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Accounting Material

1.Definition of accounting: the art of recording, classifying and summarizing in a significant manner
and in terms of money, transactions and events which are, in part at least of a financial character and
interpreting the results there of.

2. Book keeping: It is mainly concerned with recording of financial data relating to the business
operations in a significant and orderly manner.

3. Concepts of accounting:
A. separate entity concept
B. going concern concept
C. money measurement concept
D. cost concept
E. dual aspect concept
F. accounting period concept
G. periodic matching of costs and revenue concept
H. realization concept.

4 Conventions of accounting
A. conservatism
B. full disclosure
C. consistency
D materiality.

5. Systems of book keeping:
A. single entry system
B. double entry system9

6. Systems of accounting
A. cash system accounting
B. mercantile system of accounting.

7. Principles of accounting

a. personal a/c : debit the receiver
Credit the giver

b. real a/c : debit what comes in
credit what goes out

c. nominal a/c : Debit all expenses and losses
Credit all gains and incomes

8. Meaning of journal: journal means chronological record of transactions.

9. Meaning of ledger: ledger is a set of accounts. It contains all accounts of the business enterprise
whether real, nominal, personal.

10. Posting: it means transferring the debit and credit items from the journal to their respective
accounts in the ledger.

11. Trial balance: trial balance is a statement containing the various ledger balances on a particular

12. Credit note: the customer when returns the goods get credit for the value of the goods returned. A
credit note is sent to him intimating that his a/c has been credited with the value of the goods

13. Debit note: when the goods are returned to the supplier, a debit note is sent to him indicating
that his a/c has been debited with the amount mentioned in the debit note.

14. Contra entry: which accounting entry is recorded on both the debit and credit side of the cashbook
is known as the contra entry.

15. Petty cash book: petty cash is maintained by business to record petty cash expenses of the
business, such as postage, cartage, stationery, etc.

16.promisory note: an instrument in writing containing an unconditional order signed by the maker, to
pay certain sum of money only to or to the order of a certain person or to the barer of the

17. Cheque: a bill of exchange drawn on a specified banker and payable on demand.

18. Stale cheque: a stale cheque means not valid of cheque that means more than six months the
cheque is not valid.

20. Bank reconciliation statement: it is a statement reconciling the balance as shown by the bank
passbook and the balance as shown by the Cash Book. Obj: to know the difference & pass
necessary correcting, adjusting entries in the books.

21. Matching concept: matching means requires proper matching of expense with the revenue.

22. Capital income: the term capital income means an income which does not grow out of or pertain
to the running of the business proper.

23. Revenue income : the income, which arises out of and in the course of the regular business
transactions of a concern.

24. Capital expenditure : it means an expenditure which has been incurred for the purpose of obtaining
a long term advantage for the business.

25. Revenue expenditure : an expenditure that incurred in the course of regular business transactions of
a concern.

26. Differed revenue expenditure: an expenditure, which is incurred during an accounting period but
is applicable further periods also. Eg: heavy advertisement.

27. Bad debts : bad debts denote the amount lost from debtors to whom the goods were sold on credit.

28. Depreciation: depreciation denotes gradually and permanent decrease in the value of asset due to
wear and tear, technology changes, laps of time and accident.

29. Fictitious assets: These are assets not represented by tangible possession or property.
Examples of preliminary expenses, discount on issue of shares, debit balance in the profit and loss
account when shown on the assets side in the balance sheet.

30. Intanglbe Assets: Intangible assets mean the assets which is not having the physical appearance.
And its have the real value, it shown on the assets side of the balance sheet.

31. Accrued Income : Accrued income means income which has been earned by the business during
the accounting year but which has not yet been due and, therefore, has not been received.

32. Out standing Income : Outstanding Income means income which has become due during the
accounting year but which has not so far been received by the firm.

33. Suspense account: the suspense account is an account to which the difference in the trial balance
has been put temporarily.

34. Depletion: it implies removal of an available but not replaceable source, Such as extracting coal
from a coal mine.

35. Amortization: the process of writing of intangible assets is term as amortization.

36. Dilapidations : the term dilapidations to damage done to a building or other property during

37. Capital employed: the term capital employed means sum of total long term funds employed
in the business. i.e.
(Share capital+ reserves & surplus +long term loans
(Non business assets + fictitious assets)

38. Equity shares: those shares which are not having pref. rights are called equity shares.

39. Pref.shares: Those shares which are carrying the pref.rights is called pref. shares
Pref.rights in respect of fixed dividend. Pref.right to repayment of capital in the even of company
winding up.

40. Leverage: It is a force applied at a particular work to get the desired result.

41. Operating leverage: the operating leverage takes place when a changes in revenue greater
changes in EBIT.

42. Financial leverage : it is nothing but a process of using debt capital to increase the rate of return on

43. Combine leverage: it is used to measure of the total risk of the firm = operating risk +
financial risk.

44. Joint venture: A joint venture is an association of two or more the persons who combined
for the execution of a specific transaction and divide the profit or loss their of an agreed ratio.

45. Partnership: partnership is the relation b/w the persons who have agreed to share the profits of
business carried on by all or any of them acting for all.

46. Factoring: It is an arrangement under which a firm (called borrower) receives advances against
its receivables, from financial institutions (called factor)

47. Capital reserve: The reserve which transferred from the capital gains is called capital reserve.

48. General reserve: the reserve which is transferred from normal profits of the firm is called
general reserve

49. Free Cash: The cash not for any specific purpose free from any encumbrance like surplus cash.

50. Minority Interest: minority interest refers to the equity of the minority shareholders in a
subsidiary company.

51. Capital receipts: capital receipts may be defined as non-recurring receipts from the owner of the
business or lender of the money crating a liability to either of them.

52. Revenue receipts: Revenue receipts may defined as A recurring receipts against sale of goods in
the normal course of business and which generally the result of the trading activities.
53. Meaning of Company: A company is an association of many persons who contribute money
or moneys worth to common stock and employs it for a common purpose. The common stock
so contributed is denoted in money and is the capital of the company.

54. Types of a company:
1. Statutory companies
2. Government company
3. Foreign company
4. Registered companies:
a. Companies limited by shares b. Companies limited by guarantee
c. Unlimited companies e. private company
f. public company


55. Private company: A private co. is which by its
AOA: Restricts the right of the members to transfer of shares Limits the no. of members 50.
Prohibits any Invitation to the public to subscribe for its shares or debentures.

56. Public company: A company, the article of association of which does not contain the requisite
restrictions to make it a private limited company, is called a public company.

57. Characteristics of a company:
Voluntary association
Separate legal entity
Free transfer of shares
Limited liability
Common seal
Perpetual existence.

58. Formation of company:
Commencement of business

59. Equity share capital: The total sum of equity shares is called equity share capital.

60. Authorized share capital: it is the maximum amount of the share capital, which a company can
raise for the time being.

61. Issued capital: It is that part of the authorized capital, which has been allotted to the public for

62. Subscribed capital: it is the part of the issued capital, which has been allotted to the public

63. Called up capital: It has been portion of the subscribed capital which has been called up by the

64. Paid up capital: It is the portion of the called up capital against which payment has been received.

65. Debentures: Debenture is a certificate issued by a company under its seal acknowledging a debt
due by it to its holder.

66. Cash profit: cash profit is the profit it is occurred from the cash sales.

67. Deemed public Ltd. Company: A private company is a subsidiary company to public company it
satisfies the following terms/conditions Sec 3(1)3:

1. Having minimum share capital 5 lakhs
2. Accepting investments from the public
3. No restriction of the transferable of shares
4. No restriction of no. of members.
5. Accepting deposits from the investors

68. Secret reserves: secret reserves are reserves the existence of which does not appear on the face of
balance sheet. In such a situation, net assets position of the business is stronger than that disclosed
by the balance sheet.
These reserves are crated by:
1. Excessive dep.of an asset, excessive over- valuation of a liability.
2. Complete elimination of an asset, or under valuation of an asset.

69. Provision: provision usually means any amount written off or retained by way of providing
depreciation, renewals or diminutions in the value of assets or retained by way of providing for
any known liability of which the amount can not be determined with substantial accuracy.

70. Reserve: The provision in excess of the amount considered necessary for the purpose it was
originally made is also considered as reserve Provision is charge against profits while reserves is an
appropriation of profits Creation of reserve increase proprietors fund while creation of provisions
decreases his funds in the business.

71. Reserve fund: the term reserve fund means such reserve against which clearly investment etc.,

72. Undisclosed reserves: Sometimes a reserve is created but its identity is merged with some other a/c
or group of accounts so that the existence of the reserve is not known such reserve is called an
undisclosed reserve.

73. Finance management: financial management deals with procurement of funds and their effective
utilization in business.

74. Objectives of financial management: financial management having two objectives that Is:
1. Profit maximization: the finance manager has to make his decisions in a manner so that the
profits of the concern are maximized.
2. Wealth maximization: wealth maximization means the objective of a firm should be to maximize
its value or wealth, or value of a firm is represented by the market price of its common stock.

75. Functions of financial manager:
1. Investment decision
2. Dividend decision
3. Finance decision
4. Cash management decisions
5. Performance evaluation
6. Market impact analysis

76. Time value of money: the time value of money means that worth of a rupee received today is
different from the worth of a rupee to be received in future.

77. Capital structure: it refers to the mix of sources from where the long-term funds required in a
business may be raised; in other words, it refers to the proportion of debt, preference capital and
equity capital.

78. Optimum capital structure: capital structure is optimum when the firm has a combination of
equity and debt so that the wealth of the firm is maximum.

79. WACC: it denotes weighted average cost of capital. It is defined as the overall cost of capital
computed by reference to the proportion of each component of capital as weights.

80. Financial break-even point: it denotes the level at which a firms EBIT is just sufficient to cover
interest and preference dividend.

81. Capital budgeting: capital budgeting involves the process of decision making with regard to
investment in fixed assets. Or decision making with regard to investment of money in long-term

82. Pay back period: payback period represents the time period required for complete recovery of the
initial investment in the project.

83. ARR: accounting or average rate of return means the average annual yield on the project.

84. NPV: the net present value of an investment proposal is defined as the sum of the present values of
all future cash in flows less the sum of the present values of all cash out flows associated with the

85. Profitability index: where different investment proposal each involving different initial
investments and cash inflows are to be compared.

86. IRR: internal rate of return is the rate at which the sum total of discounted cash inflows equals the
discounted cash out flow.

87. Treasury management: it means it is defined as the efficient management of liquidity and
financial risk in business.

88. Concentration banking: it means identify locations or places where customers are placed and open
a local bank a/c in each of these locations and open local collection canter.

89. Marketable securities: surplus cash can be invested in short term instruments in order to earn

90. Ageing schedule: in a ageing schedule the receivables are classified according to their age.

91. Maximum permissible bank finance (MPBF): it is the maximum amount that banks can lend a
borrower towards his working capital requirements.

92. Commercial paper: a cp is a short term promissory note issued by a company, negotiable by
endorsement and delivery, issued at a discount on face value as may be determined by the issuing

93. Bridge finance: It refers to the loans taken by the company normally from a commercial banks for
a short period pending disbursement of loans sanctioned by the financial institutions.

94. Venture capital: It refers to the financing of high-risk ventures promoted by new qualified
entrepreneurs who require funds to give shape to their ideas.

95. Debt securitization: It is a mode of financing, where in securities are issued on the basis of a
package of assets (called asset pool).

96. Lease financing: Leasing is a contract where one party (owner) purchases assets and permits its
views by another party (lessee) over a specified period

97. Trade Credit: It represents credit granted by suppliers of goods, in the normal course of business.

98. Over draft: Under this facility a fixed limit is granted within which the borrower allowed to
overdraw from his account.

99. Cash credit: It is an arrangement under which a customer is allowed an advance up to certain limit
against credit granted by bank.

100. Clean overdraft: It refers to an advance by way of overdraft facility, but not back by any tangible

101. Share capital: The sum total of the nominal value of the shares of a company is called share

102. Funds flow statement: It is the statement deals with the financial resources for running business
activities. It explains how the funds obtained and how they used.

103. Sources of funds: There are two sources of funds internal sources and external sources.

Internal source: Funds from operations is the only internal sources of funds and some important
points add to it they do not result in the outflow of funds
(a) Depreciation on fixed assets
(b) (b) Preliminary expenses or goodwill written off, Loss on sale of fixed assets

Deduct the following items, as they do not increase the funds :
Profit on sale of fixed assets, profit on revaluation of fixed assets

External sources: (a) Funds from long-term loans
(b)Sale of fixed assets
(c) Funds from increase in share capital

104. Application of funds : (a) Purchase of fixed assets (b) Payment of dividend (c)Payment of tax
liability (d) Payment of fixed liability

105. ICD (Inter corporate deposits): Companies can borrow funds for a short period. For example 6
months or less from another company which have surplus liquidity. Such eposits made by one
company in another company are called ICD.

106. Certificate of deposits : The CD is a document of title similar to a fixed deposit receipt issued
by banks there is no prescribed interest rate on such CDs it is based on the prevailing market

107. Public deposits: It is very important source of short term and medium term finance. The
company can accept PD from members of the public and shareholders. It has the maturity period
of 6 months to 3 years.

108. Euro issues: The euro issues means that the issue is listed on a European stock Exchange. The
subscription can come from any part of the world except India.

109. GDR (Global depository receipts): A depository receipt is basically a negotiable certificate ,
dominated in us dollars that represents a non-US company publicly traded in local currency equity

110. ADR (American depository receipts): Depository receipt issued by a company in the USA is
known as ADRs. Such receipts are to be issued in accordance with the provisions stipulated by t he
securities Exchange commission (SEC) of USA like SEBI in India.

111. Commercial banks: Commercial banks extend foreign currency loans for international
operations, just like rupee loans. The banks also provided overdraft.

112. Development banks: It offers long-term and medium term loans including foreign currency

113. International agencies: International agencies like the IFC,IBRD,ADB,IMF etc. provide indirect
assistance for obtaining foreign currency.

114. Seed capital assistance: The seed capital assistance scheme is desired by the IDBI for
professionally or technically qualified entrepreneurs and persons possessing relevant experience
and skills and entrepreneur traits.

115. Unsecured l0ans : It constitutes a significant part of long-term finance available to an enterprise.

116. Cash flow statement: It is a statement depicting change in cash position from one period to

117. Sources of cash:
Internal sources-
(c)Loss on sale of fixed assets
(d)Gains from sale of fixed assets
(e) Creation of reserves
External sources-
(a)Issue of new shares
(b)Raising long term loans
(c)Short-term borrowings
(d)Sale of fixed assets, investments

118. Application of cash:
(a) Purchase of fixed assets
(b) Payment of long-term loans
(c) Decrease in deferred payment liabilities
(d) Payment of tax, dividend
(e) Decrease in unsecured loans and deposits

19. Budget: It is a detailed plan of operations for some specific future period. It is an estimate
prepared in advance of the period to which it applies.

120. Budgetary control: It is the system of management control and accounting in which all
operations are forecasted and so for as possible planned ahead, and the actual results compared with
the forecasted and planned ones.

121. Cash budget: It is a summary statement of firms expected cash inflow and outflow over a
specified time period.

122. Master budget: A summary of budget schedules in capsule form made for the purpose of
presenting in one report the highlights of the budget forecast.

123. Fixed budget: It is a budget, which is designed to remain unchanged irrespective of the level of
activity actually attained.

124. Zero- base- budgeting: It is a management tool which provides a systematic method for
evaluating all operations and programs, current of new allows for budget reductions and expansions
in a rational manner and allows reallocation of source from low to high priority programs.

125. Goodwill: The present value of firms anticipated excess earnings.

126. BRS: It is a statement reconciling the balance as shown by the bank pass book and balance shown
by the cash book.

127. Objective of BRS: The objective of preparing such a statement is to know the causes of
difference between the two balances and pass necessary correcting or adjusting entries in the books
of the firm.

128. Responsibilities of accounting: It is a system of control by delegating and locating the
Responsibilities for costs.

129. Profit centre: A centre whose performance is measured in terms of both the expense incurs and
revenue it earns.

130. Cost centre: A location, person or item of equipment for which cost may be ascertained and used
for the purpose of cost control.

131. Cost: The amount of expenditure incurred on to a given thing.

132. Cost accounting: It is thus concerned with recording, classifying, and summarizing costs for
determination of costs of products or services planning, controlling and reducing such costs and
furnishing of information management for decision making.

133. Elements of cost:
(A) Material (B) Labour
(C) Expenses (D) Overheads

134. Components of total costs: (A) Prime cost (B) Factory cost
(C)Total cost of production (D) Total c0st

135. Prime cost: It consists of direct material direct labour and direct expenses. It is also known as
basic or first or flat cost.

136. Factory cost: It comprises prime cost, in addition factory overheads which include cost of
indirect material indirect labour and indirect expenses incurred in factory. This cost is also known
as works cost or production cost or manufacturing cost.

137. Cost of production: In office and administration overheads are added to factory cost, office cost
is arrived at.

138. Total cost: Selling and distribution overheads are added to total cost of production to get the total
cost or cost of sales.

139. Cost Unit: A unit of quantity of a product, service or time in relation to which costs may be
ascertained or expressed.

140. Methods of costing: (A) Job costing (B) Contract costing (C) Process costing
(D)Operation costing (E) operating costing (F) Unit costing (G) Batch costing.

141. Techniques of costing: (a) marginal costing (b) direct costing
(c) Absorption costing (d) uniform costing.

142. Standard costing: standard costing is a system under which the cost of the product is determined
in advance on certain predetermined standards.

143. Marginal costing: it is a technique of costing in which allocation of expenditure to production is
restricted to those expenses which arise as a result of production, i.e., materials, labour, and direct
expenses and variable overheads.

144. Derivative: derivative is product whose value is derived from the value of one or more basic
variables of underlying asset.

145. Forwards : a forward contract is customized contracts between two entities were settlement takes
place on a specific date in the future at todays pre agreed price.

146. Futures: a future contract is an agreement between two parties to buy or sell an asset at a certain
time in the future at a certain price. Future contracts are standardized exchange traded contracts.

147. Options: an option gives the holder of the option the right to do some thing. The option holder
option may exercise or not.

148. Call option: a call option gives the holder the right but not the obligation to buy an asset by a
certain date for a certain price.

149. Put option: a put option gives the holder the right but not obligation to sell an asset by a certain
date for a certain price.

150. Option price: option price is the price which the option buyer pays to the option seller. It is also
referred to as the option premium.

151. Expiration date: the date which is specified in the option contract is called expiration date.

152. European option: it is the option at exercised only on expiration date it self.

153. Basis: basis means future price minus spot price.

154. Cost of carry: the relation between future prices and spot prices can be summarized in terms of
what is known as cost of carry.

155. Initial margin: the amount that must be deposited in the margin a/c at the time of first entered into
future contract is known as initial margin.

156 Maintenance margin: this is some what lower than initial margin.

157. Mark to market: in future market, at the end of the each trading day, the margin a/c is adjusted to
reflect the investors gains or loss depending upon the futures selling price. This is called mark to
market. ***

158. Baskets: basket options are options on portfolio of underlying asset.

159. Swaps : swaps are private agreements between two parties to exchange cash flows in the future
according to a pre agreed formula.

160. Impact cost: impact cost is cost it is measure of liquidity of the market. It reflects the costs faced
when actually trading in index.

161. Hedging: hedging means minimize the risk.

162. Capital market: capital market is the market it deals with the long term investment funds. It
consists of two markets 1.primary market 2.secondary market.

163. Primary market: those companies which are issuing new shares in this market. It is also called
new issue market.

164. Secondary market: secondary market is the market where shares buying and selling. In India
secondary market is called stock exchange.

165. Arbitrage: it means purchase and sale of securities in different markets in order to profit from
price discrepancies. In other words arbitrage is a way of reducing risk of loss caused by price
fluctuations of securities held in a portfolio.

166. Meaning of ratio: Ratios are relationships expressed in mathematical terms between figures
which are connected with each other in same manner.

167. Activity ratio: it is a measure of the level of activity attained over a period.

168. mutual fund : a mutual fund is a pool of money, collected from investors, and is invested
according to certain investment objectives.

169. Characteristics of mutual fund: Ownership of the MF is in the hands of the of the investors
MF managed by investment professionals The value of portfolio is updated every day

170. Advantage of MF to investors : Portfolio diversification Professional management Reduction in
risk Reduction of transaction casts Liquidity Convenience and flexibility

171. Net asset value: the value of one unit of investment is called as the Net Asset Value

172. Open-ended fund: open ended funds means investors can buy and sell units of fund, at NAV
related prices at any time, directly from the fund this is called open ended fund. For ex; unit 64

173. Close ended funds : close ended funds means it is open for sale to investors for a specific period,
after which further sales are closed. Any further transaction for buying the units or repurchasing
them, happen, in the secondary markets.

174. Dividend option: investors who choose a dividend on their investments, will receive dividends
from the MF, as when such dividends are declared.***

175. Growth option: investors who do not require periodic income distributions can be choose the
growth option.

176. Equity funds : equity funds are those that invest pre-dominantly in equity shares of company.

177. Types of equity funds : Simple equity funds Primary market funds Sectoral funds Index funds

178. Sectoral funds : sectoral funds choose to invest in one or more chosen sectors of the equity

179. Index funds : the fund manager takes a view on companies that are expected to perform well, and
invests in these companies

180. Debt funds : the debt funds are those that are pre-dominantly invest in debt securities.****

181. Liquid funds : the debt funds invest only in instruments with maturities less than one year.

182. Gilt funds: A gilt fund invests only in securities that are issued by the GOVT. and therefore does
not carry any credit risk.

183. Balanced funds : funds that invest both in debt and equity markets are called balanced funds.

184. Sponsor: sponsor is the promoter of the MF and appoints trustees, custodians and the AMC
with prior approval of SEBI.

185. Trustee: trustee is responsible to the investors in the MF and appoint the AMC for managing the
investment portfolio.

186. AMC: the AMC describes Asset Management Company, it is the business face of the MF, as it
manages all the affairs of the MF.

187. R & T Agents : the R&T agents are responsible for the investor servicing functions, as they
maintain the records of investors in MF.

188. Custodians : custodians are responsible for the securities held in the mutual funds portfolio.

189. Scheme takes over: if an existing MF scheme is taken over by the AMC, it is called as scheme
take over.

190. Meaning of load: load is the factor that is applied to the NAV of a scheme to arrive at the price.**

192. Market capitalization: market capitalization means number of shares issued multiplied with
market price per share.

193. Price earning ratio: the ratio between the share price and the post tax earnings of company is
called as price earning ratio.

194. Dividend yield: the dividend paid out by the company, is usually a percentage of the face value of
a share.

195. Market risk: it refers to the risk which the investor is exposed to as a result of adverse
movements in the interest rates. It also referred to as the interest rate risk.

196. Re-investment risk: it the risk which an investor has to face as a result of a fall in the interest
rates at the time of reinvesting the interest income flows from the fixed income security.

197. Call risk: call risk is associated with bonds have an embedded call option in them. This option
hives the issuer the right to call back the bonds prior to maturity.

198. Credit risk: credit risk refers to the probability that a borrower could default on a commitment to
repay debt or band loans

199. Inflation risk: inflation risk reflects the changes in the purchasing power of the cash flows
resulting from the fixed income security.

200. Liquid risk: it is also called market risk, it refers to the ease with which bonds could be traded in
the market.

201. Drawings: drawings denote the money withdrawn by the proprietor from the business for his
personal use.

202. Outstanding Income : Outstanding Income means income which has become due during the
accounting year but which has not so far been received by the firm.

203. Outstanding Expenses: Outstanding Expenses refer to those expenses which have become due
during the accounting period for which the Final Accounts have been prepared but have not yet
been paid.

204. Closing stock: The term closing stock means goods lying unsold with the businessman at the end
of the accounting year.

205. Methods of depreciation:
1. Uniform charge methods:
a. Fixed installment method
b .Depletion method
c. Machine hour rate method.

2. Declining charge methods:
a. Diminishing balance method
b. Sum of years digits method
c. Double declining method

3. Other methods :
a. Group depreciation method
b. Inventory system of depreciation
c. Annuity method
d. Depreciation fund method
e. Insurance policy method.

206. Accrued Income : Accrued Income means income which has been earned by the business during
the accounting year but which has not yet become due and, therefore, has not been received.

