Exam 4: Chapters 13-16

application service providers (ASP)

A service company that buys and maintains software on its servers and distributes it through high-speed networks to subscribers for a set period and price.

batch processing

A method of updating a database in which data are collected over some time period and processed together.

chief information officer (CIO)

An executive with responsibility for managing all information resources in an organization.

cloud computing

A general term for the delivery of hosted services over the internet.

computer network

A group of two or more computer systems linked together by communications channels to share data and information.

computer virus

A computer program that copies itself into other software and can spread to other computer systems.

data mart

Special subset of a data warehouse that deals with a single area of data and is organized for quick analysis.

data mining

Sophisticated database applications that look for hidden patterns in a group of data to help track and predict future behavior.

data warehouse

An information technology that combines many databases across a whole company into one central database that supports management decision-making.

database

An electronic filing system that collects and organizes data and information.

decision support system (DSS)

A management support system that helps managers make decisions using interactive computer models that describe real-world processes.

enterprise portal

A customizable internal website that provides proprietary corporate information to a defined user group, such as employees, supply-chain partners, or customers.

executive information system (EIS)

A management support system that is customized for an individual executive; provides specific information for strategic decisions.

expert system

A management support system that gives managers advice similar to what they would get from a human consultant; it uses artificial intelligence to enable computers to reason and learn to solve problems in much the same way humans do.

information technology (IT)

The equipment and techniques used to manage and process information.

intranet

An internal corporate-wide area network that uses internet technology to connect computers and link employees in many locations and with different types of computers.

knowledge management (KM)

The process of researching, gathering, organizing, and sharing an organization’s collective knowledge to improve productivity, foster innovation, and gain competitive advantage.

knowledge worker

A worker who develops or uses knowledge, contributing to and benefiting from information used to perform planning, acquiring, searching, analyzing, organizing, storing, programming, producing, distributing, marketing, or selling functions.

local area network (LAN)

A network that connects computers at one site, enabling the computer users to exchange data and share the use of hardware and software from a variety of computer manufacturers.

managed service providers (MSP)

Next generation of ASPs, offering customization and expanded capabilities such as business processes and complete management of the network servers.

management information system (MIS)

The methods and equipment that provide information about all aspects of a firm’s operations.

management support system (MSS)

An information system that uses the internal master database to perform high-level analyses that help managers make better decisions.

online (real-time) processing

A method of updating a database in which data are processed as they become available.

transaction processing system (TPS)

An information system that handles the daily business operations of a firm. The system receives and organizes raw data from internal and external sources for storage in a database using either batch or online processing.

virtual private networks (VPN)

Private corporate networks connected over a public network, such as the internet. VPNs include strong security measures to allow only authorized users to access the network.

wide area network (WAN)

A network that connects computers at different sites via telecommunications media such as phone lines, satellites, and microwaves.

accounting

The process of collecting, recording, classifying, summarizing, reporting, and analyzing financial activities.

acid-test (quick) ratio

The ratio of total current assets excluding inventory to total current liabilities; used to measure a firm’s liquidity.

activity ratios

Ratios that measure how well a firm uses its assets.

annual report

A yearly document that describes a firm’s financial status and usually discusses the firm’s activities during the past year and its prospects for the future.

assets

Things of value owned by a firm.

auditing

The process of reviewing the records used to prepare financial statements and issuing a formal auditor’s opinion indicating whether the statements have been prepared in accordance with accepted accounting rules.

balance sheet

A financial statement that summarizes a firm’s financial position at a specific point in time.

certified management accountant (CMA)

A managerial accountant who has completed a professional certification program, including passing an examination.

certified public accountant (CPA)

An accountant who has completed an approved bachelor’s degree program, passed a test prepared by the American Institute of CPAs, and met state requirements. Only a CPA can issue an auditor’s opinion on a firm’s financial statements.

cost of goods sold

The total expense of buying or producing a firm’s goods or services.

current assets

Assets that can or will be converted to cash within the next 12 months.

current liabilities

Short-term claims that are due within a year of the date of the balance sheet.

current ratio

The ratio of total current assets to total current liabilities; used to measure a firm’s liquidity.

debt ratios

Ratios that measure the degree and effect of a firm’s use of borrowed funds (debt) to finance its operations.

debt-to-equity ratio

The ratio of total liabilities to owners’ equity; measures the relationship between the amount of debt financing (borrowing) and the amount of equity financing (owner’s funds).

depreciation

The allocation of an asset’s original cost to the years in which it is expected to produce revenues.

double-entry bookkeeping

A method of accounting in which each transaction is recorded as two entries so that two accounts or records are changed.

earnings per share (EPS)

The ratio of net profit to the number of shares of common stock outstanding; measures the number of dollars earned by each share of stock.

expenses

The costs of generating revenues.

financial accounting

Accounting that focuses on preparing external financial reports that are used by outsiders such as lenders, suppliers, investors, and government agencies to assess the financial strength of a business.

