities Firm

A company that helps customers buy, sell, or trade investments such as stocks and bonds.

Investment Bank

A financial institution that helps companies raise money and handle major financial transactions.

Finance Company

A business that provides loans and financing to individuals or companies.

Brokerage Firm

A company that helps customers buy and sell investments such as stocks and bonds.

Global Business

Business activities that take place between countries.

Globalization

The growing connection and exchange of goods, services, money, and ideas between countries.

Absolute and Comparative Advantage

Absolute advantage means producing more with the same resources; comparative advantage means producing something at a lower opportunity cost.

Balance of Trade

The difference between the value of a country's exports and imports.

Balance of Payments

A record of all financial transactions between a country and the rest of the world.

Foreign Exchange Rate

The price of one country's currency compared with another country's currency.

Currency Value

How much one country's money is worth compared with other currencies or goods.

Trade Policy

Government rules and decisions about international trade.

Trade Restrictions

Government limits or rules that make international trade more difficult.

Embargo

A government ban on trade with a particular country.

Sanctions

Penalties or restrictions placed on a country to influence its actions.

Tariff

A tax on imported goods.

Quota

A limit on the amount of a product that can be imported or exported.

Double-Entry Accounting

An accounting system where every transaction affects at least two accounts, keeping the accounting equation balanced.