207. Gross profit ratio: it indicates the efficiency of the production/trading operations.
Formula: Gross profit
Net sales
208. Net profit ratio: it indicates net margin on sales

Formula: Net profit
--------------- X 100
Net sales

209. Return on share holders funds : it indicates measures earning power of equity capital.

Profits available for Equity shareholders
--------------------------------------------------X 100
Average Equity Shareholders Funds

210. Earning per Equity share (EPS) : it shows the amount of earnings attributable to each equity

Profits available for Equity shareholders
Number of Equity shares

211. Dividend yield ratio: it shows the rate of return to shareholders in the form of dividends based in
the market price of the share
Formula: Dividend per share
------------------------------ X100
Market price per share

212. Price earning ratio: it a measure for determining the value of a share. May also be used to
measure the rate of return expected by investors.
Formula: Market price of share (MPS)
------------------------------------X 100
Earning per share (EPS)

213. Current ratio: it measures short-term debt paying ability.
Formula: Current Assets
Current Liabilities

214. Debt-Equity Ratio: it indicates the percentage of funds being financed through borrowings; a
measure of the extent of trading on equity.
Formula: Total Long-term Debt
Shareholders funds

215. Fixed Assets ratio: This ratio explains whether the firm has raised adequate long-term funds to
meet its fixed assets requirements.
Formula Fixed Assets
Long-term Funds

216. Quick Ratio: The ratio termed as liquidity ratio. The ratio is ascertained y comparing the Liquid
assets to current liabilities.
Formula: Liquid Assets
Current Liabilities

217. Stock turnover Ratio: the ratio indicates whether investment in inventory in efficiently used or
not. It, therefore explains whether investment in inventory within proper limits or not.
Formula: cost of goods sold
Average stock

218. Debtors Turnover Ratio: the ratio the better it is, since it would indicate that debts are being
collected more promptly. The ration helps in cash budgeting since the flow of cash from
customers can be worked out on the basis of sales.

Formula: Credit sales
Average Accounts Receivable

219. Creditors Turnover Ratio: it indicates the speed with which the payments for credit purchases
are made to the creditors.
Formula: Credit Purchases
Average Accounts Payable

220. Working capital turnover ratio : it is also known as Working Capital Leverage Ratio. This ratio
Indicates whether or not working capital has been effectively utilized in making sales.
Formula: Net Sales
Working Capital

221. Fixed Assets Turnover ratio: This ratio indicates the extent to which the investments in fixed
assets contribute towards sales.
Formula: Net Sales
Fixed Assets

222 .Pay-outs Ratio: This ratio indicates what proportion of earning per share has been used for paying
Formula: Dividend per Equity Share
Earning per Equity share

223. Overall Profitability Ratio: It is also called as Return on Investment (ROI) or Return on
Capital Employed (ROCE). It indicates the percentage of return on the total capital employed in the
Formula: Operating profit
------------------------X 100
Capital employed

The term capital employed has been given different meanings a.sum total of all assets
whether fixed or current b.sum total of fixed assets, c.sum total of long-term funds employed in the
business, i.e., share capital +reserves &surplus +long term loans (non business assets + fictitious
assets). Operating profit means profit before interest and tax

224. Fixed Interest Cover ratio: the ratio is very important from the lenders point of view. It
indicates whether the business would earn sufficient profits to pay periodically the interest
Formula: Income before interest and Tax
Interest Charges

225. Fixed Dividend Cover ratio: This ratio is important for preference shareholders entitled to get
dividend at a fixed rate in priority to other shareholders.
Formula: Net Profit after Interest and Tax
Preference Dividend

226. Debt Service Coverage ratio: This ratio is explained ability of a company to make payment of
principal amounts also on time.
Formula: Net profit before interest and tax
---------------------------------------- (1-Tax rate)
Interest + Principal payment installment

227. Proprietary ratio: It is a variant of debt-equity ratio. It establishes relationship between the
proprietors funds and the total tangible assets.
Formula: Shareholders funds
Total tangible assets

228. Difference between joint venture and partner ship:
In joint venture the business is carried on without using a firm name, In the partnership, the
business is carried on under a firm name.
In the joint venture, the business transactions are recorded under cash system In the partnership, the
business transactions are recorded under mercantile system. In the joint venture, profit and loss is
ascertained on completion of the venture In the partner ship, profit and loss is ascertained at the end of
each year. In the joint venture, it is confined to a particular operation and it is temporary. In the
partnership, it is confined to a particular operation and it is permanent.

229. Meaning of Working capital: The funds available for conducting day to day operations of an
enterprise. Also represented by the excess of current assets over current liabilities.

230. Concepts of accounting:
1. Business entity concepts : - According to this concept, the business is treated as a separate entity
distinct from its owners and others.

2. Going concern concept: - According to this concept, it is assumed that a business has a reasonable
expectation of continuing business at a profit for an indefinite period of time.

3. Money measurement concept: - This concept says that the accounting records only those
transactions which can be expressed in terms of money only.

4. Cost concept: - According to this concept, an asset is recorded in the books at the price paid to
acquire it and that this cost is the basis for all subsequent accounting for the asset.

5. Dual aspect concept: - In every transaction, there will be two aspects the receiving aspect and the
giving aspect; both are recorded by debiting one accounts and crediting another account. This is
called double entry.

6. Accounting period concept: - It means the final accounts must be prepared on a periodic basis.
Normally accounting period adopted is one year, more than this period reduces the utility of
accounting data.

7.Realization concept :- According to this concepts, revenue is considered as being earned on the data
which it is realized, i.e., the date when the property in goods passes the buyer and he become
legally liable to pay.

8. Materiality concepts: - It is a one of the accounting principle, as per only important information will
be taken, and UN important information will be ignored in the preparation of the financial

9. Matching concepts : - The cost or expenses of a business of a particular period are compared with
the revenue of the period in order to ascertain the net profit and loss.

10. Accrual concept: - The profit arises only when there is an increase in owners capital, which is a
result of excess of revenue over expenses and loss.

231. Financial analysis : The process of interpreting the past, present, and future financial condition of
a company.

232. Income statement: An accounting statement which shows the level of revenues, expenses and
profit occurring for a given accounting period.

233. Annual report: The report issued annually by a company, to its share holders. it containing
financial statement like, trading and profit & lose account and balance sheet.

234. Bankrupt: A statement in which a firm is unable to meets its obligations and hence, it is assets are
surrendered to court for administration

235. Lease: Lease is a contract between to parties under the contract, the owner of the asset gives the
right to use the asset to the user over an agreed period of the time for a consideration

236. Opportunity cost: The cost associated with not doing something.

237. Budgeting: The term budgeting is used for preparing budgets and other producer for planning,
co-ordination, and control of business enterprise.

238. Capital: The term capital refers to the total investment of company in money, tangible and
intangible assets. It is the total wealth of a company.

239. Capitalization: It is the sum of the par value of stocks and bonds out standings.

240. Over capitalization: When a business is unable to earn fair rate on its outstanding securities.

241. Under capitalization: When a business is able to earn fair rate or over rate on it is outstanding

242. Capital gearing: The term capital gearing refers to the relationship between equity and long term

243. Cost of capital: It means the minimum rate of return expected by its investment.

244. Cash dividend: The payment of dividend in cash

245. Define the term accrual: Recognition of revenues and costs as they are earned or incurred . it
includes recognition of transaction relating to assets and liabilities as they occur irrespective of the
actual receipts or payments.

245. Accrued expenses : An expense which has been incurred in an accounting period but for which no
enforceable claim has become due in what period against the enterprises.

246. Accrued revenue: Revenue which has been earned is an earned is an accounting period but in
respect of which no enforceable claim has become due to in that period by the enterprise.

247. Accrued liability: A developing but not yet enforceable claim by an another person which
accumulates with the passage of time or the receipt of service or otherwise. it may rise from the
purchase of services which at the date of accounting have been only partly performed and are not
yet billable.

248. Convention of Full disclosure : According to this convention, all accounting statements should be
honestly prepared and to that end full disclosure of all significant information will be made.

249. Convention of consistency: According to this convention it is essential that accounting practices
and methods remain unchanged from one year to another.

250. Define the term preliminary expenses: Expenditure relating to the formation of an enterprise.
There include legal accounting and share issue expenses incurred for formation of the enterprise.

251. Meaning of Charge: charge means it is a obligation to secure an indebt ness. It may be fixed
charge and floating charge.

252. Appropriation: It is application of profit towards Reserves and Dividends.

253. Absorption costing: A method where by the cost is determining so as to include the appropriate
share of both variable and fixed costs.

254. Marginal Cost: Marginal cost is the additional cost to produce an additional unit of a product. It is
also called variable cost.

255. What are the ex-ordinary items in the P&L a/c: The transactions which are not related to the
business is termed as ex-ordinary transactions or ex-ordinary items. Egg:- profit or losses on the
sale of fixed assets, interest received from other company investments, profit or loss on foreign
exchange, unexpected dividend received.

256. Share premium: The excess of issue of price of shares over their face value. It will be showed
with the allotment entry in the journal, it will be adjusted in the balance sheet on the liabilities side
under the head of reserves & surplus.

257. Accumulated Depreciation: The total to date of the periodic depreciation charges on depreciable

258. Investment: Expenditure on assets held to earn interest, income, profit or other benefits.

259. Capital: Generally refers to the amount invested in an enterprise by its owner. Ex; paid up share
capital in corporate enterprise.

260. Capital Work In Progress: Expenditure on capital assets which are in the process of construction
as completion.

261. Convertible Debenture: A debenture which gives the holder a right to conversion wholly or
partly in shares in accordance with term of issues.

262. Redeemable Preference Share : The preference share that is repayable either after a fixed (or)
determinable period (or) at any time dividend by the management.

263. Cumulative preference shares: A class of preference shares entitled to payment of cumulate
dividends. Preference shares are always deemed to be cumulative unless they are expressly made
non-cumulative preference shares.

264. Debenture redemption reserve: A reserve created for the redemption of debentures at a future

265. Cumulative dividend: A dividend payable as cumulative preference shares which it unpaid
cumulates as a claim against the earnings of a corporate before any distribution is made to the other

266. Dividend Equalization reserve: A reserve created to maintain the rate of dividend in future years.

267. Opening Stock: The term opening stock means goods lying unsold with the businessman in the
beginning of the accounting year. This is shown on the debit side of the trading account.

268. Closing Stock: The term Closing Stock includes goods lying unsold with the businessman at the
end of the accounting year. The amount of closing stock is shown on the credit side of the trading
account and as an asset in the balance sheet.

269. Valuation of closing stock: The closing stock is valued on the basis of Cost or Market price
whichever is less principle.

272. Contingency: A conditions (or) situation the ultimate out come of which gain or loss will be
known as determined only as the occurrence or non occurrence of one or more uncertain future

273. Contingent Asset: An asset the existence ownership or value of which may be known or
determined only on the occurrence or non occurrence of one more uncertain future events.

274. Contingent liability: An obligation to an existing condition or situation which may arise in future
depending on the occurrence of one or more uncertain future events.

275. Deficiency: the excess of liabilities over assets of an enterprise at a given date is called deficiency.

276. Deficit: The debit balance in the profit and loss a/c is called deficit.

277. Surplus : Credit balance in the profit & loss statement after providing for proposed appropriation
& dividend, reserves.

278. Appropriation Assets: An account sometimes included as a separate section of the profit and loss
statement showing application of profits towards dividends, reserves.

279. Capital redemption reserve: A reserve created on redemption of the average cost:- the cost of an
item at a point of time as determined by applying an average of the cost of all items of the same
nature over a period. When weights are also applied in the computation it is termed as weight
average cost.**

280. Floating Charge: Assume change on some or all assets of an enterprise which are not attached to
specific assets and are given as security against debt.

281. Difference between Funds flow and Cash flow statement:
A Cash flow statement is concerned only with the change in cash position while a funds flow
analysis is concerned with change in working capital position between two balance sheet dates.
A cash flow statement is merely a record of cash receipts and disbursements. While studying the
short-term solvency of a business one is interested not only in cash balance but also in the assets
which are easily convertible into cash.

282. Difference between the Funds flow and Income statement:
A funds flow statement deals with the financial resource required for running the business
activities. It explains how were the funds obtained and how were they used, Whereas an income
statement discloses the results of the business activities, i.e., how much has been earned and how it
has been spent.
A funds flow statement matches the funds raised and funds applied during a particular
period. The source and application of funds may be of capital as well as of revenue nature. An
income statement matches the incomes of a period with the expenditure of that period, which are
both of a revenue nature.

1. What is Commercial Paper (CP)?
Commercial Paper (CP) is an unsecured money market instrument issued in the form of a
promissory note.
2. When it was introduced?
It was introduced in India in 1990.
3. Why it was introduced?
It was introduced in India in 1990 with a view to enabling highly rated corporate borrowers/ to
diversify their sources of short-term borrowings and to provide an additional instrument to investors.
Subsequently, primary dealers and satellite dealers were also permitted to issue CP to enable them to
meet their short-term funding requirements for their operations.
4. Who can issue CP?
Corporate, primary dealers (PDs) and the All-India Financial Institutions (FIs) are eligible to
issue CP.
5. Whether all the corporate would automatically be eligible to issue CP
No., of corporate would be eligible to issue CP provided
The tangible net worth of the company, as per the latest audited balance sheet, is not less than
Rs. 4 crore
Company has been sanctioned working capital limit by bank/s or all-India financial institution/s;
The borrowal account of the company is classified as a Standard Asset by the financing bank/s/
6 Is there any rating requirement for issuance of CP? And if so, what is the rating requirement?
Yes. All eligible participants shall obtain the credit rating for issuance of Commercial Paper
either from Credit Rating Information Services of India Ltd. (CRISIL) or the Investment Information
and Credit Rating Agency of India Ltd. (ICRA) or the Credit Analysis and Research Ltd. (CARE) or
the FITCH Ratings India Pvt. Ltd. or such other credit rating agency (CRA) as may be specified by the
Reserve Bank of India from time to time, for the purpose.

The minimum credit rating shall be P-2 of CRISIL or such equivalent rating by other agencies.
The issuers shall ensure at the time of issuance of CP that the rating so obtained is current and has not
fallen due for review and the maturity date of the CP should not go beyond the date up to which the
credit rating of the issuer is valid.
7 What is the minimum and maximum period of maturity prescribed for CP?
CP can be issued for maturities between a minimum of 15 days and a maximum up to one year
from the date of issue.
8 What is the limit up to which a CP can be issued.
The aggregate amount of CP from an issuer shall be within the limit as approved by its Board of
Directors or the quantum indicated by the Credit Rating Agency for the specified rating, whichever is
As regards FIs, they can issue CP within the overall umbrella limit fixed by the RBI i.e., issue
of CP together with other instruments viz., term money borrowings, term deposits, certificates of
deposit and inter-corporate deposits should not exceed 100 per cent of its net owned funds, as per the
latest audited balance sheet.
9. In what denominations a CP that can be issued?
CP can be issued in denominations of Rs.5 lakh or multiples thereof.
10. How long the CP issue can remain open?
The total amount of CP proposed to be issued should be raised within a period of two weeks
from the date on which the issuer opens the issue for subscription.
11. Whether CP can be issued on different dates by the same issuer?
Yes. CP may be issued on a single date or in parts on different dates provided that in the latter
case, each CP shall have the same maturity date. Further, every issue of CP, including renewal, shall be
treated as a fresh issue.
12. Who can act as Issuing and Paying Agent (IPA)?
Only a scheduled bank can act as an IPA for issuance of CP.
13. Who can invest in CP?
Individuals, banking companies, other corporate bodies registered or incorporated in India and
unincorporated bodies, Non-Resident Indians (NRIs) and Foreign Institutional Investors (FIIs) etc. can
invest in CPs. However, amount invested by single investor should not be less than Rs.5 lakh (face
However, investment by FIIs would be within the limits set for their investments by Securities
and Exchange Board of India (SEBI.
14. Whether CP can be held in dematerialized form?
Yes. CP can be issued either in the form of a promissory note (Schedule I) or in a
dematerialized form through any of the depositories approved by and registered with SEBI. Banks, FIs,
PDs and SDs are directed to hold CP only in dematerialized form.

15. Whether CP is always issued at a discount?
Yes. CP will be issued at a discount to face value as may be determined by the issuer.
16. Whether CP can be underwritten?
No issuer shall have the issue of Commercial Paper underwritten or co-accepted.
17. What is the mode of redemption?
Initially the investor in CP is required to pay only the discounted value of the CP by means of a
crossed account payee cheque to the account of the issuer through IPA. On maturity of CP,
(a) when the CP is held in physical form, the holder of the CP shall present the instrument for payment
to the issuer through the IPA.
(b) when the CP is held in demat form, the holder of the CP will have to get it redeemed through the
depository and receive payment from the IPA.
18. Whether Stand by facility is required to be provided by the bankers/FIs for CP issue?
CP being a `stand alone' product, it would not be obligatory in any manner on the part of banks
and FIs to provide stand-by facility to the issuers of CP.
However, Banks and FIs have the flexibility to provide for a CP issue, credit enhancement by way of
stand-by assistance/credit backstop facility, etc., based on their commercial judgement and as per terms
prescribed by them. This will be subjected to prudential norms as applicable and subject to specific
approval of the Board.
19. Whether non-bank entities/corporate can provide guarantee for credit enhancement of the
CP issue.
Yes. Non-bank entities including corporate can provide unconditional and irrevocable guarantee
for credit enhancement for CP issue provided:
a. the issuer fulfils the eligibility criteria prescribed for issuance of CP;
b. the guarantor has a credit rating at least one notch higher than the issuer by an approved credit rating
agency and
c. the offer document for CP properly discloses: the networth of the guarantor company, the names of
the companies to which the guarantor has issued similar guarantees, the extent of the guarantees offered
by the guarantor company, and the conditions under which the guarantee will be invoked.
20. Role and responsibilities of the Issuer/Issuing and Paying Agent and Credit Rating Agency
a. Every issuer must appoint an IPA for issuance of CP.
b. The issuer should disclose to the potential investors its financial position as per the standard market
c. After the exchange of deal confirmation between the investor and the issuer, issuing company shall
issue physical certificates to the investor or arrange for crediting the CP to the investor's account with a
Investors shall be given a copy of IPA certificate to the effect that the issuer has a valid agreement with
the IPA and documents are in order (Schedule III).
Issuing and Paying Agent
a. IPA would ensure that issuer has the minimum credit rating as stipulated by the RBI and amount
mobilised through issuance of CP is within the quantum indicated by CRA for the specified rating.
b. IPA has to verify all the documents submitted by the issuer viz., copy of board resolution, signatures
of authorised executants (when CP in physical form) and issue a certificate that documents are in order.
It should also certify that it has a valid agreement with the issuer (Schedule III).
c. Certified copies of original documents verified by the IPA should be held in the custody of IPA.
Credit Rating Agency
a. Code of Conduct prescribed by the SEBI for CRAs for undertaking rating of capital market
instruments shall be applicable to them (CRAs) for rating CP.
b. Further, the credit rating agency has the discretion to determine the validity period of the rating
depending upon its perception about the strength of the issuer. Accordingly, CRA shall at the time of
rating, clearly indicate the date when the rating is due for review.
c. While the CRAs can decide the validity period of credit rating, CRAs would have to closely monitor
the rating assigned to issuers vis-a-vis their track record at regular intervals and would be required to
make its revision in the ratings public through its publications and website
21. Is there any other formalities and reporting requirement with regard to CP issue?
Fixed Income Money Market and Derivatives Association of India (FIMMDA), as a self-regulatory
organization (SRO) for the fixed income money market securities, may prescribe, in consultation with
the RBI, any standardized procedure and documentation for operational flexibility and smooth
functioning of CP market.
Every CP issue should be reported to the Chief General Manager, Industrial and Export Credit
Department (IECD), Reserve Bank of India, Central Office, Mumbai through the Issuing and Paying
Agent (IPA) within three days from the date of completion of the issue, incorporating details as per
Schedule II.
Price Earnings Ratio (PE Ratio): Definition:
Price earnings ratio (P/E ratio) is the ratio between market price per equity share and earning
per share. The ratio is calculated to make an estimate of appreciation in the value of a share of a
company and is widely used by investors to decide whether or not to buy shares in a particular
Formula of Price Earnings Ratio:
Following formula is used to calculate price earnings ratio:
[Price Earnings Ratio = Market price per equity share / Earnings per share]
The market price of a share is $30 and earning per share is $5. Calculate price earnings ratio.
Calculation: Price earnings ratio = 30 / 5 = 6
The market value of every one dollar of earning is six times or $6. The ratio is useful in
financial forecasting. It also helps in knowing whether the share of a company are under or over valued.
For example, if the earning per share of AB limited is $20, its market price $140 and earning ratio of
similar companies is 8, it means that the market value of a share of AB Limit ed should be $160 (i.e., 8
20). The share of AB Limited is, therefore, undervalued in the market by $20. In case the price
earnings ratio of similar companies is only 6, the value of the share of AB Limited should have been
$120 (i.e., 6 20), thus the share is overvalued by $20.
Significance of Price Earning Ratio:
Price earnings ratio helps the investor in deciding whether to buy or not to buy the shares of a
particular company at a particular market price.
Generally, higher the price earning ratio the better it is. If the P/E ratio falls, the management
should look into the causes that have resulted into the fall of this ratio.
Put Options - Definition
Put Options are stock options that gives its holder the POWER, but not the obligation, to SELL
the underlying stock at a FIXED PRICE by a fixed EXPIRATION DATE.

Put-options Introduction
Put Options are the least understood of the 2 kinds of stock options. The other being Call
Options that give you the right to buy the underlying stock for a fixed price. Put Options enable you to
sell the underlying stock at a price fixed right now no matter how low it falls in future. That said, rarely
are put options really used as a tool to sell your stocks but as a tool to capture value as the underlying
stock drops and then sell the put options at a profit! Apart from being an incredibly flexible and risk
limited leverage instrument, Put Options are fantastic hedging instruments for any stock portfolios.
Put Options allows investors to do something relatively unfamiliar to the stock trading world
and that is, to profit from a downturn in stocks without going into margin or shorting anything.
Shorting stocks exposes the investor to unlimited upside risk whereas buying put options incurs nothing
more than the price you paid for the put options! There are no shorting needed! No shorting, No
margin, Limited Loss and Unlimited profits is what sets the buying of Put Options apart from shorting
How Do Put Options Work?
Put Options are financial contracts between a buyer and a seller. The seller or "writer" of Put
Options is giving the Buyer of those Put Options the right to sell to him stocks at a price fixed and
agreed upon in the Put Options contract. The buyer or "holder" of these Put Options can now hold on to
them, hoping that the stocks will drop in price over time, before the Put Options contract expires, and
then either sell the Put Options on to another buyer at a higher price or buy the stocks at the prevailing
market price and then exercise the right vested in the Put Options to sell the stock to the seller at the
higher agreed price, turning a profit.
Clearly, the seller or "writer" of Put Options is expecting the stocks to stay stagnant or to go up
so that he/she can make a profit out of that sale without having to really buy the stocks from the holder
of the Put Options.

The buyer of those Put Options is clearly expecting those same stocks to go down and is willing
to pay a small price to speculate on such a move. This expectation is also captured in t he popular
investor sentiment indicator known as Put Call Ratio. Put Call Ratio is the ratio of the amount of put
options traded versus call options traded.

Call Options Definition
Call Options are stock options that give its holder the POWER, but not t he obligation, to BUY
the underlying stock at a FIXED PRICE by a fixed EXPIRATION DATE.

Call Options - Introduction
Call Options are definitely the more popular of the 2 kinds of stock options. The other being Put
Options that gives you the right to sell the underlying stock for a fixed price. Call Options enable you to
buy the underlying stock at a price fixed right now no matter how high it rallies in future for just a
small price relative to the price of the underlying stock. Call options give you the power to profit from a
rally in its underlying stock for just a very small price without first having to buy the underlying stock!
Apart from being an incredibly flexible and risk limited leverage instrument, Call Options are fantastic
hedging instruments for any stock portfolios.
Manipulated properly, Call Options allows anyone to profit from any move in the underlying
stock, take advantage of new trends or swings very quickly and hedge away financial risks. Small retail
investors use Call Options as speculative instruments to turn a big profit from very small amounts of
money and big institutional investors use Call Options to protect their stock portfolios and to increase
marginal revenue. In fact, employee stock options are Call Options too. Such widespread application
and flexibility makes learning about how Call Options work, one of the most important investment
knowledge of modern times.
How Do Call Options Work?
Call Options are financial contracts between a buyer and a seller. The seller or "writer" of Call
Options is giving the Buyer of those Call Options the right to buy his stocks at a price fixed and agreed
upon in the Call Options contract. The buyer or "holder" of these Call Options can now hold on to
them, hoping that the stocks will rise in price over time, before the Call Options contract expires, and
then either sell the Call Options on to another buyer at a higher price or exercise the right vested in the
Call Options to buy the stock from the seller at the lower agreed price, turning around for a profit by
selling those stocks in the open market.
Clearly, the seller or "writer" of Call Options is expecting his stocks to stay stagnant or to go
down. Since the seller expects his stocks to go down, selling Call Options on those stocks actually
results in additional income, offsetting the expected drop in the stocks if he is right. This hedges the
risk of owning those stocks without having to sell the stocks.
The buyer of those Call Options is clearly expecting those same stocks to go up and is willing to
pay a small price to speculate on such a move. This expectation is also captured in the popular investor
sentiment indicator known as Put Call Ratio. Put Call Ratio is the ratio of the amount of put options
traded versus call options traded.