Financial Accounting Standards Board (FASB)

The private organization that is responsible for establishing financial accounting standards in the United States.

fixed assets

Long-term assets used by a firm for more than a year such as land, buildings, and machinery.

generally accepted accounting principles (GAAP)

The financial accounting standards followed by accountants in the United States when preparing financial statements.

gross profit

The amount a company earns after paying to produce or buy its products but before deducting operating expenses.

gross sales

The total dollar amount of a company’s sales.

income statement

A financial statement that summarizes a firm’s revenues and expenses and shows its total profit or loss over a period of time.

intangible assets

Long-term assets with no physical existence, such as patents, copyrights, trademarks, and goodwill.

inventory turnover ratio

The ratio of cost of goods sold to average inventory; measures the speed with which inventory moves through a firm and is turned into sales.

liabilities

What a firm owes to its creditors; also called debts.

liquidity

The speed with which an asset can be converted to cash.

liquidity ratios

Ratios that measure a firm’s ability to pay its short-term debts as they come due.

long-term liabilities

Claims that come due more than one year after the date of the balance sheet.

managerial accounting

Accounting that provides financial information that managers inside the organization can use to evaluate and make decisions about current and future operations.

net loss

The amount obtained by subtracting all of a firm’s expenses from its revenues, when the expenses are more than the revenues.

net profit (net income)

The amount obtained by subtracting all of a firm’s expenses from its revenues, when the revenues are more than the expenses.

net profit margin

The ratio of net profit to net sales; also called return on sales. It measures the percentage of each sales dollar remaining after all expenses, including taxes, have been deducted.

net sales

The amount left after deducting sales discounts and returns and allowances from gross sales.

net working capital

The amount obtained by subtracting total current liabilities from total current assets; used to measure a firm’s liquidity.

operating expenses

The expenses of running a business that are not directly related to producing or buying its products.

owners’ equity

The total amount of investment in the firm minus any liabilities; also called net worth.

private accountants

Accountants who are employed to serve one particular organization.

profitability ratios

Ratios that measure how well a firm is using its resources to generate profit and how efficiently it is being managed.

public accountants

Independent accountants who serve organizations and individuals on a fee basis.

ratio analysis

The calculation and interpretation of financial ratios using data taken from the firm’s financial statements in order to assess its condition and performance.

retained earnings

The amounts left over from profitable operations since the firm’s beginning; equal to total profits minus all dividends paid to stockholders.

return on equity (ROE)

The ratio of net profit to total owners’ equity; measures the return that owners receive on their investment in the firm.

revenues

The dollar amount of a firm’s sales plus any other income it received from sources such as interest, dividends, and rents.

Sarbanes-Oxley Act

Legislation passed in 2002 that sets new standards for auditor independence, financial disclosure and reporting, and internal controls; establishes an independent oversight board; and restricts the types of non-audit services auditors can provide audit clients.

statement of cash flows

A financial statement that provides a summary of the money flowing into and out of a firm during a certain period, typically one year.

bank charter

An operating license issued to a bank by the federal government or a state government; required for a commercial bank to do business.

commercial banks

Profit-oriented financial institutions that accept deposits, make business and consumer loans, invest in government and corporate securities, and provide other financial services.

credit unions

Not-for-profit, member-owned financial cooperatives.

currency

Cash held in the form of coins and paper money.

demand deposits

Money kept in checking accounts that can be withdrawn by depositors on demand.

discount rate

The interest rate that the Federal Reserve charges its member banks.

Federal Deposit Insurance Corporation (FDIC)

An independent, quasi-public corporation backed by the full faith and credit of the U.S. government that insures deposits in commercial banks and thrift institutions for up to a ceiling of $250,000 per account.

Federal Reserve System (Fed)

The central bank of the United States; consists of 12 district banks, each located in a major U.S. city.

financial intermediation

The process in which financial institutions act as intermediaries between the suppliers and demanders of funds.

M1

The total amount of readily available money in the system; includes currency and demand deposits.

A term used by economists to describe the U.S. monetary supply. Includes all M1 monies plus time deposits and other money that is not immediately accessible.

money

Anything that is acceptable as payment for goods and services.

open market operations

The purchase or sale of U.S. government bonds by the Federal Reserve to stimulate or slow down the economy.

pension funds

Large pools of money set aside by corporations, unions, and governments for later use in paying retirement benefits to their employees or members.

reserve requirement

Requires banks that are members of the Federal Reserve System to hold some of their deposits in cash in their vaults or in an account at a district bank.

selective credit controls

The power of the Federal Reserve to control consumer credit rules and margin requirements.

thrift institutions

Depository institutions formed specifically to encourage household saving and to make home mortgage loans.

time deposits

Deposits at a bank or other financial institution that pay interest but cannot be withdrawn on demand.