Capital expenditures
Capital expenditures (CAPEX or capex) are expenditures creating future benefits. A capital
expenditure is incurred when a business spends money either to buy fixed assets or to add to the value
of an existing fixed asset with a useful life that extends beyond the taxable year. Capex are used by a
company to acquire or upgrade physical assets such as equipment, property, or industrial buildings. In
accounting, a capital expenditure is added to an asset account ("capitalized"), thus increasing the asset's
basis (the cost or value of an asset as adjusted for tax purposes). Capex is commonly found on the Cash
Flow Statement as "Investment in Plant Property and Equipment" or something similar in the Investing
For tax purposes, capital expenditures are costs that cannot be deducted in the year in which
they are paid or incurred, and must be capitalized. The general rule is that if the property acquired has a
useful life longer than the taxable year, the cost must be capitalized. The capital expenditure costs are
then amortized or depreciated over the life of the asset in question. As stated above, capital
expenditures create or add basis to the asset or property, which once adjusted, will determine tax
liability in the event of sale or transfer. In the US, Internal Revenue Code 263 and 263A deal
extensively with capitalization requirements and exceptions.[1]
Included in capital expenditures are amounts spent on:
1. Acquiring fixed assets
2. Fixing problems with an asset that existed prior to acquisition
3. Preparing an asset to be used in business
4. Legal costs of establishing or maintaining one's right of ownership in a piece of property
5. Restoring property or adapting it to a new or different use
6. Starting a new business
An ongoing question of the accounting of any company is whether certain expenses should be
capitalized or expensed. Costs that are expensed in a particular month simply appear on the financial
statement as a cost that was incurred that month. Costs that are capitalized, however, are amortized over
multiple years. Capitalized expenditures show up on the balance sheet. Most ordinary business
expenses are clearly either expensable or capitalizable, but some expenses could be treated either way,
according to the preference of the company.
Senior Debt:
Seniority refers to the order of repayment in the event of bankruptcy and liquidity. Senior debt
must be repaid before subordinated debt is repaid. Bonds that have the same seniority in a company's
capital structure are described as being pari passu (two or more securities or obligations having equal
rights to payment).


The levels of bond recognized in Financial products Markup Language are as follows :

Type Description
Senior Top precedence
SubTier1 Subordinate Tier 1
SubUpperTier2 Subordinate, Upper Tier 2
SubLowerTier2 Subordinate, Lower Tier 2
SubTier3 Subordinate, Tier 3

Limitations to seniority
Secured parties may receive preference to unsecured senior lenders
Notwithstanding the senior status of a loan or other debt instrument, another debt instrument
(whether senior or otherwise) may benefit from security that effectively renders that other instrument
more likely to be repaid in an insolvency than unsecured senior debt. Lenders of a secured debt
instrument (regardless of ranking) receive the benefit of the security for that instrument until they are
repaid in full, without having to share the benefit of that security with any other lenders. If the value of
the security is insufficient to repay the secured debt, the residual unpaid claim will rank according to its
documentation (whether senior or otherwise), and will receive pro rata treatment with other unsecured
debts of such rank.
Super-senior status
Senior lenders are theoretically (and usually) in the best position because they have first claim
to unsecured assets.
However, in various jurisdictions and circumstances, nominally "senior" debt may not rank pari
passu with all other senior obligations.
"Senior" debt at holding company is structurally subordinated to all debt at the
A senior lender to a holding company is in fact subordinated to any lenders (senior or
otherwise) at a subsidiary with respect to access to the subsidiary's assets in a bankruptcy. The collapse
of Washington Mutual bank in 2008 highlighted this priority of claim, as lenders to Washington
Mutual, Inc. received no benefit from the assets of that entity's bank subsidiaries.
Subordinated Debt
Subordinated Debt is debt which ranks after other debts should a company fall into receivership
or be closed.
Such debt is referred to as subordinate, because the debt providers (the lenders) have
subordinate status in relationship to the normal debt. In the case of liquidation (e.g. the company winds
up its affairs and dissolves) the promoter would be paid just before stockholders -- assuming there are
assets to distribute after all other liabilities and debt have been paid.
Subordinated debt has a lower priority than other bonds of the issuer in case of liquidation
during bankruptcy, below the liquidator, government tax authorities and senior debt holders in the
hierarchy of creditors. Because subordinated debt is repayable after other debts have been paid, they are
more risky for the lender of the money. It is unsecured and has lesser priority than that of an additional
debt claim on the same asset.
Subordinated loans
Subordinated loans typically have a higher rate of return than senior debt due to the increased
inherent risk. Accordingly, major shareholders and parent companies are most likely to provide
subordinated loans, as an outside party providing such a loan would normally want compensation for
the extra risk.
Subordinated bonds
Subordinated bonds usually have a lower credit rating than senior bonds. Subordinated debt is
issued by most large banking corporations in the U.S. periodically. It is believed that subordinated
notes are risk-sensitive. That is, subordinated debt holders have claims on bank assets after senior debt
holders and they lack the upside gain enjoyed by shareholders.
Debtor-in-possession financing:
Debtor-in-possession financing or DIP financing is a special form of financing provided for
companies in financial distress or under Chapter 11 bankruptcy process. Usually, this security is more
senior than debt, equity, and any other securities issued by a company. It gives a troubled company a
new start, albeit under strict conditions.
Credit Facility
A type of loan made in a business or corporate finance context. Specific types of credit facilities
are: revolving credit, term loans, committed facilities, letters of credit and most retail credit accounts.
Revolving credit
Revolving credit is a type of credit that does not have a fixed number of payments. Corporate
revolving credit facilities are typically used to provide liquidity for a company's day-to-day operations.
The borrower may use or withdraw funds up to a pre-approved credit limit.
The amount of available credit decreases and increases as funds are borrowed and then repaid.
The credit may be used repeatedly.
The borrower makes payments based only on the amount they' ve actually used or withdrawn,
plus interest.
The borrower may repay over time (subject to any minimum payment requirement), or in full at
any time.
In some cases, the borrower is required to pay a fee to the lender for any money that is undrawn
on the revolver; this is especially true of corporate bank loan revolving credit facilities.

Line of Credit
A line of credit is any credit facility extended to a business by a bank or financial institution. A
line of credit may take several forms such as cash credit, overdraft, demand loan, export packing credit,
term loan, discounting or purchase of commercial bills etc. It is like an account that can readily be
tapped into if the need arises or not touched at all and saved for emergencies. Interest is only paid on
the money actually taken out.
Letter of Credit
Letter of credit is a document issued mostly by a financial institution, used primarily in trade
finance, which usually provides an irrevocable payment undertaking.
The LC can also be the source of payment for a transaction, meaning that redeeming the letter
of credit will pay an exporter. Letters of credit are used primarily in international trade transactions of
significant value, for deals between a supplier in one country and a customer in another. The parties to
a letter of credit are usually a beneficiary who is to receive the money, the issuing bank of whom the
applicant is a client, and the advising bank of whom the beneficiary is a client. Almost all letters of
credit are irrevocable, i.e., cannot be amended or canceled without prior agreement of the beneficiary,
the issuing bank and the confirming bank, if any. Typically, the documents a beneficiary has to present
in order to receive payment include a commercial invoice, bill of lading, and documents proving the
shipment are insured against loss or damage in transit.
Standby Letter of Credit
SBLC is a credit enhancement device which helps secure a primary loan. Banks, after the
current financial collapse, require standby letters of credit for most real estate development loans. Only
a small number of broker/lawyers provide these instruments.
How and Why Do Companies Pay Dividends?
Look anywhere on the web and you' re bound to find information on how dividends affect
stockholders: the information ranges from a consideration of steady flows of income, to the proverbial
"widows and orphans", and to the many different tax benefits that dividend-paying companies provide.
An important part missing in many of these discussions is the purpose of dividends and why they are
used by some companies and not by others. Before we begin describing the various policies that
companies use to determine how much to pay their investors, let's look at different arguments for and
against dividends policies. (Read more about widows and orphans in Widow And Orphan Stocks: Do
They Still Exist?)
Arguments against Dividends
First, some financial analysts feel that the consideration of a dividend policy is irrelevant
because investors have the ability to create "homemade" dividends. These analysts claim that this
income is achieved by individuals adjusting their personal portfolios to reflect their own preferences.
For example, investors looking for a steady stream of income are more likely to invest in bonds (in
which interest payments don't change), rather than a dividend-paying stock (in which value can
fluctuate). Because their interest payments won't change, those who own bonds don't care about a
particular company's dividend policy.
The second argument claims that little to no dividend payout is more favorable for investors.
Supporters of this policy point out that taxation on a dividend is higher than on a capital gain. The
argument against dividends is based on the belief that a firm that reinvests funds (rather than
paying them out as dividends) will increase the value of the firm as a whole and consequently increase
the market value of the stock. According to the proponents of the no dividend policy, a company's
alternatives to paying out excess cash as dividends are the following: undertaking more projects,
repurchasing the company's own shares, acquiring new companies and profitable assets, and reinvesting
in financial assets. (Keep reading about capital gains in Tax Effects On Capital Gains.)
Arguments for Dividends
In opposition to these two arguments is the idea that a high dividend payout is important for
investors because dividends provide certainty about the company' s financial well-being; dividends are
also attractive for investors looking to secure current income. In addition, there are many examples of
how the decrease and increase of a dividend distribution can affect the price of a security. Companies
that have a long-standing history of stable dividend payouts would be negatively affected by lowering
or omitting dividend distributions; these companies would be positively affected by increasing dividend
payouts or making additional payouts of the same dividends. Furthermore, companies without a
dividend history are generally viewed favorably when they declare new dividends. (For more, see
Dividends Still Look Good After All These Years.)

Dividend-Paying Methods
Now, should the company decide to follow either the high or low dividend method, it would use
one of three main approaches: residual, stability, or a hybrid compromise between the two.

Companies using the residual dividend policy choose to rely on internally generated equity to
finance any new projects. As a result, dividend payments can come out of the residual or leftover equity
only after all project capital requirements are met. These companies usually attempt to maintain balance
in their debt/equity ratios before making any dividend distributions, which demonstrates that they
decide on dividends only if there is enough money left over after all operating and expansion expenses
are met.
For example, let's suppose that a company named CBC has recently earned $1,000 and has a
strict policy to maintain a debt/equity ratio of 0.5 (one part debt to every two parts of equity). Now,
suppose this company has a project with a capital requirement of $900. In order to maintain the
debt/equity ratio of 0.5, CBC would have to pay for one-third of this project by using debt ($300)
and two-thirds ($600) by using equity. In other words, the company would have to borrow $300 and
use $600 of its equity to maintain the 0.5 ratio, leaving a residual amount of $400 ($1,000 - $600) for
dividends. On the other hand, if the project had a capital requirement of $1,500, the debt requirement
would be $500 and the equity requirement would be $1,000, leaving zero ($1,000 - $1,000) for
dividends. If any project required an equity portion that was greater than the company's available
levels, the company would issue new stock.
The fluctuation of dividends created by the residual policy significantly contrasts with the
certainty of the dividend stability policy. With the stability policy, companies may choose a cyclical
policy that sets dividends at a fixed fraction of quarterly earnings, or it may choose a stable policy
whereby quarterly dividends are set at a fraction of yearly earnings. In either case, the aim of the
dividend stability policy is to reduce uncertainty for investors and to provide them with income.
Suppose our imaginary company, CBC, earned the $1,000 for the year (with quarterly earnings
of $300, $200, $100, $400). If CBC decided on a stable policy of 10% of yearly earnings ($1,000 x
10%), it would pay $25 ($100/4) to shareholders every quarter. Alternatively, if CBC decided on a
cyclical policy, the dividend payments would adjust every quarter to be $30, $20, $10 and $40
respectively. In either instance, companies following this policy are always attempting to share
earnings with shareholders rather than searching for projects in which to invest excess cash.
The final approach is a combination between the residual and stable dividend policy. Using this
approach, companies tend to view the debt/equity ratio as a long-term rather than a short-term goal. In
today's markets, this approach is commonly used by companies that pay dividends. As these companies
will generally experience business cycle fluctuations, they will generally have one set dividend, which
is set as a relatively small portion of yearly income and can be easily maintained. On top of this set
dividend, these companies will offer another extra dividend paid only when income exceeds general

If a company decides to pay dividends, it will choose one of three approaches: residual, stability
or hybrid policies. Which a company chooses can determine how profitable its dividend payments will
be for investors - and how stable the income.

Accounting Definitions
Accelerated Depreciation
Any method of depreciation used for accounting or income tax purposes that allow greater
deductions in the earlier years of the life of an asset.
Accounting Method
In terms of taxation, the method by which income and expenses are determined for taxation
Accounting Period
In general, the time period reflected by a set of financial statements.
Accounting Rate of Return - ARR
ARR provides a quick estimate of a project's worth over its useful life. ARR is derived by
finding profits before taxes and interest.
Accounts Payable - AP
Accounts payable are debts that must be paid off within a given period of time in order to avoid
default. For example, at the corporate level,
AP-refers to short-term debt payments to suppliers and banks.
Payables are not limited to corporations. At the household level, people are also subject to bill
payment for goods or services provided to them by creditors. For example, the phone company, the gas
company and the cable company are types of creditors. Each one of these creditors provides a
service first and then bills the customer after the fact. The payable is essentially a short-term IOU from
a customer to the creditor.
Each demands payment for goods or services rendered and must be paid accordingly. If people
or companies don't pay their bills, they are considered to be in default.
Accounts Receivable - AR
Money owed by customers (individuals or corporations) to another entity in exchange for goods
or services that have been delivered or used, but not yet paid for. Receivables usually come in the form
of operating lines of credit and are usually due within a relatively short time period, ranging from a few
days to a year.
On a public company's balance sheet, accounts receivable is often recorded as an asset
because this represents a legal obligation for the customer to remit cash for its short-term debts
Accrual Accounting
The need for this method arose out of the increasing complexity of business transactions and
a desire for more accurate financial information.
Selling on credit and projects that provide revenue streams over a long period of time affect the
company's financial condition at the point of the transaction. Therefore, it makes sense that such events
should also be reflected on the financial statements during the same reporting period that these
transactions occur.
For example, when a company sells a TV to a customer who uses a credit card, cash and
accrual methods will view the event differently. The revenue generated by the sale of the TV
will only be recognized by the cash method when the money is received by the company. If the TV is
purchased on credit, this revenue might not be recognized until next month or next year.
Accrual accounting, however, says that the cash method isn' t accurate because it is likely, if not
certain, that the company will receive the cash at some point in the future because the sale has been
made. Therefore, the accrual accounting method instead recognizes the TV sale at the point at which
the customer takes ownership of the TV. Even though cash isn't yet in the bank, the sale is booked to an
account known in accounting lingo as "accounts receivable," increasing the seller's revenue.
Accrued Expense
Accrued expenses are the opposite of prepaid expenses. Firms will typically incur periodic
expenses such as wages, interest and taxes. Even though they are to be paid at some future date, they
are indicated on the firm's balance sheet from when the firm can reasonably expect their payment, until
the time they are paid.
An example would be accruing interest that is building up on a bank loan.
Accrued Income
For example, assume that a company is expected to complete services for another company
once per month for six consecutive months, but that under the terms of the contract, it will not receive
monetary payment for these services until the end of the six- month period. The company performing
the services can accrue a percentage of the income earned after each month, even though physical
payment will not take place until after the six- month period.
Actuarial Analysis
The analysis of an investment's risk done by an actuary
A highly educated actuary will use statistics and historical data in an attempt to measure the risk
of a particular investment.
A professional statistician working for an insurance company. They evaluate your application
and medical records to project how long you will live.
Ad Valorem Tax
The phrase ad valorem is Latin for "according to value". In the case of municipal property taxes,
property owners have their property assessed on a periodic basis by a public tax assessor. The assessed
value of the property is then used to compute an annual tax, which is levied on the owner by his or
her municipality. Ad valorem taxes are incurred through ownership of an asset, in contrast to
transactional taxes such as sales taxes, which are incurred only at the time of transaction.
Alternative Minimum Tax - AMT
A tax calculation that adds certain tax preference items back into adjusted gross income. If
AMT is higher than the regular tax liability for the year the regular tax and the amount by which the
AMT exceeds the regular tax are paid.
AMT is designed to prevent taxpayers from escaping their fair share of tax liability by using
certain tax breaks.
1. The paying off of debt in regular installments over a period of time.
2. The deduction of capital expenses over a specific period of time (usually over the asset's life). More
specifically, this method measures the consumption of the value of intangible assets, such as a patent or
a copyright.
Suppose XYZ Biotech spent $30 million dollars on a piece of medical equipment and that the
patent on the equipment lasts 15 years, this would mean that $2 million would be recorded each year as
an amortization expense.
While amortization and depreciation are often used interchangeably, technically this is an
incorrect practice because amortization refers to intangible assets and depreciation refers to tangible
A practitioner who has the knowledge and expertise necessary to estimate the value of an asset,
or the likelihood of an event occurring, and the cost of such an occurrence. Ideally, an appraiser acts
independently of the buying and selling parties in a transaction in order to arrive at the fair value of an
asset without bias
The simultaneous purchase and sale of an asset in order to profit from a difference in the price.
This usually takes place on different exchanges or marketplaces.-------Also known as a "risk less
Here's an example of arbitrage: Say a domestic stock also trades on a foreign exchange in
another country, where it hasn' t adjusted for the constantly changing exchange rate. A trader purchases
the stock where it is undervalued and short sells the stock where it is overvalued, thus
profiting from the difference. Arbitrage is recommended for experienced investors only.
An informal hearing regarding a dispute. The dispute is judged by a group of people (generally
three) who have been selected by an impartial panel.
Once a decision has been reached, there is no further appeal process.
We frequently hear this term when professional sports teams are negotiating contracts with their
Typically, one party aims unrealistically high and the other one aims really low, and the
settlement occurs somewhere in the middle.

A local government official who determines the value of a property for taxation purposes.
Asset Management Company - AMC
A company that invests its clients' pooled fund into securities that match its declared financial
objectives. Asset management companies provide investors with more diversification and investing
options than they would have by themselves.
Mutual funds, hedge funds and pension plans are all run by asset management companies.
These companies earn income by charging service fees to their clients.
AMCs offer their clients more diversification because they have a larger pool of resources than
the individual investor. Pooling assets together and paying out proportional returns allows investors to
avoid minimum investment requirements often required when purchasing securities on their own, as
well as the ability to invest in a larger set of securities with a smaller investment.
Asset-Backed Commercial Paper
A short-term investment vehicle with a maturity that is typically between 90 and 180 days. The
security itself is typically issued by a bank or other financial institution. The notes are backed by
physical assets such as trade receivables, and are generally used for short-term financing needs.
The reduction in staff and employees in a company through normal means, such as retirement
and resignation. This is natural in any business and industry.
Auction Market
A market in which buyers enter competitive bids and sellers enter competitive offers at the same
time. The price a stock is traded represents the highest price that a buyer is willing to pay and the
lowest price that a seller is willing to sell at. Matching bids and offers are then paired together and the
orders are executed.
Authorized Stock
The maximum number of shares that a corporation is legally permitted to issue, as specified in
its articles of incorporation.
This figure is usually listed in the capital accounts section of the balance sheet.
Also known as "authorized shares" or "authorized capital stock".
Average-Cost Method
A costing method by which the value of a pool of assets or expenses is assumed to be equal to
the average cost of the assets or expenses in the pool.

A class in a family of multi- class mutual funds. This class is characterized by a back-end load
structure that is paid only when the fund is sold.
Bad Debt Reserve
An account set aside by a company to account for and offset losses that arise as a result of
defaults from futures loans.
This figure may be calculated based on historical norms or other known information about the
relative safety of the debt.
Bad debt reserves become alarming when they reach levels outside of historical norms or
averages, either at the company level or the national level. For instance, there are many concerns today
about China's high bad debt reserves at its banks,
An aftereffect of many years of almost non-existent lending requirements.
Balance Of Payments - BOP
A record of all transactions made between one particular country and all other countries during
a specified period of time. BOP compares the dollar difference of the amount of exports and imports,
including all financial exports and imports. A negative balance of payments means that more money is
flowing out of the country than coming in, and vice versa.
Balance Of Trade - BOT
The difference between a country's imports and its exports. Balance of trade is the largest
component of a country' s balance of payments.
Debit items include imports, foreign aid, domestic spending abroad and domestic investments
Credit items include exports, foreign spending in the domestic economy and foreign
investments in the domestic economy.
A country has a trade deficit if it imports more than it exports; the opposite scenario is a trade
surplus. ------Also referred to as "trade balance".
Banker's Acceptance - BA
A short-term credit investment created by a non- financial firm and guaranteed by a bank.
A legal proceeding involving a person or business that is unable to repay outstanding debts. The
bankruptcy process begins with a petition filed by the debtor (most common) or on behalf of creditors
(less common).
All of the debtor's assets are measured and evaluated, whereupon the assets are used to repay a
portion of outstanding debt. Upon the successful completion of bankruptcy proceedings, the
debtor is relieved of the debt obligations incurred prior to filing for bankruptcy.
Bankruptcy offers an individual or business a chance to start fresh by forgiving debts that
simply can't be paid while offering creditors a chance to obtain some measure of repayment based on
what assets are available. In theory, the ability to file for bankruptcy can benefit an overall economy by
giving persons and businesses another chance and providing creditors with a measure of debt
repayment. Bankruptcy filings in the United States can fall under one of several chapters of the
Bankruptcy Code, such as Chapter 7 (which involves liquidation of assets), Chapter 11 (company or
individual "reorganizations") and Chapter 13 (debt repayment with lowered debt covenants or
payment plans). Bankruptcy filing specifications vary widely among different countries, leading to
higher and lower filing rates depending on how easily a person or company can complete the process.
Bear Market
A market condition in which the prices of securities are falling or are expected to fall.
Although figures can vary, a downturn of 15-20% or more in multiple indexes (Dow or S&P 500) is
Considered an entry into a bear market.
A measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the
market as a whole. ---------Also known as "beta coefficient".
Beta is calculated using regression analysis, and you can think of beta as the tendency of a
security's returns to respond to swings in the market.
A beta of 1 indicates that the security's price will move with the market. A beta of less than 1
means that the security will be less volatile than the market. A beta of greater than 1 indicates that the
security's price will be more volatile than the market.
For example, if a stock' s beta is 1.2, it's theoretically 20% more volatile than the market.
Many utilities stocks have a beta of less than 1. Conversely, most high- tech Nasdaq-based stocks have a
beta of greater than 1, offering the possibility of a higher rate of return, but also posing more risk
Black Scholes Model
A model of price variation over time of financial instruments such as stocks that can, among
other things, be used to determine the price of a European call option. The model assumes that the price
of heavily traded assets follow a geometric Brownian motion with constant drift and volatility. When
applied to a stock option, the model incorporates the constant price variation of the stock, the time
value of money, the option's strike price and the time to the option's expiry.
Also known as the Black-Scholes-Merton Model.
The Black Scholes Model is one of the most important concepts in modern financial theory. It
was developed in 1973 by Fisher Black, Robert Merton and Myron Scholes and is still widely used
today, and regarded as one of the best ways of determining fair prices of options.
There are a number of variants of the original Black-Scholes model
A record of trades and the details of the trades made over a period of time (usually one trading
day). The details of a trade will include such things as the time, price, order size and a specification of
whether it was a buy or sell order. The blotter is usually created through a trading software program
that records the trades made through a data feed.
Blue Chip
A nationally recognized, well-established and financially sound company. Blue chips generally
sell high-quality, widely accepted products and services. Blue chip companies are known to weather
downturns and operate profitably in the face of adverse economic conditions, which help to contribute
to their long record of stable and reliable growth.
The name "blue chip" came about because in the game of poker the blue chips have the highest
Blue chip stock is seen as a less volatile investment than owning shares in companies without
blue chip status because blue chips have an institutional status in the economy. The stock price of a
blue chip usually closely follows the S&P 500
Book Building
The process by which an underwriter attempts to determine at what price to offer an IPO based
on demand from institutional investors.
An underwriter "builds a book" by accepting orders from fund managers indicating the number
of shares they desire and the price they are willing to pay.
Book Value Per Common Share
A measure used by owners of common shares in a firm to determine the level of safety
associated with each individual share after all debts are paid accordingly.


Should the company decide to dissolve, the book value per common indicates the dollar value
remaining for Common shareholders after all assets are liquidated and all debtors are paid.
In simple terms it would be the amount of money that a holder of a common share would get if
a company were to liquidate.

Bottom Line
Refers to a company's net earnings, net income or earnings per share (EPS). Bottom line also
refers to any actions that may increase/decrease net earnings or a company's overall profit. A company
that is growing its net earnings or reducing its costs is said to be "improving its bottom line".
The reference to "bottom" describes the relative location of the net income figure on a
company's income statement; it will almost always be the last line at the bottom of the page.
This reflects the fact that all expenses have already been taken out of revenues, and there is nothing left
to subtract. This stands in contrast to revenues, which are considered the "top line" figures.
Most companies aim to improve their bottom lines through two simultaneous methods:
growing revenues (i.e., generate top- line growth) and increasing efficiency (or cutting costs).
Brand Equity
Brand equity is created through aggressive mass marketing campaigns. Good examples of
companies with strong brand equity are corporations such as Nike and Coca-Cola, whose corporate
logos are recognized worldwide.
An intangible value-added aspect of a particular good that is otherwise not considered unique.
Break-Even Point - BEP
1. in general, the point at which gains equal losses.

2. in options, the market price that a stock must reach for option buyers to avoid a loss if they exercise.
For a call, it is the strike price plus the premium paid. For a put, it is the strike price minus the premium
paid.------------Also referred to as a "breakeven".
For businesses, reaching the break-even point is the first major step towards profitability.
Breakpoint Sale
The sale of a mutual fund at a set dollar amount that allows the fund holder to move into a lower
sales charge bracket.
If, at the time of investment, an investor is unable to come up with the funds needed to qualify
for the lower fee, he or she can sign a letter of intent promising to reach the total amount, or breakpoint,
in a set time period.
Any sales that occur just below a breakpoint are considered unethical and in violation of FINRA
(formerly the NASD) rules.
An example of a breakpoint sale would be when an investor plans to invest $95,000 in a front-
load mutual fund and faces a charge of 6.25% or $6,125. If the investor is properly advised, he or
she will be told that adding $5,000 for a total investment of $100,000 will qualify the sale fro a lower
sales charge of 5.5%, or $5,500.
This means that the investor will essentially have $5,625 more invested than the initial purchase
plan due to the savings in sales charges.
Bridge Financing
A method of financing, used by companies before their IPO, to obtain necessary cash for the
maintenance of operations
These funds are usually supplied by the investment bank underwriting the new issue. As
payment, the company acquiring the bridge financing will give a number of shares at a discount of the
issue price to the underwriters that equally offsets the loan.
This financing is, in essence, a forwarded payment for the future sales of the new issue.
Bridge Loan
A short-term loan that is used until a person or company secures permanent financing or
removes an existing obligation.
This type of financing allows the user to meet current obligations by providing immediate cash
The loans are short-term (up to one year) with relatively high interest rates and are backed by
some form of collateral such as real estate or inventory.--------Also known as "interim financing",
"gap financing or a "swing loan".
In-House Financing
A type of seller financing in which a firm extends customers a loan, allowing them to purchase
its goods or services.
In- house financing eliminates the firm's reliance on the financial sector for providing the
customer with funds to complete a transaction.
The automobile sales industry is a prominent user of in- house financing. Many vehicle sales
rely on the buyer taking a loan, in-house financing allows the firm to complete more deals by accepting
more customers. Whereas banks or other financial intermediaries might turn down a loan application,
car dealerships can choose to lend to customers with poor credit ratings.
1. An individual or firm that charges a fee or commission for executing buy and sell orders submitted
by an investor.

2. The role of a firm when it acts as an agent for a customer and charges the customer a commission for
its services.

3. A licensed real estate professional who typically represents the seller of a property. A broker' s duties
may include:
Determining market values, advertising properties for sale, showing properties to prospective
buyers, and advising clients with regard to offers and related matters.

A person or firm in the business of buying and selling securities operating as both a broker and
a dealer depending on the transaction.
Technically, a broker is only an agent who executes orders on behalf of clients, whereas a dealer
acts as a principal and trades for his or her own account. Because most brokerages act as both brokers
and principals, the term broker-dealer is commonly used to describe them.
An individual or firm that places securities transactions for clients.
A person licensed by a state to sell insurance.
A securities salesperson that represents a broker-dealer or issuer when selling or trying to sell
securities to the investing public.
Essentially, this is the person who makes a transaction on behalf of his or her employer or client.
The term used to describe a commodities market where the prices generally rise with ease when
there are considerable signals of strength.
These types of markets can be very volatile as the prices are rapid to rise and fall with investor
Business Cycle
The recurring and fluctuating levels of economic activity that an economy experiences over a
long period of time. The five stages of the business cycle are growth (expansion), peak, recession
(contraction), trough and recovery.

At one time, business cycles were thought to be extremely regular, with predictable durations,
but today they are widely believed to be irregular, varying in frequency, magnitude and duration.
Calculated Intangible Value - CIV
A method of valuing a company's intangible assets. This calculation attempts to allocate a fixed
value to intangible assets that does not change according to the company' s market value. Examples of
intangible assets include brand equity and proprietary technology.
Usually a company's intangible assets are valued by subtracting a firm's book value from its
market value. However, opponents of this method
argue that because market value constantly changes, the value of intangible assets changes also, making
it an inferior measure.
Finding a company's CIV involves seven steps:
1. Calculate the average pretax earnings for the past three years.
2. Calculate the average year-end tangible assets for the past three years.
3. Calculate the company's return on assets (ROA).
4. Calculate the industry average ROA for the same three-year period as in Step 2.
5. Calculate excess ROA by multiplying the industry average ROA by the average tangible assets
calculated in Step 2. Subtract the excess return from the pretax earnings from Step 1.
6. Calculate the three-year average corporate tax rate and multiply by the excess return. Deduct the
result from the excess return.
7. Calculate the net present value of the after-tax excess return. Use the company's cost of capital as a
discount rate.
Capitalized Interest
An account created in the income statement section of a business' financial statements that holds
a suitable amount of funds meant to pay off upcoming interest payments. Furthermore, this type of
interest is seen as an asset and unlike most conventional types of interest, it also is expensed over time.
Some debate exists over the decision to capitalize interest for tax purposes. Some people don' t
prefer to take the tax deduction benefit that arises from making an interest payment spread over time in
a situation where interest is capitalized. To these people, it is far more beneficial to receive the
complete deduction right away.
Cash and Cash Equivalents - CCE
An item on the balance sheet that reports the value of a company's assets that are cash or can be
converted into cash immediately.
Examples of cash and cash equivalents are bank accounts, marketable securities and Treasury
Current Portion of Long-Term Debt
A portion of the balance sheet that represents the total amount of long-term debt that must be
paid within the next year.
The balance sheet has a liability section, which is broken down into long-term and current debt.
When a debt payment is set to be made in longer than a year's time, it is recorded in the long-term debt
section, and when that payment becomes due within a year, it moves to the "current portion of long-
term debt" section.
The purpose and importance of this section of the balance sheet is that it gives investors an
idea of how much money will be spent this year to resolve the current portion of the long-term debt.
This can be compared to the current cash and cash equivalents to measure whether the company is
actually able to make the payment. A company with a large current portion and a small cash position
has a higher risk of default and should be a warning sign to investors.
Cash Earnings Per Share - Cash EPS
A measure of financial performance that looks at the cash flow generated by a company on a per
share basis.
This differs from basic earnings per share (EPS), which looks at the net income of the company
on a per share basis.
The higher a company's cash EPS, the better it is considered to have performed over the period.
A company's cash EPS can be used to draw comparisons to other companies or to the company's
own past results.


You may sometimes see cash EPS defined as either EPS plus amortization of goodwill and
other intangible items, or net income plus depreciation divided by outstanding shares.
Whatever the definition, the point of cash EPS is that it' s a stricter number than other variations on EPS
because cash flow, cannot be manipulated as easily as net income.

Cash Flow per Share

A measure of a firm's financial strength, calculated as follows:

Free Cash Flow FCF
A measure of financial performance calculated as operating cash flow minus capital
expenditures. Free cash flow (FCF) represents the cash that a company is able to generate after laying
out the money required to maintain or expand its asset base.
Free cash flow is important because it allows a company to pursue opportunities that enhance
shareholder value.
Without cash, it's tough to develop new products, make acquisitions, pay dividends and reduce
debt. FCF is calculated as:

It can also be calculated by taking operating cash flow and subtracting capital expenditures.

Discounted Cash Flow - DCF

A valuation method used to estimate the attractiveness of an investment opportunity.
Discounted cash flow (DCF) analysis uses future free cash flow projections and discounts them
(most often using the weighted average cost of capital) to arrive at a present value, which is used to
evaluate the potential for investment.
If the value arrived at through DCF analysis is higher than the current cost of the investment,
the opportunity may be a good one.

Calculated as:

Chapter 11

Chapter 11 reorganization is the most complex of all bankruptcy cases and generally the most
It should be considered only after careful analysis and exploration of all other alternatives.
Named after the U.S. bankruptcy code 11, Chapter 11 is a form of bankruptcy that involves a
reorganization of a debtor's business affairs and assets. It is generally filed by corporations which
require time to restructure their debts.
Chapter 11 gives the debtor a fresh start, subject to the debtor's fulfillment of its obligations
under its plan of reorganization
Commercial Paper
An unsecured, short-term debt instrument issued by a corporation, typically for the financing of
accounts receivable, inventories and meeting short-term liabilities. Maturities on commercial paper
rarely range any longer than 270 days.
The debt is usually issued at a discount, reflecting prevailing market interest rates.
Commercial paper is not usually backed by any form of collateral, so only firms with high-quality debt
ratings will easily find buyers without having to offer a substantial discount (higher cost) for the debt
A major benefit of commercial paper is that it does not need to be registered with the Securities
and Exchange Commission (SEC) as long as it matures before nine months (270 days), making it a very
cost-effective means of financing. The proceeds from this type of financing can only be used on current
assets (inventories) and are not allowed to be used on fixed assets, such as a new plant, without SEC
Comprehensive Income
Equals net income minus all recognized changes in equity during a period.
Losses or gains on foreign currency transactions are an example. For most firms,
comprehensive income is more volatile, exceeding net income in some years, but falling below net
income in others
A corporation that is made up of a number of different, seemingly unrelated businesses. In a
conglomerate, one company owns a controlling stake in a number of smaller companies, which conduct
business separately. Each of a conglomerate's subsidiary businesses runs independently of the
other business divisions, but the subsidiaries' management reports to senior management at the parent
The largest conglomerates diversify business risk by participating in a number of different
markets, although some conglomerates elect to participate in a single industry - for example, mining.
These are the two philosophies guiding many conglomerates:
1. By participating in a number of unrelated businesses, the parent corporation is able to reduce costs
by using fewer resources.
2. By diversifying business interests, the risks inherent in operating in a single market are mitigated.
History has shown that conglomerates can become so diversified and complicated that they are
too difficult to manage efficiently.
Since the height of their popularity in the period between the 1960s and the 1980s, many
conglomerates have reduced the number of businesses under their management to a few choice
subsidiaries through divestiture and spinoffs.

To combine the assets, liabilities and other financial items of two or more entities into one.
This term is generally used in the context of consolidated financial statements. When statements
are consolidated, all subsidiaries report under the umbrella of the parent company.
Consolidated Financial Statements
The combined financial statements of a parent company and its subsidiaries.
Because consolidated financial statements present an aggregated look at the financial position of
a parent and its subsidiaries, they enable you to gauge the overall health of an entire group of
companies as opposed to one company' s stand alone position.
A group made up of two or more individuals, companies or governments that work together
toward achieving a chosen objective.
Each entity within the consortium is only responsible to the group in respect to the obligations
that are set out in the consortium's contract.
Therefore, every entity that is under the consortium remains independent in his or her normal
business operations and has no say over another member's operations that are not related to the
Consortiums are often used within the non-profit sector, specifically with educational
institutions. They often pool resources such as libraries and professors and share them among the
members of the group. Several groups of North American colleges and universities operate
under consortiums. For-profit consortiums also exist, but they are less prevalent. One of the most
famous for-profit consortiums is the airline manufacturer Airbus.
Joint Venture JV
The cooperation of two or more individuals or businesses--each agreeing to share profit, loss
and control-- in a specific enterprise.
This is a good way for companies to partner without having to merge. JVs are typically taxed as
a partnership.
Corporate Debt Restructuring
The reorganization of a company' s outstanding obligations, often achieved by reducing the
burden of the debts on the company by decreasing the rates paid and increasing the time the company
has to pay the obligation back. This allows a company to increase its ability to meet the
obligations. Also, some of the debt may be forgiven by creditors in exchange for an equity position in
the company
The need for a corporate debt restructuring often arises when a company is going through
financial hardship and is having difficulty in meeting its obligations. If the troubles are enough to pose
a high risk of the company going bankrupt, it can negotiate with its creditors to reduce these burdens
and increase its chances of avoiding bankruptcy. In the U.S., Chapter 11 proceedings allow for a
company to get protection from creditors with the hopes of renegotiating the terms on the debt
agreements and survive as a going concern. Even if the creditors don't agree to the terms of a plan put
forth, if the court determines that it is fair it may impose the plan on creditors.

Corporate Finance
Any financial or monetary activity that deals with a company and its money. This can include
anything from IPOs to acquisitions.
Corporate Governance
The relationship between all the stakeholders in a company. This includes the shareholders,
directors, and management of a company, as defined by the corporate charter, bylaws, formal policy
and rule of law. Ethical companies are said to have excellent corporate governance
Deferred Revenue
A liability account used to collect deposits and other cash receipts prior to the completion of the
Deferred revenue is important because it's the money a company collects before it actually
delivers a product.
For example, a software company sells and receives payment for a computer program before it
gets delivered or installed.
This doesn't get recorded as straight revenue because, if something goes wrong with the job, the
money is at risk
Deferred Tax Asset
An asset on a company' s balance sheet that may be used to reduce any subsequent period's
income tax expense. Deferred tax assets can arise due to net loss carryovers, which are only recorded
as assets if it is deemed more likely than not that the asset will be used in future fiscal periods It must
be determined that there is more than a 50% probability that the company will have positive accounting
income in the next fiscal period before the deferred tax asset can be applied.
If, for example, a company has a deferred tax asset of $25,000 on its balance sheet, and then the
company earns $75,000 in before-tax accounting income, accounting tax expense will be applied to
$50,000 ($75,000 - $25,000), instead of $75,000.
Deferred Tax Liability
An account on a company's balance sheet that is a result of temporary differences between the
company's accounting and tax carrying values, the anticipated and enacted income tax rate, and
estimated taxes payable for the current year. This liability may or may not be realized during any given
year, which makes the deferred status appropriate.
Because there are differences between what a company can deduct for tax and accounting
purposes, there will be a difference between a company's taxable income and income before tax. A
deferred tax liability records the fact that the company will, in the future, pay more income tax
because of a transaction that took place during the current period, such as an installment sale
A general decline in prices, often caused by a reduction in the supply of money or
credit. Deflation can be caused also by a decrease in government, personal or investment spending. The
opposite of inflation, deflation has the side effect of increased unemployment since there is a lower
level of demand in the economy, which can lead to an economic depression.

Declining prices, if they persist, generally create a vicious spiral of negatives such as falling
profits, closing factories, shrinking employment and incomes, and increasing defaults on loans by
companies and individuals. To counter deflation, the Federal Reserve (the Fed) can use monetary
policy to increase the money supply and deliberately induce rising prices, causing inflation. Rising
prices provide an essential lubricant for any sustained recovery because businesses increase profits and
take some of the depressive pressures off wages and debtors of every kind.
The removal of a listed security from the exchange on which it trades. Stock is removed from an
exchange because the company for which the stock is issued, whether voluntarily or involuntarily, is
not in compliance with the listing requirements of the exchange
The reasons for delisting include violating regulations and/or failing to meet financial
specifications set out by the stock exchange. Companies that are delisted are not necessarily bankrupt,
and may continue trading over the counter.
In order for a stock to be traded on an exchange, the company that issues the stock must
meet the listing requirements set out by the exchange. Listing requirements include minimum share
prices, certain financial ratios, minimum sales levels, and so on. If listing requirements are not met by a
company, the exchange that lists the company's stock will probably issue a warning of non-compliance
to the company. If the company's failure to meet listing requirements continues, the exchange may
delist the company's stock.
When a mutual company owned by its users/members converts into a company owned by
shareholders. In effect, the users/members exchange their rights of use for shares in the demutualized
A mutual company (not to be confused with a mutual fund) is a company created to provide
specific services at the lowest possible price to benefit its users/members. In demutualization,
ownership of the mutual company is separated from the exclusive right to use
the services provided by the company.
Unlike depreciation and amortization, which mainly describe the deduction of expenses due to
the aging of equipment and property, depletion is the actual physical reduction of natural resources by
For example, coal mines, oil fields and other natural resources are depleted on company
accounting statements. This reduction in the quantity of resources is meant to assist in accurately
identifying the value of the asset on the balance sheet
Direct Public Offering - DPO
When a company raises capital by marketing its shares directly to its own customers,
employees, suppliers, distributors and friends in the community.
DPOs are an alternative to underwritten public offerings by securities broker-dealer firms where
a company's shares are sold to the broker's
customers and prospects.
Direct public offerings are considerably less expensive than traditional underwritten offerings.
Additionally, they don' t have the restrictions that are usually associated with bank and venture capital
financing. On the other hand, a DPO will typically raise much less than a traditional offering.
The partial or full disposal of an investment or asset through sale, exchange, closure or
bankruptcy. Divestiture can be done slowly and systematically over a long period of time, or in large
lots over a short time period.
For a business, divestiture is the removal of assets from the books. Businesses divest by the
selling of ownership stakes, the closure of subsidiariesthe bankruptcy of divisions, and so on.
In personal finance, investors selling shares of a business can be said to be divesting their interests in
the company being sold.
Dual Listing
A company's securities are listed on more than one exchange for the purpose of adding liquidity
to the shares and allow investors greater choice in where they can trade their shares.
Dual listing is not a widely used technique though it is thought to improve the spread between
the bid and ask prices which helps investors obtain a better price for their security. Hewlett-Packard
(HP), for example, is listed on both the NYSE and NASDAQ.

Earnings before Interest, Tax, Amortization and Exceptional Items
An accounting metric often used to deduct the amortization of intangible assets to arrive at a
value. Companies will use EBITAE not only as a measure of performance, but also to determine
interest coverage capabilities. The eliminated items are often seen as factors that distort earnings that
are derived from the underlying business operations of a firm.

Calculated as:

Where expenses* represents expenses that exclude interest, taxes, amortization of intangible
assets and exceptional items.
EBITDA-To-Interest Coverage Ratio
A ratio that is used to assess a company's financial durability by examining whether it is at least
profitably enough to pay off its interest expenses.
A ratio greater than 1 indicates that the company has more than enough interest coverage to pay off its
interest expenses.

The ratio is calculated as follows:

Equity Method
An accounting technique used by firms to assess the profits earned by their investments in other
companies. The firm reports the income earned on the investment on its income statement and the
reported value is based on the firm's share of the company assets. The reported profit is proportional to
the size of the equity investment. This is the standard technique used when one company has significant
influence over another.
When a company holds approximately 20-25% or more of another company's stock, it is
considered to have significant control, which signifies the power that a company can exert over another
company. This power includes representation on the board of directors, partaking in company policy
development and the interchanging of managerial personnel. If a firm owns 25% of a company with a
$1 million net income, that firm would report earnings of $250,000.
When the equity method is used to account for ownership in a company, the investor records the
initial investment in the stock at cost, and then that value is periodically adjusted to reflect the changes
in value due to the investor's share in the company' s income or losses.
A financial instrument held by a third party on behalf of the other two parties in a transaction.
The funds are held by the escrow service until
it receives the appropriate written or oral instructions or until obligations have been fulfilled. Securities,
funds and other assets can be held in escrow.
An escrow account can be used in the sale of a house, for example. If there are conditions to the
sale, such as the passing of an inspection, the buyer and seller may agree to use escrow. In this case, the
buyer of the property will deposit the payment amount for the house in an escrow account held by a
third party. This assures the seller - in the process of allowing the house to be inspected - that the
buyer is capable of making payment. Once all of the conditions to the sale are satisfied, the escrow
transfers the payment to the seller, and title is transferred to the buyer.
Escrowed Shares
Shares held in an escrow account and in most cases cannot be traded or transferred
until certain circumstances like time horizon have been reached. The use of escrow for holding shares is
often done during acquisitions and for performance-based executive incentives.

These shares can be held by an escrow company or by the exchange the shares trade on.
Let's say a company puts up shares as a guarantee on an acquisition. Should that firm rescind the offer,
they're likely to lose the shares.
Exchange-Traded Fund ETF
A security that tracks an index, a commodity or a basket of assets like an index fund, but trades
like a stock on an exchange, thus experiencing price changes throughout the day as it is bought and
Because it trades like a stock whose price fluctuates daily, an ETF does not have its net asset
value (NAV) calculated every day like a mutual fund does.
By owning an ETF, you get the diversification of an index fund as well as the ability to sell
short, buy on margin and purchase as little as one share. Another advantage is that the expense ratios
for most ETFs are lower than those of the average mutual fund. When buying and selling ETFs, you
have to pay the same commission to your broker that you'd pay on any regular order.
One of the most widely known ETFs is called the Spider (SPDR), which tracks the S&P 500
index and trades under the symbol SPY.
Explicit Cost
A business expense that is easily identified and accounted for. Explicit costs represent clear,
obvious cash outflows from a business that reduce its bottom- line profitability. This contrasts with less-
tangible expenses such as goodwill amortization, which are not as clear cut regarding their effects on a
business's bottom- line value.
Good examples of explicit costs would be items such as wage expense, rent or lease costs, and
the cost of materials that go into the production of goods. With these expenses, it is easy to see the
source of the cash outflow and the business activities to which the expense is attributed.
Implicit Cost
A cost that is represented by lost opportunity in the use of a company's own resources,
excluding cash.
These are intangible costs that are not easily accounted for. For example, the time and effort that
an owner puts into the maintenance of the company rather than working on expansion.
Fundamental Analysis
A method of evaluating a security by attempting to measure its intrinsic value by examining
related economic, financial and other qualitative
and quantitative factors. Fundamental analysts attempt to study everything that can affect the security's
value, including macroeconomic factors
(like the overall economy and industry conditions) and individually specific factors (like the financial
condition and management of companies).
The end goal of performing fundamental analysis is to produce a value that an investor can
compare with the security's current price in hopes of figuring out what sort of position to take with that
security (underpriced = buy, overpriced = sell or short).
This method of security analysis is considered to be the opposite of technical analysis.
Fundamental analysis is about using real data to evaluate a security's value. Although most
analysts use fundamental analysis to value stocks, this method of valuation can be used for just about
any type of security.
For example, an investor can perform fundamental analysis on a bond's value by looking at
economic factors, such as interest rates and the overall state of the economy, and information about the
bond issuer, such as potential changes in credit ratings. For assessing stocks, this method uses revenues,
earnings, future growth, return on equity, profit margins and other data to determine a company's
underlying value and potential for future growth. In terms of stocks, fundamental analysis focuses on
the financial statements of a the company being evaluated.
One of the most famous and successful users of fundamental analysis is the Oracle of Omaha,
Warren Buffett, who has been well known for successfully employing fundamental analysis to pick
securities. His abilities have turned him into a billionaire.
Factoring is a word often misused synonymously with accounts receivable financing. Factoring
is a financial transaction whereby a
business sells its accounts receivable (i.e., invoices) at a discount. Factoring differs from a bank
loan in three main ways.
First, the emphasis is on the value of the receivables, not the firms credit worthiness. Secondly,
factoring is not a loan it is the purchase of an asset (the receivable). Finally, a bank loan involves two
parties whereas factoring involves three.
The three parties directly involved are: the seller, debtor, and the factor. The seller is owed
money (usually for work performed or goods sold) by the second party, the debtor. The seller then sells
one or more of its invoices at a discount to the third party, the specialized financial organization (aka
the factor) to obtain cash. The debtor then directly pays the factor the full value of the invoice.
Future Income Tax
Income tax that is deferred because of discrepancies between a company's tax return and the
tax calculated on the company's financial statements.
Future income tax occurs when there is a greater amount of deductions on taxable income than
on the net income that is calculated on a company's income statement.
In simple terms future income tax is an adjustment accounting for the difference between what
the company has already paid in taxes on the current income and what they will have to pay in the
future for this income. This difference occurs because companies are taxed by government in a
different way than from the way they calculate tax on their accounting records.
The tendency of investment funds and businesses to move beyond domestic and national
markets to other markets around the globe, thereby increasing the interconnectedness of different
markets. Globalization has had the effect of markedly increasing not only international
trade, but also cultural exchange.