accounts payable

Purchases for which a buyer has not yet paid the seller.

accounts receivable

Sales for which a firm has not yet been paid.

bond ratings

Letter grades assigned to bond issues to indicate their quality or level of risk; assigned by rating agencies such as Moody’s and Standard & Poor’s (S&P).

bonds

Long-term debt obligations (liabilities) issued by corporations and governments.

broker markets

National and regional securities exchanges that bring buyers and sellers together through brokers on a centralized trading floor.

capital budgeting

The process of analyzing long-term projects and selecting those that offer the best returns while maximizing the firm’s value.

capital expenditures

Investments in long-lived assets, such as land, buildings, machinery, equipment, and information services, that are expected to provide benefits over a period longer than one year.

cash flows

The inflow and outflow of cash for a firm.

cash management

The process of making sure that a firm has enough cash on hand to pay bills as they come due and to meet unexpected expenses.

circuit breakers

Corrective measures that, under certain conditions, stop trading in the securities markets for a short cooling-off period to limit the amount the market can drop in one day.

commercial paper

Unsecured short-term debt—an IOU—issued by a financially strong corporation.

common stock

A security that represents an ownership interest in a corporation.

dealer markets

Securities markets where buy and sell orders are executed through dealers, or “market makers,” linked by telecommunications networks.

dividends

Payments to stockholders from a corporation’s profits.

electronic communications networks (ECNs)

Private trading networks that allow institutional traders and some individuals to make direct transactions in the fourth market.

exchange traded fund (ETF)

A security similar to a mutual fund; holds a broad basket of stocks with a common theme but trades on a stock exchange so that its price changes throughout the day.

factoring

A form of short-term financing in which a firm sells its accounts receivable outright at a discount to a factor.

financial management

The art and science of managing a firm’s money so that it can meet its goals.

financial risk

The chance that a firm will be unable to make scheduled interest and principal payments on its debt.

futures contracts

Legally binding obligations to buy or sell specified quantities of commodities or financial instruments at an agreed-on price at a future date.

insider trading

The use of information that is not available to the general public to make profits on securities transactions.

institutional investors

Investment professionals who are paid to manage other people’s money.

interest

A fixed amount of money paid by the issuer of a bond to the bondholder on a regular schedule, typically every six months; stated as the coupon rate.

investment bankers

Firms that act as intermediaries, buying securities from corporations and governments and reselling them to the public.

line of credit

An agreement between a bank and a business that specifies the maximum amount of unsecured short-term borrowing the bank will allow the firm over a given period, typically one year.

marketable securities

Short-term investments that are easily converted into cash.

mortgage loan

A long-term loan made against real estate as collateral.

municipal bonds

Bonds issued by states, cities, counties, and other state and local government agencies.

mutual fund

A financial-service company that pools investors’ funds to buy a selection of securities that meet its stated investment goals.

National Association of Securities Dealers Automated Quotation (NASDAQ) system

The first and largest electronic stock market, which is a sophisticated telecommunications network that links dealers throughout the United States.

options

Contracts that entitle holders to buy or sell specified quantities of common stocks or other financial instruments at a set price during a specified time.

over-the-counter (OTC) market

Markets, other than the exchanges, on which small companies trade; includes the Over-the-Counter Bulletin Board (OTCBB) and the Pink Sheets.

preferred stock

An equity security for which the dividend amount is set at the time the stock is issued and the dividend must be paid before the company can pay dividends to common stockholders.

primary market

The securities market where new securities are sold to the public.

principal

The amount borrowed by the issuer of a bond; also called par value.

retained earnings

Profits that have been reinvested in a firm.

return

The opportunity for profit.

revolving credit agreement

A guaranteed line of credit whereby a bank agrees that a certain amount of funds will be available for a business to borrow over a given period, typically two to five years.

risk

The potential for loss or the chance that an investment will not achieve the expected level of return.

risk-return trade-off

A basic principle in finance that holds that the higher the risk, the greater the return that is required.

secondary market

The securities market where old (already issued) securities are bought and sold, or traded, among investors; includes broker markets, dealer markets, the over-the-counter market, and the commodities exchanges.

secured loans

Loans for which the borrower is required to pledge specific assets as collateral, or security.

securities

Investment certificates issued by corporations or governments that represent either equity or debt.

stock dividends

Payments to stockholders in the form of more stock; may replace or supplement cash dividends.

stockbroker

A person who is licensed to buy and sell securities on behalf of clients.

term loan

A business loan with a maturity of more than one year; can be unsecured or secured.

trade credit

The extension of credit by the seller to the buyer between the time the buyer receives the goods or services and when it pays for them.

underwriting

The process of buying securities from corporations and governments and reselling them to the public; the main activity of investment bankers.

unsecured loans

Loans for which the borrower does not have to pledge specific assets as security.