Hybrid Security
A security that combines two or more different financial instruments. Hybrid securities
generally combine both debt and equity characteristics.
The most common example is a convertible bond that has features of an ordinary bond, but is
heavily influenced by the price movements of the stock into which it is convertible. Often referred to
as "hybrids".
New types of hybrid securities are being introduced all the time to meet the needs of
sophisticated investors. Some of these securities get so complicated that it' s tough to define them as
either debt or equity.
When a person pledges a mortgage as collateral for a loan, it refers to the right that a banker has
to liquidate goods if you fail to service a loan.
The term also applies to securities in a margin account used as collateral for money loaned from
a brokerage.
Impaired Asset
A company's asset that is worth less on the market than the value listed on the company's
balance sheet. This will result in a write-down of that same asset account to the stated market price.
Accounts that are likely to be written down are the company's goodwill, accounts receivable and long-
term assets.
If the sum of all estimated future cash flows is less than the carrying value of the asset, then the
asset would be considered impaired and would have to be written down to its fair value. Once an asset
is written down, it may only be written back up under very few circumstances.
Firm's carrying goodwill on their books are required to make tests of impairment annually. Any
impairments found will then be expensed on the company's income statement.
Imputed Interest
A term used to describe interest that is considered to be paid; even through no interest payment
has been made.
Imputed interest is calculated based on the actual payments that are to be, but have not yet
been, paid. This interest is important for discount bonds and other securities that are sold below face
value and mature at par. The IRS uses an accretive method for calculating the imputed interest on
Treasury bonds, which are taxed yearly, even though no interest is paid until maturity.
1. Asset growth through addition or expansion.
2. . In reference to discount bonds, it describes the accumulation of value until maturity.

1. Accretion can occur through a company' s internal development or by way of mergers and

2. Bonds at discount are sold below face value and mature at par. In the duration between the bond's
issuance and maturity,
no additional value is actually being accumulated within the bond but accretion occurs with the paper
or implied capital gain.

Incentive Stock Option ISO
A type of employee stock option with a tax benefit, when you exercise, of not having to pay
ordinary income tax. Instead,
the optionsare taxed at a capital gains rate. Although ISOs have more favorable tax treatment
than non-qualified stock options (NSOs), they also require the holder to take on more risk by having to
hold onto the stock for a longer period of time in order to receive the better tax treatment.
Also, numerous requirements must be met in order to qualify as an ISO.
When an individual or organization can no longer meet its financial obligations with its lender
or lenders as debts become due. Insolvency can lead to insolvency proceedings, in which legal action
will be taken against the insolvent entity, and assets may be liquidated to pay off outstanding debts.
Before an insolvent company or person gets involved in insolvency proceedings, it will likely be
involved in more informal arrangements with creditors,such as making alternative payment
arrangements. Insolvency can arise from poor cash management, a reduction in the forecasted cash
inflow or from an increase in cash expenses.
Intangible Asset
An asset that is not physical in nature. Corporate intellectual property (items such as patents,
trademarks, copyrights, business methodologies),
goodwill and brand recognition are all common intangible assets in today's marketplace. An
intangible asset can be classified as either indefinite or definite depending on the specifics of that asset.
A company brand name is considered to be an indefinite asset, as it stays with the company
as long as the company continues operations. However, if a company enters a legal agreement to
operate under another company's patent,
With no plans of extending the agreement, it would have a limited life and would be classified
as a definite asset.
While intangible assets don' t have the obvious physical value of a factory or equipment, they
can prove very valuable for a firm and can be critical to its long-term success or failure. For example, a
company such as Coca-Cola wouldnt be nearly as successful was it not for the high value obtained
through its brand- name recognition. Although brand recognition is not a physical asset you can see or
touch, its positive effects on bottom- line profits can prove extremely valuable to firms such as Coca-
Cola, whose brand strength drives global sales year after year.
Investment Banker
A person representing a financial institution that is in the business of raising capital for
corporations and municipalities.
An investment banker may not accept deposits or make commercial loans. Investment bankers
are the people who do the grunt
work for IPOs and bond issues.

London Interbank Offered Rate - LIBOR
An interest rate at which banks can borrow funds, in marketable size, from other banks in the
London interbank market.
The LIBOR is fixed on a daily basis by the British Bankers' Association. The LIBOR is derived
from a filtered average of the world' s most creditworthy banks' interbank deposit rates for larger loans
with maturities between overnight and one full year.
The LIBOR is the world' s most widely used benchmark for short-term interest rates. It's
important because it is the rate at which the world's most preferred borrowers are able to borrow
money. It is also the rate upon which rates for less preferred
borrowers are based. For example, a multinational corporation with a very good credit rating may be
able to borrow money for one year at LIBOR plus four or five points.
Countries that rely on the LIBOR for a reference rate include the United States, Canada, Switzerland
and the U.K.
Management Buyout - MBO
When the managers and/or executives of a company purchase controlling interest in a company
from existing shareholders.
In most cases, the management will buy out all the outstanding shareholders and then take the
company private because it feels it has the expertise to grow the business better if it controls the
ownership. Quite often, management will team up with a venture capitalist to acquire the business
because it's a complicated process that requires significant capital.
Minority Interest
1. A significant but non-controlling ownership of less than 50% of a company's voting
shares by either an investor or another company.

2. A non-current liability that can be found on a parent company's balance sheet that represents
the proportion of its subsidiaries owned by minority shareholders.

1. In accounting terms, if a company owns a minority interest in another company but only has
a minority passive position (i.e. it is unable to exert influence), then all that is recorded from
this investment are the dividends received from the minority interest. If the company has a
minority active position (i.e. it is able to exert influence), then both dividends and a percent of
income are recorded on the company's books.

2. If ABC Corp. owns 90% of XYZ inc, which is a $100 million company, on ABC Corp.'s
balance sheet, there would be a $10 million liability in minority interest account to represent the
10% of XYZ Inc. that ABC Corp does not own.
Mortgage Servicing Rights - MSR
A contractual agreement where the right, or rights, to service an existing mortgage are sold by
the original lender to another party who specializes in the various functions of servicing mortgages.
Common rights included are the right to collect mortgage payments monthly, set aside taxes and
insurance premiums in escrow, and forward interest and principle to the mortgage lender.
The mortgage servicer must supply an annual statement outlining the duties that were
performed. In return for this assistance, the servicer is compensated with a specific fee outlined in the
contract established at the beginning of the agreement. Mortgage servicing rights can be bought and
sold, resulting in the transfer of any administrative obligations.
Many vertically integrated lenders today will service their mortgages in- house, which means
they will also own both the loan and the servicing rights. These firms will also save money in the
The business of selling servicing rights for mortgages represents a large business niche, and is
a multi-billion dollar industry.
The term "Nasdaq" used to be capitalized "NASDAQ" as an acronym for National Association
of Securities Dealers Automated Quotation.
The acronym is no longer used and Nasdaq is now a proper noun.
Non-Recourse Debt
A type of loan that is secured by collateral, which is usually property. If the borrower defaults,
the issuer can seize the collateral, but cannot seek out the borrower for any further compensation, even
if the collateral does not cover the full value of the defaulted
amount. This is one instance where the borrower does not have personal liability for the loan.
These types of projects are characterized by high capital expenditures, long loan periods and
uncertain revenue streams.
Analyzing them requires a sound knowledge of the underlying technical domain as well as
financial modeling skills.
Non-Recourse Finance
A loan where the lending bank is only entitled to repayment from the profits of the project the
loan is funding, not from other assets of the borrower.
These types of projects are characterized by high capital expenditures, long loan periods, and
uncertain revenue streams.
Analyzing them requires a sound knowledge of the underlying technical domain as well as
financial modeling skills.
Obsolete Inventory
Term that refers to inventory that is at the end of its product life cycle and has not seen any sales
or usage for a set period of time
Usually determined by the industry. This type of inventory has to be written down and can
cause large losses for a company. -------Also referred to as "dead inventory" or "excess inventory".
Large amounts of obsolete inventory are a warning sign for investors: they can be symptomatic
of poor products, poor management forecasts of demand, and poor inventory management. Looking at
the amount of obsolete inventory a company creates will give investors an idea of how well the product
is selling and of how effective the company's inventory process is.

Opportunity Cost
1. The cost of an alternative that must be forgone in order to pursue a certain action. Put another way,
the benefits you could
have received by taking an alternative action.
2. The difference in return between a chosen investment and one that is necessarily passed up. Say you
invest in a stock and it
returns a paltry 2% over the year. In placing your money in the stock, you gave up the opportunity of
another investment
say, a risk- free government bond yielding 6%. In this situation, your opportunity costs are 4% (6% -
The opportunity cost of going to college is the money you would have earned if you worked
instead. On the one hand, you lose four years of salary while getting your degree; on the other hand,
you hope to earn more during your career, thanks to your education, to offset the lost wages.
Here's another example: if a gardener decides to grow carrots, his or her opportunity cost is the
alternative crop that might have been grown instead (potatoes, tomatoes, pumpkins, etc.).
In both cases, a choice between two options must be made. It would be an easy decision if you knew
the end outcome; however, the risk that you could achieve greater "benefits" (be they monetar y or
otherwise) with another option is the opportunity cost.
Passive Income
Earnings an individual derives from a rental property, limited partnership or other enterprise in
which he or she is not actively involved.
There are three main categories of income: active income, passive income and portfolio income.
Passive income does not include earnings from wages or active business participation, nor does it
include income from dividends, interest or capital gains. For tax purposes, it is important to note that
losses in passive income generally cannot offset active or portfolio income.
Passive Investing
An investment strategy involving limited ongoing buying and selling actions. Passive investors
will purchase investments with the intention of long-term appreciation and limited maintenance. Also
known as a buy-and- hold or couch potato strategy, passive investing requires good initial research,
patience and a well diversified portfolio. Unlike active investors, passive investors buy a security and
typically don't actively attempt to profit from short-term price fluctuations. Passive investors instead
rely on their belief that in the long term the investment will be profitable
Pension Fund
A fund established by an employer to facilitate and organize the investment of employees'
retirement funds contributed by the employer and employees.
The pension fund is a common asset pool meant to generate stable growth over the long term,
and provide pensions for employees when they reach the end of their working years and commence
retirement. Pension funds are commonly run by some sort of financial intermediary for the company
and its employees, although some larger corporations operate their pension funds in-house. Pension
funds control relatively large amounts of capital and represent the largest institutional investors in many

Private Placement
Raising of capital via private rather than public placement. The result is the sale of securities to
a relatively small number of investors.
Investors involved in private placements are usually large banks, mutual funds, insurance
companies, and pension funds.
Since a private placement is offered to a few, select individuals, the placement does not have to
be registered with the Securities and
Exchange Commission. In many cases detailed financial information is not disclosed and a the need for
a prospectus is waived.
Finally since the placements are private rather than public, the average investor is only made
aware of the placement usually after it has occurred.
The minimum acceptable level of individuals with a vested interest in a company needed to
make the proceedings of a meeting valid under the corporate charter.
This clause within a company's charter ensures that there is a sufficient representation of
stockholders present at meetings before any changes can be made by the board.
Replacement Cost
The price that will have to be paid to replace an existing asset with a similar asset.
This is relevant because the replacement cost will most likely be different than fair market value
or net realizable value
The right of an individual involved within a contract to return to the identical state as before
they entered into the agreement, due to courts not recognizing the contract as legally binding. This is an
important factor in the business world, as contracts are commonplace. Should a contract not be legally
binding, most often courts will try to return the non- liable parties affected to the state they were in
before the contract was entered.
A significant modification made to the debt, operations or structure of a company. This type of
corporate action is usually made when there are significant problems in a company, which are
causing some form of financial harm and putting the overall business in jeopardy. The hope is that
through restructuring, a company can eliminate financial harm and improve the business.
When a company is having trouble making payments on its debt, it will often consolidate and
adjust the terms of the debt
In a debt restructuring. After a debt restructuring, the payments on debt are more manageable
for the company and the likelihood of payment to bondholders increases. A company restructures its
operations or structure by cutting costs, such as payroll, or reducing
Its size through the sale of assets. This is often seen as necessary when the current situation at a
company is one that may lead to its collapse.

Return On Assets - ROA
An indicator of how profitable a company is relative to its total assets. ROA gives an idea as to
how efficient management is at using its assets to generate earnings. Calculated by dividing a
company's annual earnings by its total assets, ROA is displayed as a percentage.
Sometimes this is referred to as "return on investment".

Note: Some investors add interest expense back into net income when performing this calculation
because they'd like to use operating returns before cost of borrowing.

ROA tells you what earnings were generated from invested capital (assets). ROA for public
companies can vary substantially and will be highly dependent on the industry. This is why when using
ROA as a comparative measure, it is best to compare it against a company's previous ROA numbers or
the ROA of a similar company.
Revolving Credit
A line of credit where the customer pays a commitment fee and is then allowed to use the funds
when they are needed.
It is usually used for operating purposes, fluctuating each month depending on
the customer's current cash flow needs. Often referred to as "revolver".
Revolving lines of credit can be taken out by both corporations and individuals. The bank that is
in agreement with the customer guarantees a maximum amount that can be loaned to the customer.
Along with the commitment fee there are also interest expenses for corporate borrowers and carry
forward charges for consumer accounts.
A payment to an owner for the use of property, especially patents, copyrighted works,
franchises or natural resources.
Royalties are usually expressed as a percentage of the revenues obtained through the use of the
owner's property.
S-8 Filing
A SEC filing required for companies wishing to issue equity to their employees.
Similar to filing a prospectus, the S-8 outlines the details of an internal issuing of stock or
options to employees.
The process through which an issuer creates a financial instrument by combining other financial
assets and then marketing different tiers of the repackaged instruments to investors. The process can
encompass any type of financial asset and promotes liquidity in the marketplace Mortgage-backed
securities are a perfect example of securitization. By combining mortgages into one large pool,
the issuer can divide the large pool into smaller pieces based on each individual mortgage's inherent
risk of default and then sell those smaller pieces to investors. The process creates liquidity by enabling
smaller investors to purchase shares in a larger asset pool. Using the mortgage-backed security
example, individual retail investors are able to purchase portions of a mortgage as a type of bond.
Without the securitization of mortgages, retail investors may not be able to afford to buy into a large
pool of mortgages.
Seed Capital
The initial capital used to start a business. Seed capital often comes from the company founders'
personal assets or from friends and family.
The amount of money is usually relatively small because the business is still in the idea or
conceptual stage. Such a venture is generally at a pre-revenue stage and seed capital is needed
for research & development, to cover initial operating expenses until a product or service can start
generating revenue, and to attract the attention of venture capitalists.
Secondary Offering
The issuance of new stock for public sale from a company that has already made its initial
public offering (IPO). Usually, these kinds of public offerings are made by companies wishing to
refinance, or raise capital for growth. Money raised from these kinds of secondary offerings goes to the
company, through the investment bank that underwrites the offering. Investment banks are issued an
allotment, and possibly an over allotment which they may choose to exercise if there is a strong
possibility of making money on the spread between the allotment price and the selling price of the
securities. A sale of securities in which one or more major stockholders in a company sell all or a large
portion of their holdings. The proceeds of this sale are paid to the stockholders that sell their shares.
Often, the company that issued the shares holds a large percentage of the stocks it issues.
Senior Debt
In the event the issuer goes bankrupt, senior debt must be repaid before other creditors receive
any payment.
Special Dividend
A non-recurring distribution of company assets, usually in the form of cash, to shareholders. A
special dividend is larger compared to normal dividends paid out by the company. Also referred to as
an "extra dividend
Generally, special dividends are declared after exceptionally strong company earnings results as
a way to distribute the profits directly to shareholders. Special dividends can also occur when a
company wishes to make changes to its financial structure or to spin off a subsidiary
company to its shareholders. For example, GenTek Inc. issued a special cash dividend of $31 per share
on Mar 16, 2005, in order to restructure toward a more debt-based financing mix.
The date on or after which a security is traded without a previously declared dividend or
After the ex-date, a stock is said to trade ex-dividend.
This is the date on which the seller, and not the buyer, of a stock will be entitled to a recently
announced dividend. The ex-date is usually two business days before the record date. It is indicated in
newspaper listings with an x.
Cum Dividend
When a buyer of a security is entitled to receive a dividend that has been declared, but not paid.
Cum dividend means "with dividend." A stock trades cum-dividend up until the ex-dividend date.
On or after this point, the stock trades without its dividend rights.
Record Date
The date established by an issuer of a security for the purpose of determining the holders who
are entitled to receive a dividend or distribution.
On the record date, a company looks to see who its shareholders or "holders of record" are.
Essentially, a date of record ensures the dividend checks get sent to the right people.
Payment Date
The date on which a declared stock dividend is scheduled to be paid.
Only those shareholders who bought the stock before the ex-dividend date receive the dividend
on the date of payment (payable date).
Declaration Date
The date on which the next dividend payment is announced by the directors of a company. This
statement includes the dividend's size, ex-dividend date and payment date. It is also referred to
as the "announcement date".
The last day on which the holder of an option must indicate whether he or she will exercise the
option. Also known as the "expiration date".
Dividend Recapitalization
When a company incurs a new debt in order to pay a special dividend to private investors or
shareholders. This usually involves a company owned by a private investment firm, which can
authorize a dividend recapitalization as an alternative to selling its equity stake in the company.
Also known as a "dividend recap".
The dividend recap has seen explosive growth, primarily as an avenue for private investment
firms to recoup some or all of the money they used to purchase their stake in a business. It is generally
not looked upon favorably by creditors or common shareholders because it reduces the credit quality of
the company while only benefiting a select few.
Debt Financing
When a firm raises money for working capital or capital expenditures by selling bonds, bills, or
notes to individual and/or institutional investors. In return for lending the money, the individuals or
institutions become creditors and receive a promise that the principal and interest on the debt will be
The other way of raising capital is to issue shares of stock in a public offering. This is called
equity financing.

Capital Structure
A mix of a company's long-term debt, specific short-term debt, common equity and preferred
The capital structure is how a firm finances its overall operations and growth by using different
sources of funds.
Debt comes in the form of bond issues or long-term notes payable, while equity is classified as
common stock, preferred stock or retained earnings. Short-term debt such as working capital
requirements is also considered to be part of the capital structure.

The process of selecting investments with higher risk in order to profit from an anticipated price
Speculation should not be considered purely a form of gambling, as speculators do make an
informed decision
Before choosing to acquire the additional risks. Additionally, speculation cannot be categorized
as a traditional
Investment because the acquired risk is higher than average. More sophisticated investors will
also use a hedging
Strategy in combination with their speculative investment in order to limit potential losses.
Spin off
The creation of an independent company through the sale or distribution of new shares of an
existing business/division of a parent company.
A spin off is a type of divestiture. Businesses wishing to 'streamline' their operations often sell
less productive, or unrelated subsidiary
businesses as spin offs. The spun-off companies are expected to be worth more as independent
entities than as parts of a larger business.
Stock Split
A corporate action in which a company' s existing shares are divided into multiple shares.
Although the number of shares outstanding increases by a specific multiple, the total dollar value of the
shares remains the same compared to pre-split amounts, because no real value has been added as a
result of the split.
In the U.K., a stock split is referred to as a "scrip issue", "bonus issue", "capitalization issue" or
"free issue".
For example, in a 2- for-1 split, each stockholder receives an additional share for each share he
or she holds.
One reason as to why stock splits are performed is that a company's share price has grown so
high that to many investors, the shares are too expensive to buy in round lots.
For example, if a XYZ Corp.'s shares were worth $1,000 each, investors would need to
purchase $100,000 in order to own 100 shares.
If each share was worth $10, investors would only need to pay $1,000 to own 100 shares.
A corporate action in which a single company splits into two or more separately run companies.
Shares of the original company are exchanged for shares in the new companies, with the exact
distribution of shares depending on each situation.
This is an effective way to break up a company into several independent companies. After a
split-up, the original company ceases to exist.
A type of corporate reorganization whereby the stock of a subsidiary is exchanged for shares in
a parent company.
This is a somewhat rare situation. For example, Viacom announced a split off of its interest in
Blockbuster in 2004 whereby Viacom offered its shareholders stock in Blockbuster in exchange for an
appropriate amount of Viacom stock.
1. An agent that charges a fee or commission for executing buy and sell orders submitted by an

2. The firm that acts as an agent for a customer, charging the customer a commission for its
A classification of borrowers with a tarnished or limited credit history. Lenders will use a credit
scoring system to determine which loans a borrower may qualify for. Subprime loans carry more credit
risk, and as such, will carry higher interest rates as well. Approximately 25% of mortgage originations
are classified as subprime.
Sunk Cost
A cost that has been incurred and cannot be reversed. Also referred to as "stranded cost."
An additional tax on income paid by an individual or corporation.
Self-Employment Tax
A tax imposed on self-employed people, who must pay this tax in order to receive social-
security benefits upon retirement.
The self-employment tax may be reduced if the person also pays social security and Medicare
taxes through another employer.
Payroll Tax
Tax an employer withholds and/or pays on behalf of their employees based on the wage or
salary of the employee.
In most countries, including the U.S., both state and federal authorities collect some form of payroll tax

Withholding Tax

1. Income tax withheld from employees' wages and paid directly to the government by the
2. A tax levied on income (interest and dividends) from securities owned by a non-resident.

1. The amount withheld is a credit against the income taxes the employee must pay during the

2. Tax is deducted not only from dividends, but from other income paid to non-residents of a
Switching Costs
The negative costs that a consumer incurs as a result of changing suppliers, brands or products.
Although most prevalent switching costs are monetary in nature, there are also psychological, effort-
and time-based switching costs.
Sweat Equity
The equity that is created in a company or some other asset as a direct result of hard work by the
For example, the work you might put into rebuilding the engine on your 1968 Mustang to
increase its value would be considered sweat equity.
Tax Evasion
An illegal practice where a person, organization or corporation intentionally avoids paying
his/her/its true tax liability. Those caught evading taxes are generally subject to criminal charges and
substantial penalties. There is a difference between tax minimization/avoidance and tax evasion.
All citizens have the right to reduce the amount of taxes they pay as long as it is by legal means.There
is a difference between tax minimization/avoidance and tax evasion. All citizens have the right to
reduce the amount of taxes they pay as long as it is by legal means.
Technical Analysis
A method of evaluating securities by analyzing statistics generated by market activity, such as
past prices and volume. Technical analysts do not attempt to measure a security's intrinsic value, but
instead use charts and other tools to identify patterns that can suggest future activity.
Technical analysts believe that the historical performance of stocks and markets are indications
of future performance.
In a shopping mall, a fundamental analyst would go to each store, study the product that was
being sold, and then decide whether to buy it or not.
By contrast, a technical analyst would sit on a bench in the mall and watch people go into the
stores. Disregarding the intrinsic value of the products in the store, his or her decision would be based
on the patterns or activity of people going into each store.

Tier 1 Capital
A term used to describe the capital adequacy of a bank. Tier I capital is core capital; this
includes equity capital and disclosed reserves.
Equity capital includes instruments that can't be redeemed at the option of the holder.
Tier 2 Capital
A term used to describe the capital adequacy of a bank. Tier II capital is secondary bank capital
that includes items such as undisclosed reserves, general loss reserves, subordinated term debt, and
Tier 3 Capital
Tertiary capital held by banks to meet part of their market risks, that includes a greater variety
of debt than tier 1 and tier 2 capitals.
Tier 3 capital debts may include a greater number of subordinated issues, undisclosed reserves
and general loss reserves compared to tier 2 capital.
Tracking Stock
Common stock issued by a parent company that tracks the performance of a particular division
without having claim on the assets of the division or the parent company. Also known as "designer
A type of security specifically designed to mirror the performance of a larger index.
When a parent company issues a tracking stock, all revenues and expenses of the applicable division
are separated from the parent company's financial statements and bound to the tracking stock.
Oftentimes, this is done to separate a subsidiary's high- growth division from a larger parent company
that is presenting losses. The parent company and its shareholders, however, still control the operations
of the subsidiary.
The most popular tracking stock is the QQQQ, which is an exchange-traded fund that mirrors
the returns of the Nasdaq 100 index.
Another type of tracking stock is Standard & Poor's depository receipts (SPDRs), which mirror the
returns of the S&P 500 index
A company or other entity that administers the public issuance and distribution of securities
from a corporation or other issuing body.
An underwriter works closely with the issuing body to determine the offering price of the
securities buys them from the issuer and sells them to investors via the underwriter's distribution
network. Underwriters generally receive underwriting fees from their issuing clients, but they also
usually earn profits when selling the underwritten
shares to investors. However, underwriters assume the responsibility of distributing a securities
issue to the public. If they can' t sell all of the
securities at the specified offering price, they may be forced to sell the securities for less than
they paid for them, or retain the securities themselves

Valuation Analysis
A form of fundamental analysis that looks to compare the valuation of one security to another,
to a group of securities or within its own historical context. Valuation analysis is done to evaluate the
potential merits of an investment or to objectively assess the value of a business or asset.
Valuation analysis is one of the core duties of a fundamental investor, as valuations (along with cash
flows) are typically the most important drivers of asset prices over the long term.
Valuation analysis should answer the simple, yet vital, question of, "What is something worth?" The
analysis is then based on either current projections or projections of the future. While investors can
agree on a metric like the current price-to-earnings ratio (P/E ratio), how to interpret a given
Valuation can and will differ among those same investors.
Many types of valuation methods are used, involving several sets of metrics. For equities, the
most common valuation metric to use is the P/E ratio,
Although other valuation metrics include: Price/Earnings, Price/Book Value, Price/Sales,
Enterprise Value/EBIDTA, Economic
Value Added and Discounted Cash Flow
Venture Capital
Financing for new businesses. In other words, money provided by investors to startup firms and
small businesses with perceived,long-term growth potential. This is a very important source of funding
for startups that do not have access to capital markets.
It typically entails high risk for the investor, but it has the potential for above-average returns
Venture capital can also include managerial and technical expertise. Most venture capital comes from a
group of wealthy investors, investment banks and other financial institutions that pool such investments
or partnerships. This form of raising capital is popular among new companies,
or ventures, with limited operating history, who cannot raise funds through a debt issue. The downside
for entrepreneurs is that venture capitalists usually get a say in company decisions, in addition to a
portion of the equity.
A statistical measure of the dispersion of returns for a given security or market index. Volatility
can either be measured by using the standard deviation or variance between returns from that same
security or market index. Commonly, the higher the volatility, the riskier the security.
A variable in option pricing formulas showing the extent to which the return of the underlying
asset will fluctuate between now and the option's expiration.
Volatility, as expressed as a percentage coefficient within option-pricing formulas,
arises from daily trading activities. How volatility is measured will affect the value of the coefficient
Weighted Average Cost of Capital - WACC
A calculation of a firm's cost of capital in which each category of capital is proportionately
weighted. All capital sources - common stock, preferred stock, bonds and any other long-term
debt - are included in a WACC calculation.

WACC is calculated by multiplying the cost of each capital component by its proportional
weight and then summing:

An increase made to the book value of an asset because it is undervalued compared to market
A write- up will increase a company's accounting book value without any expenditures. For
example, if an economy experiences significant inflation, a production company may decide to write up
its inventory to better match the market price.
Zero-Based Budgeting - ZBB
A method of budgeting in which all expenses must be justified for each new period. Zero-based
budgeting starts from a zero base and every function within an organization are analyzed for its needs
and costs. Budgets are then built around what is needed for the upcoming period, regardless of whether
the budget is higher or lower than the previous one.
ZBB allows top- level strategic goals to be implemented into the budgeting process by tying
them to specific functional areas of the organization, where costs can be first grouped, then measured
against previous results and current expectations.
Because of its detail-oriented nature, zero-based budgeting may be a rolling process done over
several years, with only a few functional areas reviewed at a time by managers or group leadership.
Zero-based budgeting can lower costs by avoiding blanket increases or decreases to a prior
Periods budget. It is, however, a time-consuming process that takes much longer than traditional, cost-
based budgeting. The practice also favors areas that achieve direct revenues or production; their
contributions are more easily justified than in departments such as client service and research and
Zero-Coupon Bond
A debt security that doesn't pay interest (a coupon) but is traded at a deep discount,
rendering profit at maturity when the bond is redeemed for its full face value. -----Also known as an
"accrual bond".
Some zero-coupon bonds are issued as such, while others are bonds that have been stripped of
their coupons by a financial institution and then repackaged as zero-coupon bonds. Because they offer
the entire payment at maturity, zero-coupon bonds tend to fluctuate in price much more than coupon
American Depositary Receipt
An American Depositary Receipt (or ADR) represents ownership in the shares of a non-U.S.
company and trades in U.S. financial markets. The stock of many non-US companies trade on US stock
exchanges through the use of ADRs. ADRs enable U.S. investors to buy shares in foreign companies
without undertaking cross-border transactions. ADRs carry prices in US dollars, pay dividends in US
dollars, and can be traded like the shares of US-based companies.
Each ADR is issued by a U.S. depositary bank and can represent a fraction of a share, a single
share, or multiple shares of the foreign stock. An owner of an ADR has the right to obtain the foreign
stock it represents, but US investors usually find it more convenient simply to own the ADR. The price
of an ADR often tracks the price of the foreign stock in its home market, adjusted for the ratio of ADRs
to foreign company shares. In the case of companies incorporated in the United Kingdom, creation of
ADRs attracts a 1.5% stamp duty reserve tax (SDRT) charge by the UK government.
Depositary banks have various responsibilities to an ADR shareholder and to the non-US company the
ADR represents. The first ADR was introduced by JPMorgan in 1927, for the British retailer
Selfridges&Co. There are currently four major commercial banks that provide depositary bank services
- JPMorgan, Citibank, Deutsche Bank and the Bank of New York Mellon.
Individual shares of a foreign corporation represented by an ADR are called American Depositary
Shares (ADS).
Types of ADR programs
When a company establishes an American Depositary Receipt program, it must decide what exactly it
wants out of the program, and how much time, effort and resources they are willing to commit. For this
reason, there are different types of programs that a company can choose.
Unsponsored shares
Unsponsored shares are a form of Level I ADRs that trade on the over-the-counter (OTC) market.
These shares are issued in accordance with market demand ,and the foreign company has no formal
agreement with a depositary bank. Unsponsored ADRs are often issued by more than one depositary
bank. Each depositary services only the ADRs it has issued.
Due to a recent SEC rule change making it easier to issue Level I depositary receipts, both sponsored
and unsponsored, hundreds of new ADRs have been issued since the rule went into effect in October
2008. The majority of these were unsponsored Level I ADRs, and now approximately half of all ADR
programs in existence are unsponsored.
Level I
Level 1 depositary receipts are the lowest level of sponsored ADRs that can be issued. When a
company issues sponsored ADRs, it has one designated depositary who also acts as its transfer agent.
A majority of American depositary receipt programs currently trading are issued through a Level 1
program. This is the most convenient way for a foreign company to have its equity traded in the United

Level 2
Shares can only be traded on the OTC market and the company has minimal reporting
requirements with the U.S. Securities and Exchange Commission (SEC). The company is not required
to issue quarterly or annual reports in compliance with U.S. GAAP. However, the company must have
a security listed on one or more stock exchange in a foreign jurisdiction and must publish in English on
its website its annual report in the form required by the laws of the country of incorporation,
organization or domicile.
Companies with shares trading under a Level 1 program may decide to upgrade their program to
a Level 2 or Level 3 program for better exposure in the United States markets.
Level II (listed)
Level 2 depositary receipt programs are more complicated for a foreign company. When a
foreign company wants to set up a Level 2 program, it must file a registration statement with the US
SEC and is under SEC regulation. In addition, the company is required to file a Form 20-F annually.
Form 20-F is the basic equivalent of an annual report (Form 10-K) for a U.S. company. In their filings,
the company is required to follow U.S. GAAP standards.
The advantage that the company has by upgrading their program to Level 2 is that the shares
can be listed on a U.S. stock exchange. These exchanges include the New York Stock Exchange
(NYSE), NASDAQ, and the American Stock Exchange (AMEX).
While listed on these exchanges, the company must meet the exchanges listing requirements. If
it fails to do so, it may be delisted and forced to downgrade its ADR program.
Level III (offering)
A Level 3 American Depositary Receipt program is the highest level a foreign company can
sponsore. Because of this distinction, the company is required to adhere to stricter rules that are similar
to those followed by U.S. companies.
Setting up a Level 3 program means that the foreign company is not only taking steps to permit
shares from its home market to be deposited int an ADR program and traded in the U.S.; it is actually
issuing shares to raise capital. In accordance with this offering, the company is required to file a Form
F-1, which is the format for an Offering Prospectus for the shares. They also must file a Form 20-F
annually and must adhere to U.S. GAAP standards. In addition, any material information given to
shareholders in the home market, must be filed with the SEC through Form 8K.
Foreign companies with Level 3 programs will often issue materials that are more informative
and are more accommodating to their U.S. shareholders because they rely on them for capital. Overall,
foreign companies with a Level 3 program set up are the easiest on which to find information.
Restricted programs
Foreign companies that want their stock to be limited to being traded by only certain individuals
may set up a restricted program. There are two SEC rules that allow this type of issuance of shares in
the U.S.: Rule 144-A and Regulation S. ADR programs operating under one of these 2 rules make up
approximately 30% of all issued ADRs.
Some foreign companies will set up an ADR program under SEC Rule 144(a). This provision
makes the issuance of shares a private placement. Shares of companies registered under Rule 144-A are
restricted stock and may only be issued to or traded by Qualified Institutional Buyers (QIBs). NYSE
US public shareholders are generally not permitted to invest in these ADR programs, and most are held
exclusively through the Depository Trust & Clearing Corporation, so there is often very little
information on these companies.

Regulation S
The other way to restrict the trading of depositary shares to US public investors is to issue them
under the terms of SEC Regulation S. This regulation means that the shares are not, and will not be
registered with any United States securities regulation authority.
Regulation S shares cannot be held or traded by any U.S. Person as defined by SEC
Regulation S rules. The shares are registered and issued to offshore, non-US residents.
Regulation S ADRs can be merged into a Level 1 program after the restriction period has
expired, and the foreing issuer elects to do this.
Sourcing ADRs
One can either source new ADRs by depositing the corresponding domestic shares of the
company with the depositary bank that administers the ADR program or, instead, one can obtain
existing ADRs in the secondary market. The latter can be achieved either by purchasing the ADRs on a
US stock exchange or via purchasing the underlying domestic shares of the company on their primary
exchange and then swapping them for ADRs; these swaps are called crossbook swaps and on many
occasions account for the bulk of ADR secondary trading. This is especially true in the case of trading
in ADRs of UK companies where creation of new ADRs attracts a 1.5% stamp duty reserve tax
(SDRT) charge by the UK government; sourcing existing ADRs in the secondary market (either via
crossbook swaps or on exchange) instead is not subject to SDRT.
ADR Termination
Most ADR programs are subject to possible termination. Termination of the ADR agreement
will result in cancellation of all the depositary receipts, and a subsequent delisting from all exchanges
where they trade. The termination can be at the discretion of the foreign issuer or the depositary bank,
but is typically at the request of the issuer. There may be a number of reasons why ADRs terminate, but
in most cases the foreign issuer is undergoing some type of reorganization or merger.
Owners of ADRs are typically notified in writing at least thirty days prior to a termination.
Once notified, an owner can surrender their ADRs and take delivery of the foreign securities
represented by the Receipt, or do nothing. If an ADR holder elects to take possession of the underlying
foreign shares, there is no guarantee the shares will trade on any US exchange. The holder of the
foreign shares would have to find a broker who has trading authority in the foreign market where those
shares trade. If the owner continues to hold the ADR past the effective date of termination, the
depositary bank will continue to hold the foreign deposited securities and collect dividends, but will
cease distributions to ADR owners.
Usually up to one year after the effective date of the termination, the depositary bank will
liquidate and allocate the proceeds to those respective clients. Many US brokerages can continue to
hold foreign stock, but may lack the ability to trade it overseas.
Global Depository Receipt
A Global Depository Receipt or Global Depositary Receipt (GDR) is a certificate issued by a
depository bank, which purchases shares of foreign companies and deposits it on the account. GDRs
represent ownership of an underlying number of shares.
Global Depository Receipts facilitate trade of shares, and are commonly used to invest in
companies from developing or emerging markets.
Prices of GDRs are often close to values of related shares, but they are traded & settled
independently of the underlying share. mml;l Several international banks issue GDRs, such as
JPMorgan Chase, Citigroup, Deutsche Bank, Bank of New York. They trade on the International Order
Book (IOB) of the London Stock Exchange. Normally 1 GDR = 10 Shares, but not always.

Buy Back of shares under the Companies Act, 1956 - An Insight

The provisions regulating buy back of shares are contained in Section 77A, 77AA and 77B of
the Companies Act,1956. These were inserted by the Companies (Amendment) Act,1999. The
Securities and Exchange Board of India (SEBI) framed the SEBI(Buy Back of Securities)
Regulations,1999 and the Department of Company Affairs framed the Private Limited Company and
Unlisted Public company (Buy Back of Securities) rules,1999 pursuant to Section 77A(2)(f) and (g)
Objectives of Buy Back:
Shares may be bought back by the company on account of one or more of the following reasons
i. To increase promoters holding
ii. Increase earning per share
iii. Rationalise the capital structure by writing off capital not represented by available assets.
iv. Support share value
v. To thwart takeover bid
vi. To pay surplus cash not required by business
Infact the best strategy to maintain the share price in a bear run is to buy back the shares from
the open market at a premium over the prevailing market price.
Resources of Buy Back
A Company can purchase its own shares from
(i) free reserves; Where a company purchases its own shares out of free reserves, then a sum equal to
the nominal value of the share so purchased shall be transferred to the capital redemption reserve and
details of such transfer shall be disclosed in the balance-sheet or
(ii) securities premium account; or
(iii) proceeds of any shares or other specified securities. A Company cannot buyback its shares or other
specified securities out of the proceeds of an earlier issue of the same kind of shares or specified

Conditions of Buy Back
(a) The buy-back is authorised by the Articles of association of the Company;
(b) A special resolution has been passed in the general meeting of the company authorising the buy-
back. In the case of a listed company, this approval is required by means of a postal ballot. Also, the
shares for buy back should be free from lock in period/non transferability.The buy back can be made by
a Board resolution If the quantity of buyback is or less than ten percent of the paid up capital and free
(c) The buy-back is of less than twenty- five per cent of the total paid-up capital and fee reserves of the
company and that the buy-back of equity shares in any financial year shall not exceed twenty- five per
cent of its total paid-up equity capital in that financial year;
(d) The ratio of the debt owed by the company is not more than twice the capital and its free reserves
after such buy-back;
(e) There has been no default in any of the following
i. in repayment of deposit or interest payable thereon,
ii. redemption of debentures, or preference shares or
iii. payment of dividend, if declared, to all shareholders within the stipulated time of 30 days from the
date of declaration of dividend or
iv. repayment of any term loan or interest payable thereon to any financial institution or bank;
(f) There has been no default in complying with the provisions of filing of Annual Return, Payment of
Dividend, and form and contents of Annual Accounts;
(g) All the shares or other specified securities for buy-back are fully paid-up;
(h) The buy-back of the shares or other specified securities listed on any recognised stock exchange
shall be in accordance with the regulations made by the Securities and Exchange Board of India in this
behalf; and
(i) The buy-back in respect of shares or other specified securities of private and closely held companies
is in accordance with the guidelines as may be prescribed.
Disclosures in the explanatory statement
The notice of the meeting at which special resolution is proposed to be passed shall be
accompanied by an explanatory statement stating -
(a) A full and complete disclosure of all material facts;
(b) The necessity for the buy-back;
(c) The class of security intended to be purchased under the buy-back;
(d) The amount to be invested under the buy-back; and
(e) The time- limit for completion of buy-back
Sources from where the shares will be purchased the securities can be bought back from
(a) Existing security-holders on a proportionate basis;
Buyback of shares may be made by a tender offer through a letter of offer from the holders of shares of
the company or

(b) the open market through
(i). book building process;
(ii) stock exchanges or
(c) odd lots, that is to say, where the lot of securities of a public company, whose shares are listed on a
recognized stock exchange, is smaller than such marketable lot, as may be specified by the stock
exchange; or
(d) purchasing the securities issued to employees of the company pursuant to a scheme of stock option
or sweat equity.
Filing of Declaration of solvency
After the passing of resolution but before making buy-back, file with the Registrar and the
Securities and Exchange Board of India a declaration of solvency in form 4A. The declaration must be
verified by an affidavit to the effect that the Board has made a full inquiry into the affairs of the
company as a result of which they have formed an opinion that it is capable of meeting its liabilities
and will not be rendered insolvent within a period of one year of the date of declaration adopted by the
Board, and signed by at least two directors of the company, one of whom shall be the managing
director, if any:
No declaration of solvency shall be filed with the Securities and Exchange Board of India by a
company whose shares are not listed on any recognized stock exchange.
Register of securities bought back
After completion of buyback, a company shall maintain a register of the securities/shares so
bought and enter therein the following particulars
a. the consideration paid for the securities bought-back,
b. the date of cancellation of securities,
c. the date of extinguishing and physically destroying of securities and
d. such other particulars as may be prescribed
Where a company buys-back its own securities, it shall extinguish and physically destroy the securities
so bought-back within seven days of the last date of completion of buy-back.
Issue of further shares after Buy back
Every buy-back shall be completed within twelve months from the date of passing the special
resolution or Board resolution as the case may be.
A company which has bought back any security cannot make any issue of the same kind of securities in
any manner whether by way of public issue, rights issue up to six months from the date of completion
of buy back.
Filing of return with the Regulator
A Company shall, after the completion of the buy-back file with the Registrar and the Securities and
Exchange Board of India, a return in form 4 C containing such particulars relating to the buy-back
within thirty days of such completion.
No return shall be filed with the Securities and Exchange Board of India by an unlisted company.

Prohibition of Buy Back
A company shall not directly or indirectly purchase its own shares or other specified securities -
(a) through any subsidiary company including its own subsidiary companies; or
(b) through any investment company or group of investment companies; or
Procedure for buy back
a. Where a company proposes to buy back its shares, it shall, after passing of the special/Board
resolution make a public announcement at least one English National Daily, one Hindi National daily
and Regional Language Daily at the place where the registered office of the company is situated.
b. The public announcement shall specify a date, which shall be "specified date" for the purpose of
determining the names of shareholders to whom the letter of offer has to be sent.
c. A public notice shall be given containing disclosures as specified in Schedule I of the SEBI
d. A draft letter of offer shall be filed with SEBI through a merchant Banker. The letter of offer shall
then be dispatched to the members of the company.
e. A copy of the Board resolution authorising the buy back shall be filed with the SEBI and stock
f. The date of opening of the offer shall not be earlier than seven days or later than 30 days after the
specified date
g. The buy back offer shall remain open for a period of not less than 15 days and not more than 30
h. A company opting for buy back through the public offer or tender offer shall open an escrow
If a company makes default in complying with the provisions the company or any officer of the
company who is in default shall be punishable with imprisonment for a term which may extend to two
years, or with fine which may extend to fifty thousand rupees, or with both. The offences are, of course
compoundable under Section 621A of the Companies Act, 1956.
What Does Class of Shares Mean?
1. Types of listed company stocks that are differentiated by the level of voting rights shareholders
receive. For example, a listed company might have two share classes, or classes of stock, designated as
Class A and Class B.

2. With load mutual funds, there are three share classes, Class A, Class B and Class C, which carry
different sales charge, 12b-1 fees and operating expense structures.
Investopedia explains Class of Shares
1. Owners of companies that have been privately owned and go public often create class A and B share
structures with different voting rights in order to maintain control and/or to make the company a more
difficult target for a takeover. Obviously, it' s the original owners that end up with the preferential
voting class of stock.

2. Class A mutual fund shares charge a front-end load, have lower 12b-1 fees and a below-average level
of operating expenses. Class B mutual fund shares charge a back-end load and have higher 12b-1 fees
and operating expenses. Class C mutual fund shares are considered level- load - there's no front-end
load but a low back-end load applies, as do 12b-1 fees and relatively higher operating expenses.
What Does 12B-1 Fee Mean?
An annual marketing or distribution fee on a mutual fund. The 12b-1 fee is considered an
operational expense and, as such, is included in a fund's expense ratio. It is generally between 0.25-1%
(the maximum allowed) of a fund's net assets. The fee gets its name from a section in the Investment
Company Act of 1940.
Investopedia explains 12B-1 Fee
Back in the early days of the mutual fund business, the 12b-1 fee was thought to help investors.
It was believed that by marketing a mutual fund, its assets would increase and management could lower
expenses because of economies of scale. This has yet to be proved. With mutual fund assets passing the
$10 trillion mark and growing steadily, critics of this fee, which today is mainly used to reward
intermediaries for selling a fund's shares, are seriously questioning the justification for using it. As a
commission paid to salespersons, it is currently believed to do nothing to enhance the performance of a
What is a treasury stock?
Every company has an authorized amount of stock it can issue legally. Of this amount, the total
number of shares owned by investors, including the company' s officers and insiders (the owners of
restricted stock), is known as the shares outstanding. The number available only to the public to buy
and sell is known as the float.
Treasury stocks are shares that were once a part of the float and shares outstanding but were
subsequently repurchased by the company and decommissioned. These stocks do not have voting rights
and do not pay any distributions. A company can decide to hold onto treasury stocks indefinitely,
reissue them to the public, or even cancel them.
Escrow Shares
Escrow shares and free trading shares of the same class of security are reported on an
aggregated basis. Escrow shares are issued and outstanding shares which, while entitled to vote, may
not be sold or transferred unless regulatory approval is obtained or the shares are released from escrow.
Transactions in these shares must also be reported. Within SEDI, the number of shares in
escrow and the release terms are to be disclosed in General remarks. You do not need to report a release
of escrow shares as a transaction, as the release does not result in a change in your holdings of the class.
Although you are not required to file a report because of an escrow release, you should provide
information regarding the release in General remarks when your next report is filed.
In addition, since escrow shares are part of an issuer's issued and outstanding shares, they are
included in the calculation to determine if someone is an insider by virtue of holding more than 10% of
the voting rights attached to all the issuer's outstanding voting securities (or in Qubec, 10% of a class
of shares).

Restricted stock
Stock which is acquired through an employee stock option plan or other private means and
which may not be transferred. Restricted stock may be forfeited if any of the SEC rules related to it are
Qualified Institutional Placement - QIP
What Does Qualified Institutional Placement - QIP Mean?
A designation of a securities issue given by the Securities and Exchange Board of India (SEBI)
that allows an Indian- listed company to raise capital from its domestic markets without the need to
submit any pre- issue filings to market regulators. The SEBI instituted the guidelines for this relatively
new Indian financing avenue on May 8, 2006.
Investopedia explains Qualified Institutional Placement QIP
Prior to the innovation of the qualified institutional placement, there was concern from Indian
market regulators and authorities that Indian companies were accessing international funding via
issuing securities, such as American depository receipts (ADRs), in outside markets. This was seen as
an undesirable export of the domestic equity market, so the QIP guidelines were introduced to
encourage Indian companies to raise funds domestically instead of tapping overseas markets.


About Public Issues
Corporates may raise capital in the primary market by way of an initial public offer, rights issue or private placement. An
Initial Public Offer (IPO) is the selling of securities to the public in the primary market. This Initial Public Offering can be
made through the fixed price method, book building method or a combination of both.

There are two types of Public Issues:
Fixed Price
Price at which the
securities are offered and
would be allotted is made
known in advance to the
Demand for the
securities offered is
known only after the
closure of the issue
100 % advance
payment is required to
be made by the
investors at the time of
50 % of the shares offered
are reserved for
applications below Rs. 1
lakh and the balance for
higher amount
A 20 % price band is
offered by the issuer
within which investors are
allowed to bid and the
final price is determined
by the issuer only after
closure of the bidding.
Demand for the
securities offered , and
at various prices, is
available on a real time
basis on the BSE
website during the
bidding period..
10 % advance payment
is required to be made
by the QIBs along with
the application, while
other categories of
investors have to pay
100 % advance along
with the application.
50 % of shares offered are
reserved for QIBS, 35 %
for small investors and the
balance for all other

More About Book Building
Book Building is essentially a process used by companies raising capital t hrough Public Offerings-both Initial Public
Offers (IPOs) or Follow-on Public Offers ( FPOs) to aid price and demand discovery. It is a mechanism where, during the
period for which the book for the offer is open, the bids are collected from investors at various prices, which are within the
price band specified by the issuer. The process is directed towards both the institutional as well as the retail investors. The
issue price is determined after the bid closure based on the demand generated in the process.
The Process:
The Issuer who is planning an offer nominates lead merchant banker(s) as 'book runners'.
The Issuer specifies the number of securities to be issued and the price band for the bids.
The Issuer also appoints syndicate members with whom orders are to be placed by the investors.
The syndicate members input the orders into an 'electronic book'. This process is called 'bidding' and is similar to
open auction.
The book normally remains open for a period of 5 days.
Bids have to be entered within the specified price band.
Bids can be revised by the bidders before the book closes.
On the close of the book building period, the book runners evaluate the bids on the basis of the demand at various
price levels.
The book runners and the Issuer decide the final price at which the securities shall be issued.
Generally, the number of shares is fixed; the issue size gets frozen based on the final price per share.
Allocation of securities is made to the successful bidders. The rest get refund orders.
Guidelines for Book Building


1. Main object of cost accounting is to
(a) Help in inventory valuation
(b) Maximize profits.
(c) Provides information for decision making.
(d) Help in the fixation of selling price.
2. The purpose of financial accounting is to provide information for
(a) Cost control
(b) Fixing prices
(c) Locating factors of losses and wastages
(d) Assessing the profitability and financial position of a business.
3. One of the most important tools in cost planning is
(a) Direct Cost (b) Budget
(c) Cost sheet (d) Marginal costing
4. Concept of cost accounting included all the following except
(a) Planning (b) Controlling
(c) Profit sharing (d) Product costing
5. Multiple costing method is applicable in
(a) Oil refinery (b) Multiple product co
(c) Sugar mills (d) radio manufacturing co.
6. Job costing is applicable is
(a) Textile mills (b) paper mills
(c) repair workshop (d) chemical works

7. Toy manufacturing should use
(a) Unit costing (b) job costing
(c) process costing (d) batch costing
8. Electricity generating concern should employ
(a) Operation costing (b) Process Costing
(c) Operating Costing (d) Unit Costing
9. Contract costing is applicable in
(a) ship building (b) automobile industries
(c) aero plane industries (d) none of these
10. Which method of costing is more suitable for interior decorators ?
(a) Operation costing (b) Job costing
(c) Process costing (d) None of these
11. Which method of costing is used in hospital ?
(a) job costing (b) operating costing
(c) unit costing (d) No method is applicable
12. System of costing where cost is ascertained after they have incurred is known as :
(a) Standard costing (b) Marginal Costing
(c) Absorption costing (d) Historical costing
13. Where a number of similar industrial units apply same method of costing, it is known as :
(a) Standard costing (b) Marginal Costing
(c) Uniform costing (d) None of these above.
14. Costing is largely based upon
(a) Govt. statistics (b) Correct and precise data
(c) Govt. Statistics (d) Estimates

15. Cost accounting is useful not only to management but also to
(a) Customer and supplier (b) Cost accountant
(c) Consumer and producers
(d) Workers, creditors, investors, consumer and society
16. Cost of goods sold includes :
(a) Product cost and finished goods inventory
(b) Product cost and work-in-progress
(c) Production cost, work- in-progress & Finished goods inventory
17. Conversion cost is equal to
(a) material cost and direct wages
(b) material cost and indirect wages
(c) direct wages and factory overhead
(d) material cost and factory overhead
18. cost of goods produced includes
(a) production cost and finished goods inventory
(b) production cost, works in progress and finished goods inventory
(c) production cost and work in progress
19. Prime cost plus variable overhead is known as
(a) Marginal cost (b) Production cost
(c) total cost (d) works cost
20. Cost which is ascertained after they have been incurred is known as
(a) imputed cost (b) sunk cost
(c) historical cost (d) opportunity cost
21. When premises are owned, a charge in lien of rent is
(a) An opportunity cost (b) a sunk cost
(c) Umputed cost

22. Research and development cost is a
(a) sunk cost (b) opportunity cost
(c) imputed cost (d) pre-production cost
23. When an amount deposited in a bank is withdrawn for financing project, the loss of
interest on such deposit is called
(a) replacement cost (b) sunk cost
(c) opportunity cost (d) preproduction cost
24. Direct material is generally
(a) controllable (b) uncontrollable
(c) None of the two
25. A cost per unit which increases or decreases when volume of output increases or decreases
is called as
(a) fixed cost (b) variable cost
(c) semi- variable cost
26. Which one of the following is the commercial cost
(a) work overhead (b) raw material
(c) direct labour
27. If the R.O.I., is 8000kg. delivery period is 1 to 3 weeks, weekly production varies from 175
to 225 units and material required for one unit of finished product is 10kg. the minimum
stock level is
(a) 7600kg (b) 8175kg
(c) 8675kg (d) 4000kg

28. If the R.O.I. of a material is 4759 units, reorder quantity is 5000 units, consumption of
material varies between 700 900 units & re-order period varies between 3 to 5 weeks, the
maximum level will be
(a) 7650 units (b) 5250 units
(c) 6550 units (d) None of the above
29. If the annual consumption of a material is 1800 units, ordering cost are Rs.2 per order,
price per unit is 32 paise and storage costs are 25% p.a. of stock value, the E.O.Q is
(a) 170 units (b) 120 units
(c) 150 units (d) 300 units
30. In A.B.C. analysis, classification of items are made on the basis of
(a) investment value of materials (b) consumption value of materials
(c) quantity of materials consumed (d) all of these
31. Which of the following methods result in lower valuation of inventory and lower income
when prices are rising
(a) FIFO (b) LIFO
(c) simple average (d) weighted average
32. Rate of consumption of material is one of the most important factors while fixing
(a) Maximum Level (b) Minimum Level
(c) Re-order Level (d) all of these
33. In which of the following inventory control methods, items of inventory are classified
according to their value and importance
(a) perpetual inventory system (b) ABC Technique
(c) Economic lot size (d) all of these
34. Which of the following methods of inventory valuation is based on the accounting
convention of conservatism
(a) at cost (b) at market price
(c) at cost or market price, whichever is low (d) none of these
35. Which of the following documnt is used for issuing materials to production department ?
(a) Material transfer note (b) Material requisition note
(c) Purchase requisition (d) Material returned note
36. According to which method of pricing, issues are close to current economic values ?
(a) FIFO (b) LIFO
(c) HIFO (d) Weighted Average cost
37. In which method of pricing, costs lag behind the current economic values ?
(a) FIFO (b) LIFO
(c) Weighted average cost (d) Replacement cost price
38. In which method of pricing, issues are priced at a predetermined price ?
(a) inflated price method (b) standard price
(c) Replacement price method (d) none of the above
39. In which method of pricing issues are the prevailing market Price ?
(a) inflated price method (b) standard price
(c) LIFO (d) replacement price method
40. When material prices fluctuate widely, the method that will smooth out the effect of
(a) simple average (b) weighted average
(c) FIFO (d) LIFO
41. When material prices fluctuate widely, the method of pricing that gives absurd result is
(a) simple average price (b) weighted average price
(c) FIFO (d) LIFO
42. In which method of pricing, the charge is not at actual cost ?
(a) weighted average (b) standard price
(c) Replacement price (d) all the above

43. Under the high wage plan, a worker is paid
(a) according to his efficiency
(b) normal wage plus bonus
(c) at a time rate higher than the usual rate
(d) at a double rate for evertime.
44. Which one of the following method is suitable when accuracy quality of work is the
(a) price rate system (b) time rate system
(c) Rowan plan (d) Halsey Premium plan
45. Taylors differential piece rate system
(a) Taylors differential piece rate system
(b) Rowan plan (c) Gants Task and Bonus plan
(d) all the above
46. Under Gants Task and Bonus plan, no bonus is payable to workers if his efficiency is less
than :
(a) 50% (b) 66 2/3%
(c) 83 1/3% (d) 100%
47. In which of the following incentive plans of wage payment, wages on time basis are not
(a) Halsey plan (b) Rowan Plan
(c) Taylors differential piece rate system
(e) Gants Task and bonus system.
48. Under Emersons efficiency system, no bonus payable when the efficiency is up to
(a) 50% (b) 66 2/3%
(c) 83 1/3% (d) 100%

49. When standard output is 20 units per hour and actual output is 12 units, the efficiency is
(a) 100% (b) 166.67%
(c) 60%
50. Which of the following is a Service Department in a manufacturing concern
(a) machine dept. (b) Refining dept.
(c) Finishing dept. (d) Receiving dept.
51. Number of workers employed is sued as a basis for the apportionment of
(a) personal department expenses (b) canteen expenses
(c) time keeping expenses (d) any of the above.
52. Basis of distribution of indirect material cost to various department may be
(a) direct allocation (b) cost of direct material consumed
(c) direct wages in various department
53. Administrative overheads are recovered as a percentage of
(a) direct material (b) Direct wages
(c) Prime Cost (d) works cost
54. Selling overhead are recovered as a percentage of
(a) direct material (b) direct wages
(c) prime cost (d) works cost
55. Primary packing cost is a
(a) Production cost (b) Selling cost
(c) Distribution cost (d) Direct material cost
56. Fancy packing cost is a
(a) Production cost (b) Selling cost
(c) Distribution cost (d) any of the above.

57. Salary of foreman is
(a) variable in nature (b) fixed in nature
(c) Semi variable or semi fixed in nature
58. Director remuneration forms a part of
(a) factory overhead (b) administrative overhead
(c) selling overhead (d) distribution overhead
59. Which one of the following items is NOT a selling overhead ?
(a) Branch office expenses (b) showroom expenses
(c) legal cost of debt realization
(d) insurance on goods sold while in transit.
60. Bad debt is part of
(a) Production overheads (b) Administration overhead
(c) Selling overheads (d) distribution overheads
(e) any of the above.
61. Showroom and branch office expenses should be treated as a part of
(a) factory overheads (b) administrative overheads
(c) selling overheads (d) distribution overheads
(e) any of the above.
62. Which one of the following methods is most suitable for absorbing factory overhead when
one uniform item of product is produced ?
(a) machine hour rate (b) percentage of direct wages
(c) prime cost (d) a rate per unit of output
(e) any of the above
63. Factory overhead should be absorbed on the basis of
(a) direct labour cost (b) direct labour hours
(c) machine hours (d) Relationship to cost incurred

64. When the factory overhead control account has a closing debit balance, factory overhead
(a) variable (b) fixed
(c) under absorption (d) over absorption
65. Warehouse expenses is the part of
(a) production overhead (b) administrative overhead
(c) selling overhead (d) Distribution overhead
(e) any of the above.
66. Which of the following is a scientific and accurate method of absorption of factory
(a) percentage of material cost (b) percentage of material cost
(c) machine hour rate (d) any of the above.
67. When the amount of overhead absorbed is less than the actual amount of overhead
incurred, it is called
(a) under absorption of overhead (b) Over absorption of overhead
(c) Proper absorption of overhead (d) any of the above
68. The best suitable basis for absorbing factory overhead is
(a) material consumed (b) direct labour cost
(c) direct labour hours (d) machine hour rate
69. When the amount of under or over absorption is significant, it should be dispose of by
(a) transferring to costing profit and loss a/c
(b) the use of supplementary rates
(c) carrying over as a deferred charge to the next financial year

70. The capacity which is based on long term average of the sales expectancy is known as
(a) Normal capacity (b) actual capacity
(c) practical capacity (d) none of these
71. Excess plant capacity means
(a) temporary idleness of plant
(b) greater production capacity than a company can make use
(c) the difference between theoretical capacity and actual capacity
72. The concept of ideal capacity of plant as used in cost accounting means
(a) theoretical maximum capacity
(b) best capacity for normal production
(c) capacity used for setting standards
(d) capacity below which production should not fall
73. The difference between absorbed and actual overhead will be minimum when the pre-
determined overhead rate is based on
(a) machine hours (b) direct material cost
(c) direct labour hours (d) Normal capacit
74. If a predetermined factor overhead rate is not used and the production is below the
planned level, the cost per unit will
(a) remain unchanged for fixed overhead and increase for variable cost
(b) increase for fixed overheads but remains unchanged for variable overheads
(c) increase for fixed overhead but decrease for variable overheads
(d) decrease for fixed overhead and also decrease for variable overheads
75. Most of the expenses are direct in
(a) job costing (b) batch costing
(c) contract costing

76. Product order means
(a) an order from customer for a specific job
(b) an order to the store keeper to issue materials for shops
(c) instructions to the shops to start with the production of the product
77. Under job costing spoilage and defectives are identified for
(a) each job separately (b) all jobs jointly
(c) each department of the organization
(d) for each process separately
78. profit under job costing is computed
(a) Job-wise (b) for all jobs jointly
(c) for all departments separately (d) for all processes separately
79. Price charged to the customers under job costing is based upon
(a) the estimate prepared by concern (b) the actual cost to be incurred
(c) the customers estimate (d) none of the above
80. Value of work-in-progress in job cost industries
(a) is the some from period to period (b) is different from period to period
(c) problem is not involved (d) can be estimated before hand
81. When a contract is incomplete at the end of financial year, profit on such contract is
(a) transferred to reserves (b) transferred to profit and loss a/c
(c) partly transferred to profit and loss a/c & partly to work in progress a/c.
82. When a contract is 25% complete, the amount of profit to be taken credit for, is usually
(a) the amount of profit estimated
(b) not transferred but transferred to work- in-progress a/c
(c) one third of notional profit multiplied by cash ratio
(d) none of the above.

83. When the contract is 50% complete the profits to be transferred are usually
(a) the total of notional profits
(b) 50% of the national profits on cash basis
(c) two third of the notional profits multiplied by cash ratio
84. Contract price is not fixed in
(a) Cost-plus contract (b) exclation clasue
(c) deescalation clause (d) all the above
85. Cost plus contract are useful from the point of view of
(a) contractor (b) Contractee
(c) both contractor & contractee
86. Contract account is prepared by
(a) Contractor (b) Contractee
(c) both by Contractor & Contractee
87. Where is contract is almost complete, the profit to be credited to profit & loss account is
ascertained by the formula
(a) Notional profit x 1/3 x Cash received / work certified
(b) Notional profit x 2/3 x cash received / work certified
(c) Estimated profits x work certified / contract price
(d) All of the above
88. When type of the following loss does not affect the cost of output
(a) normal loss (b) abnormal loss
(c) standard loss (d) seasonal loss

89. Accounting entry for transferring the cost of abnormal gain process costing is
(a) Dr. costing profit and loss account
Cr. Process account
(b) Dr. abnormal gain Account
Cr. Costing profit and loss account
(c) Dr. costing profit and loss account
Cr. Abnormal gain account.
90. Accounting entry for writing off abnormal loss in a process is
(a) Dr. process account
Cr. Costing profit and loss account
(b) Dr. abnormal wastage account
Cr. Costing profit and loss account
(c) Dr. costing profit and loss account
Cr. Abnormal wastage account.
91. When referring to concept of margin of safety, one has the following in mind :
(a) the excess of actual sales over the budgeted sales
(b) the excess of actual sales over variable cost
(c) the excess of actual sales over break even sales
(d) the excess of either actual sale or budgeted sales
92. If there is decrease in fixed cost while variable cost per unit remaining contract, the new
break even point in relation to old B.E.P. will be
(a) unchanged (b) higher
(c) lower (d) indetermine
93. If fixed cost decreases while variable cost per unit remaining unchanged, the P/V will
(a) remain unchanged (b) decrease
(c) increase (d) indetermine

94. The conventional break even analysis does not assume that :
(a) selling price per unit will remain fixed
(b) variable cost per unit will vary
(c) total fixed cost remains the same
(d) productivity remains unchanged
95. Cost volume profit analysis is most important for determining
(a) volume of operation necessary to break even
(b) sales required to make it equal to fixed cost
(c) variable revenue necessary to equal fixed
(d) relationship between revenues and costs as various levels of operations.
96. In case of both conditions of market, a business will be more profit, whose
(a) B.E.P., is lower (b) B.E.P., is higher
(c) P/V ratio is less (d) P/V ratio is more
97. Under the condition of depression a business will earn to the profits whose
(a) B.E.P., is lower (b) B.E.P., is higher
(c) P/V ratio is less (d) P/V ratio is more
98. When fixed cost is Rs.50,000 and PIV ratio is 25% B.E.P. will be
(a) Rs.12,500 (b) Rs.50,000
(c) Rs.1,00,000 (d) Rs.2,00,000
99. When fixed cost is Rs.10,000, profit Rs.5,000 and sales are Rs.30,000 P/V ratio will be
(a) 33 1/3% (b) 16 2/3%
(c) 50% (d) cannot be computed
100. Total cost under marginal costing includes
(a) prime cost (b) Prime cost and variable overheads
(c) prime cost and fixed overhead (d) prime cost and variable factory overheads
101. When P/V is 40% and sales value Rs.1,00,000, the variable cost will be
(a) Rs.40,000 (b) Rs.60,000
(c) Rs.1,00,000 (d) cannot be computed
102. If profit is 20% and P/V ratio is 50%, the margin of safety will be
(a) 20% (b) 40%
(c) 50% (d) cannot be computed
103. If ratio of variable cost to sales is 70% and sales are Rs.2,00,000, the total contribution will
(a) Rs.1,40,000 (b) Rs.60,000
(c) Rs.2,00,000 (d) cannot be computed
104. When fixed cost is Rs.10,000 and margin of safety is Rs.5,000, the P/V ratio will be
(a) 200% (b) 50%
(c) 33 1/3% (d) cannot be computed
105. When sales jumpes by Rs.50,000 and profit increased by Rs.10,000 the P/V ratio will be
(a) 20% (b) 500%
(c) cannot be computed
106. When sales increases from Rs.50,000 to Rs.1,00,000 and profits from Rs.10,000 to Rs.15,000
in two periods, the p/v ratio will be
(a) 20% (b) 15%
(c) 10% (d) cannot be computed
107. When fixed cost is Rs.10,000 and P/V ratio is 40%, the B.E.P. P/V will be
(a) Rs.16,667 (b) Rs.25,000
(c) Rs.4,000 (d) cannot be computed
108. When fixed cost Rs.10,000, the ratio of variable cost to sales is 60%, the B.E.P. is
(a) Rs.16,667 (b) Rs.25,000
(c) Rs.4,000 (d) cannot be computed
109. When sales are Rs.3,00,000, P/V ratio 30T and fixed cost is Rs.50,000, the profit is
(a) Rs.1,40,000 (b) Rs.90,000
(c) Rs.40,000 (d) cannot be computed
110. The horizontalline on P/V graph represents
(a) total cost (b) total sales
(c) fixed cost (d) profit
111. On a P/V graph, the area below horizontal line represents
(a) Sales volume (b) Profit area
(c) loss area (d) contribution margin
112. Given Profit = Rs.200
Sales = Rs.2,000
Variable cost = 75% of sales
B.E.P will be
(a) Rs.8,800 (b) Rs.8,000
(c) Rs.1,200 (d) cannot be computed from the given data
113. Given Break-even volume = Rs.8,000
Fixed cost = Rs.3,200
Profit at the required sale of Rs.10,000 will be
(a) Rs.4,000 (b) Rs.2,000
(c) Rs.6,800 (d) Rs.800
114. A company gives you the following data
Fixed cost = Rs.8,000, Break even units = 4,000, sales = 6,000 units, selling price = Rs.10
Then the variable cost per unit will be
(a) Rs.8 (b) Rs.8.67
(c) Rs.6 (d) cannot be determined from given data

115. Given Fixed = Rs.12,000; Profit = Rs.1,000; Break even sales = Rs.60,000.
(a) Rs.47,000 (b) Rs.59,000
(c) Rs.5,000 (d) None of the above
116. Given : SP = Rs.20 per unit; VC = Rs.16 per unit; Fixed cost = Rs.60,000
Sales price required to bring B.E.P., down to 10,000 units will be
(a) Rs.26 (b) Rs.42
(c) Rs.22 (d) None of the above
117. The sales and profit of Shivani Ltd., were as under :
Sales Rs. Profit Rs.
1992 1,50,000 20,000
1993 1,70,000 25,000

The P/V ratio will be
(a) 25% (b) 100%
(c) 125% (d) 10%
118. Standard cost is used
(a) for finding out the cost volume profit relationship
(b) as a basis for price fixation and cost control through variance analysis
(c) to find out the break even point
119. The cost of product under standard cost system is
(a) Pre determined cost
(b) Historical cost
(c) Marginal cost
(d) Direct cost

120. The type of standards which are best suited for cost control are
(a) ideal standards (b) expected standards
(c) basic standards (d) normal standard
121. Which one of the following standard can best be attained under most favourable
(a) ideal standard (b) expected standard
(c) basic standard (d) normal standard
122. The main purpose of standard cost may be described as
(a) standardization of operations
(b) simplification of operations
(c) controlling and reducing costs
(d) setting cost of manufacture
123. A company using ideal standards in a standard cot system should expect that
(a) employees will be motivated to achieve standards.
(b) A large incentive will be paid
(c) Costs will be controlled better than if lower standards were fixed
(d) Most of the variances will be adverse.
124. The quantitative technique that is used in comparing significant deviation of actual
performance and expected level, is
(a) time series (b) differential calculus
(c) correlation analysis (d) standard cost variance analysis
125. Standard costing can be used with
(a) Absorption costing (b) job and process costing
(c) marginal costing (d) all the above


126. Standard costing is useful in all except
(a) costing inventories (b) reducing cost
(c) establishing records
(d) speeding up preparation of operating reports.
127. In evaluating deviation of actual from standard, the probable technique used is
(a) Variable regression (b) treand analysis
(c) variance analysis (d) linear regression
128. Labour rate variance is obtained by multiplying the
(a) standard rate by the difference between standard hours and actual hours
(b) actual hours by the difference between actual rate and standard rate
(c) actual rate by the difference between actual hours and standard hours.
129. Overhead cost variance is difference between
(a) Budgeted overhead cost and actual overhead cost
(b) Actual overhead cost and standard cost of overheads for actual output
(c) Budget overhead cost and revised budgeted cost of overheads.
130. Which variance arises when more than one material is used for production
(a) material cost variance (b) material quantity variance
(c) Material revised variance (d) material mix variance
131. Material mix variance is sub-variance of
(a) material cost variance (b) material price variance
(c) Material usage variance (d) material yield variance
132. Under standard costing and actual costing the same financial statement results are
reported when standard cost variance are transferred to
(a) cost of goods sold (b) a balance sheet account
(c) cost of goods sold and inventory (d) income or expense account

133. Idle time variance is sub variance of
(a) labour rate variance (b) labour efficiency variance
(c) labour cost variance (d) labour yield variance
134. Fixed overhead expenditure or budget variance is a sub variance of
(a) overhead cost variance (b) overhead efficiency variance
(c) overhead capacity variance (d) none of the above
135. The type of variance not computed for factory overhead is
(a) idle capacity variance (b) volume variance
(c) controllable variance (d) equivalent production
136. The fixed overhead cost variance in a factory for a period was Rs.12,800 (adverse).
Expenditure variance amounted to Rs.15,000 (adverse). The volume variance will be
(a) Rs.2,200 (adverse) (b) Rs.2,200 (favourable)
(c) Rs.4,400 (favourable)
137. Actual output 16,000 units, standard rate Rs.2 budgeted fixed overhead Rs.30,000. Actual
fixed overhead Rs.30,500. Volume variance is
(a) Rs.150 (favourable) (b) Rs.2,000 (favourable)
(c) Rs.5,000 (adverse)
138. Actual output 16,000 units, standard rate Rs.2. Budgeted fixed overhead Rs.30,000. Actual
fixed overhead Rs.30,500, Expenditure variance will be
(a) Rs.500 (adverse) (b) Rs.1,500 (favourable)
(c) Rs.2,000 (fabourable)
139. Budgeted sales quantity 1000 units, budgeted price Rs.20. actual quantity sold 1300 units.
Actual selling price Rs.21. sales value variance is
(a) Rs.100 (adverse) (b) Rs.7300 (adverse
(c) Rs.7300 (favourable)

140. Budgeted sales quantity 1000 units, budgeted price Rs.20. actual quantity sold 1300 units.
Actual price Rs.21. sales price variance is
(a) Rs.1000 (adverse) (b) Rs.1300 (adverse)
(c) Rs.1300 (favourable)
141. Budgeted sales quantity 2000 units at a budgeted sales price of Rs.15 each. Actual sales
amounted to 2300 units at a price of Rs.14 each. Sales price variance is
(a) Rs.2300 (adverse) (b) Rs.2200 (adverse)
(c) Rs.3300 (favourable)
142. Sales price budgeted sales price per unit Rs.15; Actual quantity of sales 2300 units;
budgeted sales 2000 units; actual price Rs.14 per unit. Sales volume variance is
(a) Rs.3300 (adverse) (b) Rs.4200 (favourable)
(c) Rs.4500 (favourable)
143. A ----- is a prediction of what will happen as a result of given set of circumstances.
(a) forecost (b) marginal cost
(c) budget (d) None of the above
144. A ----- is a planned result that an enterpreise aims to attain.
(a) budget (b) Marginal costing
(c) Standard costing (d) Forecast
145. One of the most important tool of cost planning is
(a) Standard costing (b) marginal costing
(c) budget (d) cost sheet
146. A budget which lays more stress on control aspect is a/an
(a) financial budget (b) flexible budget
(c) sales budget (d) responsibility budget
147. The first step in preparing budget is
(a) cash forecast (b) sales forecast
(c) production forecast

148. Budget can be classified according to
(a) Time factor (b) function
(c) capacity (d) all the above
149. Capital expenditure budget is prepared for a period of
(a) 6 to 12 months (b) 5 to 10 year
(c) 1 year
150. The principal budget factor for a consumer goods manufacturers normally
(a) sales demand (b) labour shortage
(c) both sales and labour
151. A budget is a projected plan of action expressed in
(a) monetary terms (b) physical units
(c) monetary and / or physical units
152. The budget is
(a) a substitute of management
(b) an aid to management
(c) a post mortem analysis
153. The capacity ratio is worked out by the formula
(a) Standard hours actually produced / Actual direct machine hours recorded x 100
(b) Actual machine hours worked / Budgeted machine hours x 100
(c) Machine hours worked / Direct labour hours worked x 100
154. Formula for Efficiency ratio is
(a) Actual hours worked / Budgeted hours x 100
(b) Standard hours for actual production / Budget hours x 100
(c) Standard hours for actual production / Actual hours worked x 100

155. Formula for Calendar ratio is
(a) Number of budgeted days / Number of actual days x 100
(b) Number of actual days worked / Number of days in the budget period x 100
(c) None of the above.
156. The major assumption as to cost and revenue behaviour underlying conventional cost
volume profit analysis is
(a) constancy of fixed cot
(b) variability of unit prices and efficiency
(c) linearity of relationship
(d) curvilinearity of relationships
157. When a firm uses marginal costing
(a) the cost of the unit of product changes because of changes in number of units manufactured
(b) profit fluctuate with sales
(c) the idle capacity variance is calculated
(d) product costs include variable administrative costs.
(e) None of the above.
158. Given : selling price = Rs.10 per unit, variable cost per unit = Rs.6, the P/V ratio is
(a) 40% (b) 60%
(c) cannot be determined by available data (d) None of the above.
159. Given : Sp = Rs.15 per unit, variable cost = Rs.10 per unit and Fixed cost Rs.1,50,000, what
will be selling price if B.E.P. is brought down to 25,000 units ?
(a) Rs.6 (b) Rs.16
(c) cannot be determined (d) None of the above

160. Give SP = Rs.40 per unit, V.C. per unit = Rs.25, Fixed Cost = Rs.1,80,000, Number of unit
to be sold to earn a net income of 15% will be
(a) 12000 units (b) 15,000 units
(c) 20,000 units (d) cannot be determined
161. Given : Sales Rs.1,50,000, V.C. Rs.3,75,000 & FC Rs.15,00,000; sales required to earn a
profit of Rs.20,000 will be
(a) Rs.4,80,000 (b) Rs.10,00,000
(c) Rs.16,00,000 (d) Rs.8,00,000
162. Given Sales = Rs.4,00,000, V.C. = Rs.2,70,000, fixed cost = Rs.1,80,000, By how much sales
must be increased for break even ?
(a) Rs.1,53,846 (b) Rs.1,80,000
(c) Rs.2,66,667 (d) None of the above
163. If 100% capactiy sales are Rs.9,00,000, fixed cost = Rs.1,50,000 P/V ratio is 33 1/3% B.E.P.
will occur at percent
(a) 50% (b) 60%
(c) 70% (d) none of the above
164. Given the data in question No.163 above, what will be expected sales volume in second
(a) Rs.1,80,000 (b) Rs.2,40,000
(c) Rs.1,20,000 (d) None of the above
165. Given data in Q. No. 163 above, the B.E.P will be
(a) Rs.3,00,000 (b) Rs.4,50,000
(c) Rs.1,80,000 (d) None of the above

166. Given :
Sales Rs. Total Cost
July 1993 1,00,000 80,000
Aug 1993 1,50,000 1,00,000

Fixed cost is Rs.40,000. The contribution margin is
(a) Rs.60% (b) 40%
(c) cannot be determined (d) none of the above
167. A company is to take up the decision regarding pricing its product. The cost data per unit
is. Raw material = Rs.12, Labour = Rs.8. Overhead = Rs.10. the company is looking for a
profit of 25% on its sales price. The selling price per unit is
(a) Rs.37.50 (b) Rs.42.50
(c) Rs.40.00 (d) none of the above
168. The current sales of modern limited are Rs.3,00,000. The fixed cost are Rs.1,00,000. The
company operates are a contribution margin of 40%. The margin of safety at which the
company is currently operating is
(a) Rs.1,00,000 (b) Negative Rs.1,00,000
(c) Rs.20,000 (d) none of the above
169. In a company variable cost is Rs.14 and fixed cost is Rs.2 per unit. The company fixes the
selling price to fetch a profit of 15% on cost contribution per unit will be
(a) Rs.16.10 (b) Rs.2.30
(c) Rs.4.40 (d) None of the above
170. A company has a P/V ratio of 40%. The company is considering a reduction in S.P. by 10%
percentage sales required to offset the reduction in price will be
(a) 44.44% (b) 33.33%
(c) 20% (d) None of the above

171. A company has a profit of Rs.5,000 (20% of sales) and its P/V ratio is 50%. Its B.E.P. will
(a) Rs.15,000 (b) Rs.10,000
(c) Rs.50,000 (d) cannot be determined from given data
172. An object of incorporating inter process profit in account is that
(a) product of each process can stand its own efficiency
(b) company can earn higher profit
(c) it helps in the control of costs in process
173. Input in a process is 2000 units and normal loss is 10%. When finished product is 1620
units, there is an
(a) abnormal loss of 180 units
(b) abnormal gain of 180 units
(c) neither abnormal loss or abnormal gain
174. Input in a process 200 unit and normal loss is 10%. If output is 190 unit. Scrape value Re.1
per unit. Process cost = Rs.2,000. The amount of abnormal gain transferred to Profit and
Loss account would be
(a) Rs.100 (b) Rs.110 (c) Rs.200 (d) Rs.220
175. In process costing, cost follow
(a) price rises (b) Product flow
(c) Price decline (d) finished goods
176. The term Management accountancy was first used in
(a) 1950 (b) 1939 (c) 1970 (d) 1903
177. Management Accounting is
(a) Optional (b) Compulsory
(c) Obligatory (d) none of the above

178. Management accountancy relates to
(a) Recording of financial data
(b) Recording of accounting data
(c) Presentation of accounting data
(d) Recording of costing data
179. Financial statements account
(a) estimates of facts (b) anticipated facts
(c) recorded facts (d) none
180. Financial accounts provide summary of
(a) assets (b) liabilities
(c) account (d) all
181. Financial statements, particularly balance sheets are presented in
(a) Horizontal or vertical form (b) Only horizontal form
(c) only vertical form (d) none
182. Income statements gives out
(a) the profit of the concern (b) the estimates of the products
(c) the cost of the products (d) all
183. Financial analysis refers to the process of determining
(a) financial strengths and weakness (b) financial opportunities and threats
(c) financial sources (d) all of the above
184. Financial analysis, on the basis of, modus operandi can be
(a) external and internal analysis (b) horizontal and vertical analysis
(c) parallel analysis (d) ratio analysis
185. Comparative balance sheet will have
(a) four columns (b) six columns
(c) two columns (d) five columns
186. Comparative income statement gives
(a) an idea of the progress of business over a period of time
(b) an idea of financial through of the business
(c) an idea of long term solving of the business
187. Current assets include
(a) trade investments (b) machinery
(c) sundry debtors (d) all of the above
188. Which of the following is noncurrent asset
(a) goodwill (b) cash balance
(c) bills receivable (d) sundry debtors
189. State which of the following is noncurrent liability
(a) mortgage loan (b) Bank balance
(c) outstanding salary (d) sundry creditors
190. Depreciation of machinery is
(a) a source of funds (b) application of funds
(c) both a & b (d) none of the above
191. Stock in the beginning results in
(a) application of funds (b) source of funds
(c) no flow of funds (d) none
192. Which of the following is non current item
(a) payment of wages (b) sundry creditors
(c) bank balance (d) share premium
193. Which of the following with result in to application of funds
(a) sale of plant (b) issue of shares
(c) payment to creditors (d) purchase of plant

1. c 2. d 3. D 4.c 5.d 6.c 7.b
8.c 9.a 10.b 11.b 12.d 13.c 14.d
13.c 14.d 15.d 16.b 17.c 18.c 19.a
20.c 21.c 22.d 23.c 24.a 25.b 26.a
27.d28.a 29.d 30.d 31.b 32.d 33.b
34.c 35.b 36.b 37.a 38.b 39.d 40.b
41.a 42.d 43.c 44.b 45.c 46.d 47.c
48.b49.c 50.d 51.d 52.b 53.d 54.d
55.d56.b 57.c 58.b 59.d 60.c 61.c
62.d63.d 64.c 65.d 66.c 67.a 68.a
69.b70.c 71.b 72.a 73.d 74.b 75.c
76.c 77.a 78.a 79.a 80.b 81.c 82.b
83.c 84.d 85.c 86.a 87.c 88.a 89.b
90.c 91.c 92.c 93.a 94.b 95.d 96.d
97.a 98.d 99.c 100.b 101.b 102.b 103.b
104.d 105.a 106.c 107.b 108.b 109.c 110.b
111.c 112.c 113.d 114.a 115.a 116.c 117.a
118.b 119.a 120.b 121.a 122.c 123.d 124.d
125.b 126.c 127.c 128.b 129.b 130.d 131.c
132.c 133.b 134.a 135.d 136.b 137.b 138.a
139.c 140.b 141.a 142.c 143.a 144.a 145.c
146.d 147.b 148.d 149.b 150.a 151.c 152.b
153.b 154.c 155.b 156.c 157.d 158.a 159.b
160.c 161.d 162.a 163.a 164.c 165.c 166.a
167.c 168.d 169.c 170.c 171.a 172.a 173.a
174.a 175.b 176.a 177.a 178.c 179.c 180.c
181.a 182.a 183.a 184.b 185.a 186.a 187.c
188.a 189.a 190.a 191.a 192.d 193.d


1. Costing is a technique of -------
2. The main function of cost accounting is ------ reporting
3. The main function of financial accounting is ------ reporting
4. Cost accounting has developed because of ------ of financial accountant
5. Cost accounting is the science, art and ---- of a cost accountant.
6. The ordinary trading account is a locked store house of most valuable information to which the --
---- is the key.
7. Cost accounts deals with facts and figures and partly with -----
8. In cement industry, cost unit is ---------
9. In automobile industry, cost unit should be ---------
10. The method of costing used in a refinery is -------
11. ------- Method is used in transport undertaking
12. ------ costing methods is used in cinemas.
13. In ----- Costing method, the cost of group of similar commodities is ascertained.
14. The process of identifying summarising and terpreting information needed for planning and
control for management decision and for product costing is termed as ------
15. The ascertainment of cost after they have been incurred is known as ------
16. Cost units are a brick line may be ------- bricks.
17. ------ Costing is used in power supply companies
18. Cost unit in a hospital may be a --------
19. Stocks are valued at ------- price in cost accounting.
20. ------ Costing is a technique based on classification of costs into fixed and variable.
21. One of the important functions of cost accounting is proper matching of ----- with revenue.
22. ------ Costing refers to use of same costing principles and practice in several undertakings.
23. Financial accounting takes a ------- view of financial transactions.
24. The industries where more than one methods of costing is applicable is known as ----- costing
25. A system where costs are predetermined is known as ---- costing.
26. Historical Costing is the ascertainment of cost after they have been --------
27. Marginal costing is the ascertainment of marginal cost by differentiating between ------
28. Process costing is suitable for industries where production is ------
29. Unit costing is also known as ---- costing
30. Contract costing is sometimes called ------ costing to emphasis that a deadline has been fixed by
a contractor.
31. The aggregate cost of direct material direct labour and direct expenses is known as ------
32. The aggregate cost of indirect materials, indirect labour and indirect expenses is known as --------
33. The total of all direct costs is termed as --------
34. Materials used plus direct labour plus factory overhead is called -------
35. Two examples of fixed factory overhead are ---- and ------
36. Two examples of variable factory overheads are ----- and ------
37. The aggregate cost of direct wages and manufacturing overhead is termed as ------
38. An example of pre-production cost is --- cost.
39. ------ is a location, person or an item of equipment for which cost may be ascertained and used
for the purpose of cost control.
40. ------ is a cost centre which consists of person or a group of persons.
41. ----- costs are hypothetical notional cost.
42. ------- cost are partly fixed and partly variable in relation to output.
43. ------ unit costs remained constant with changes in volume, while ---- unit costs fluctuate with
44. ------- expenditure benefits only the current period, while ---- expenditure benefits more than one
45. When a change is made in the level of production, the resulting change in total cost is referred to
as --------
46. ------ is a cost, which cannot be influenced by the action of specified member of an undertaking.
47. ------ is a document which provides for the detailed cost of a cost centre or cot unit.
48. Works costs is the total of prime cost and -----
49. ------ is the sum of works cost and administrative overheads.
50. An item of cost which is direct for one business, may be --- another business.
51. Cost of primary packing material is the part of ---- material cost.
52. Cost of secondary packing material is the part of ------ overhead cost.
53. Two levels of material control exist ---- and --------
54. Purchase of material is initiated through --------
55. Regular purchase requisition is initiated by the --------
56. Regular purchase requisition is initiated when level of material reaches at --------
57. ----- requisition is initiated by the department head.
58. ----- are invited by the purchase department.
59. Statement known as ------ is prepared by purchase department to compare price quotation of
different suppliers.
60. -------- is prepared to place orders for materials.
61. --------- is prepared by the receiving Department.
62. Goods received note is prepared by the -------
63. Goods received note is also known as -----
64. ------ is prepared by Material Inspection department.
65. ------ items of materials should be stores ad near as possible to the departments using t hem.
66. Allotting codes and symbols to different items of stores is known as -------
67. ------ is the level beyond which normally stock should not exceed.
68. ------ is the level below which the stock should not fall.
69. Minimum level is also known as -----
70. ------ the time required to replenish the stores.
71. ----- is the level at which normal issues of materials are stopped.
72. Bin cards are also known as -------
73. Store ledger is kept in the ------
74. Bin cards are maintained by ------
75. ----- records only the quantity of materials
76. ------ is the level at which a new order for materials is to be placed.
77. ------ represents that quantity of materials which is normally ordered.
78. Under A,B,C analysis A stands for -------
79. ------- are maintained by the store keeper.
80. Formula for minimum level is --------
81. Formula for average stock level is ------
82. The system under which stock is verified after the close of financial year is ----- control system.
83. Two important opposing factors in fixing E.O.Q are ----- and -----
84. ---- record only the quantity of receipts, issues and their current balances.
85. Store-keeper by seeing bin cards send ------ for the purchases of materials.
86. To ensure the accuracy of inventory records, -------- of the stores is made by a programme of
continuous stock taking.
87. ----- is an essential feature of the perpetual inventory system.
88. In ------ checking is spread over throughout the year.
89. A.B.C analysis is also known as -------- method.
90. ----- are maintained to record the results of physical verification of material under perpetual
inventory control.
91. Stock Adjustment Account is debited with ------ and credited with ------
92. Bin card is a record of ------- only.
93. Formula for calculating maximum level is -------
94. Two avoidable reasons for the difference between physical quantity of material and that shown
on bin card may be ----- and -------
95. A method of recording stores balance after every receipt and issue to facilitate regular checking
and to obviate closing down for stock taking is known is ------
96. The method of physical verification of material throughout the year is known as ----
97. An ----- cost is advantage foregone.
98. All cost are ------ controllable.
99. An ----- cost does not involved cash out flow.
100. Out of pocket costs involve payment to --------
101. Added value in the change in -----
102. A profit centre is a division of organization unit which is concerned with controlling, both --- and
103. Depreciation is a ----- expenditure.
104. Total cost Selling and distribution overheads = ------
105. Cost of raw material Consumed = Opening stock + Net purchase + Carriage inwards ---
106. Works cost works on cost = ------
107. Prime cost factory overheads + ------- = Cost of production.
108. Prime cost + --------- + Opening stock of W.I.P Closing stock of W.I.P = Works cost.
109. Cost of sales + ------- = Sales
110. Prime cost + works on cost + Office on cost = ------
111. Cost unit in a textile industry is --------
112. Units like passenger km., man days and kilowatt hours are termed as ------ units.
113. A cost which involves payment to outside parties is known as ------ cost
114. In cost accounting all abnormal losses are transferred to -------
115. On the basis of behavior of cost, overheads are classified into ----------
116. Normal loss is always recovered from -------
117. Small material like mails, glue, thread may be treated the part of ----- material.
118. Closing stock of finished goods is valued on the basis of ------
119. Selling and distribution overheads are recovered as a percentage of -------
120. Carrying cost is also known as -------
121. ------ is a document used for drawing materials from the stores.
122. Transfer of surplus material from one job to another job is recorded is ------
123. A ------ is prepared when material is returned from production department.
124. Material is transferred with a note known as --------
125. ------ is prepared to calculate the value of material consumed in each job.
126. Under ------ method, materials are issued to production at a predetermined price.
127. ------- method even out the fluctuate in purchase prices.
128. Under the --------method, the new price is calculated after each purchase.
129. Under the ------- cost method, the material issued during a month are costed at the weighted
average price as at the end of the price month.
130. ------- is a special type of discount allowed for bulk purchase.
131. Labour is the most ------
132. Labour cost includes both ---- and -------
133. Formalities relating to recruitment of an employee starts with receipt of ------- by the Personal
134. Each employee recruited is allotted --------
135. ------ is maintained in personal department giving full information about each employee in a
136. Engineering Department maintain control over --------- and -------
137. Motion study is also known as --------
138. Motion study was developed by --------
139. Movements in motion study are known as ------
140. Time study is also known as -------
141. ------ is a systematic study to determine the worth of a job.
142. ------ is the process of evaluating the workers actually performing the jobs.
143. ------ is a method of evaluating job in terms of money value.
144. ------- is concerned with recording the time of each worker engaged in the factory.
145. Recording of time is done for two purposes, namely ----- and -----
146. Wages are calculated by ------
147. ----- is the reporting of each workers time for each department, operation or job.
148. Payrolls are prepared by --------
149. --------- is the difference between time clocked and time booked.
150. Labour cost is a ------ major element of cost.
151. The method of costing applied in biscuit industry is ----- and in steel industry is -------
152. Average unit cost for each process is calculated by diving the ----- by ------
153. The cost system that must be used in an industry is determined by -------
154. The two special problems that arise in process cost industry re ---- and -----
155. Where raw material requires certain stages before it is converted into finished product, the
method of costing is ------
156. If the actual loss in more than anticipated loss, the difference between the two is considered as ---
157. When the actual loss is than the normal loss, the difference between the two is termed as -------
158. The cost of normal loss is less recovered from cost of production of ------
159. Abnormal process losses are credited to --------
160. Abnormal process losses are transferred to --------
161. Normal loss may be either ------- or ------
162. The two main methods of calculating equivalent production are ---- and -------
163. ------ represents the production is a process in term of completed units.
164. If 100 units of opening W.I.P are 80% complete, it is equivalent to ----- completed units.
165. If 600 units of closing stock are 30% complete, it is equivalent to ---- completed units.
166. If 1000 units of normal loss are 100% complete for material, labour and overheads, it is
equivalent to ---- completed units.
167. A budget is a ----- and / or ------- statement, prepared & approved prior to a defined period of
time of the policy to be pursued during that period for the purpose attaining a given ------
168. ----- is the establishment of budgets relating the responsibility of executives to the requirement of
a policy or to provide a basis of its -------
169. Budgetary control involves checking and evaluation of ----- performance.
170. The factor which imposes a restriction on the maximization of profit is known as ------ factor.
171. ------ are subsidiary to Master Budget.
172. The essence of advertisement budget is to coordinate advertisement with -----
173. Production budget is based on stabilized quantity of --- or -----
174. The document which describes the budgeting organization, procedures etc., is known as ----
175. ------ budgets are most suited for fixed expenses.

1. Ascertaining cost 2. Internal 3. External
4. Limitation 5. Practice 6. Cost system
7. Estimates 8. Tonne 9. number
10. Process costing 11. Operating costing 12. Operating
13. Batch 14. Cost Accounting 15. Historical Costing
16. 1000 17. Operating 18. Patient
19. Cost 20. Marginal 21. Costs
22. Uniform 23. Macro 24. Multiple
25. Standard 26. Incurred 27. Fixed; variable
28. Continuous 29. Single or output 30. Terminal
31. Prime cost 32. Overheads 33. Prime cost
34. works cost 35. Factory rent, foreman Salaries
36. Power, Lubricants 37. Conversion cost
38. Research and Development 39. Cost centre 40. Personal cost centre
41. Imputed cost 42. Semi- variable 43. Variable; fixed
44. Revenue; Capital 45. Differential costs 46. Uncontrollable
47. Cost sheet 48. Factory overheads 49. Cost of production
50. indirect 51. Direct
52. Selling and distribution 53. Quantly control, financial control
54. Purchase Requisition 55. Store keeper 56. Re-order level
57. special or occasional purchase 58. Quotationor Tenders
59. comparative statement of quotations 60. Purchase order
61. goods received note 62. Receipt and Inspection Department
63. Goods Receiving Clerk 64. Material Inspection Report
65. Heavy and Bulky 66. Codification 67.Maximum level
68. Minimum level 69. Safely or Buffer level 70. Reordering level
71. Danger level 72. Bin tag or stock card
73. Cost Accounting Department 74. Store keeper 75. Bin Card
76. Ordering level 77. Economic order quantity
78. High value items 79. Bin Cards
80. Reorder level (Normal Consumption x Normal Re-order period)
81. Minimum level + Reorder quantity
82. Periodic inventory central system
83. Cost of ordinering; cost of carrying stock 84. Bin card
85. Purchase Requisition 86. Physical verification
87. Continuous stock taking 88. Physical verification
89. Always Better Control 90. Stock verification sheets
91. Shortage of Stock, surplus 92. Quantity
93. Reorder level + Reorder quantity (minimum consumption minimum reorder period)
94. Shrinkage and evaporation absorption of moisture
95. Perpetual inventory system 96. Physical perpetual inventory
97. opportunity 98. Not 99. Opportunity
100. outsiders 101. Market value 102. Sales
103. semi average 104. Cost of goods sold
105. Closing stock 106. Factory overheads
107. Administrative overhead 108. Factory overhead
109. profit 110. Cost of production
111. metre 112. Composite or compound
113. Out of pocket 114. Costing P & L A/c
115. Fixed variable semi variable 116. Product 117. Indirect
118. cost of production 119. Works cost 120. Holding cost
121. material requisition 122. Material Transfer Note
123. Material returned note 124. Material transfer Note
125. Material Abstract 126. Standard price 127. Average Cost
128. Simple arithmetic Average 129. Periodic weighted average
130. Trade discount or quantity discount
131. Perishable commodity 132. Monetary benefits, finger benefits
133. employee placement requisition
134. a token or ticket number 135. Employee History Card
136. working conditions; production method
137. Method study 138. F.B. Gillbrith 139. Theirblig
140. Work measurement 141. Job Evaluation 142. Merit Rating
143. Job Evaluation 144. Time keeping
146. Pay roll department 147. Time keeping
148. Time keeping department 149. Idle time 150. Second
151. process; unit or output costing
152. Total process cost; number of unit in the process
153. Type of manufacturing process
154. valuation of work in progress; processes losses
155. process 156. Abnormal loss 157. Abnormal gain
158. good unit 159. Process account
160. Costing Profit and Loss Account
161. Waste; a scrap 162. F.I.F.O.; Average cost
163. Equivalent production 164. 200 165. 180
166. Zero 167. Quantitative monetary
168. Budgetary control; actual revision 169. Actual
170. principal budget 171. Functional budget 172. Sales
173. production; stock 174. Budget manual 175. Fixed

1.all accounting concepts and conventions purpose of it ;
2.define revenue expenditure and deffred revenu expediture and capital expenditurre ;
3. company , public ltd company, preffred shares and equity shares ,share premium ,
disscount on issue of shares;
4.difine subsidary and holdidng company , minority intrest and primary market ,secoundary
market, treatment of minority interest;
6.difine deprication , depletion and amoratisition and methods for caluculating deprecation (very
7.define provision, reserves, capital reserves and revenu reserve (accounting treatment);
8.inventory valuation methods ,primary steps for material valuation;
9.difne good will and its valuation methods;
10.explain dividend , interim dividend and final dividend;
11.difine debentures and bonus shares , rights issue; cash flow statement (diffrence between C.F.S AND FFS );
13. explain margina costing , margine of safty, BEP, variable cost semivariable cost and fixed
14. difine operating costing , obsorption costing and opprtunity cost;
15.differnce between partner ship and joint venture , revenu and income, accured income and
outstanding income, debtor and creditors; consignment , consineee, consignor;
16, what are nonrecurring items in pl a/c and noncash expenditure in pl a/c (very imp)
17. outstanding slaries entry a
18. Journal entires if the follwing line items are given as adjestment in balance sheet and p l a/c
Fire accident of inventory
Case 1. no insurance coverage
Case 2.partly insurance coverage
Case 3. fully insurance coverage
19. total formulas of ratio analisys and its applications
(net equity, yeild, payout, PE ratio are very imp)

20. define amalagamation and absorbtions and recunstrations , methods for accounting
21. shedule 6th balance sheet and incoem statement format (miscellnious exp discloure in it)
22. defien capital profit and revenu profit;
23. .deffrence between trade discount and cash discount;
24. what is BRS;
25. what are the extordinary income and items;
37. Difference between Tangible & Intangible asset;
38. Difference between ficitious & non- ficitious asset;
39. difference between tangible & intangible & ficitious & non-ficitious asset;
40. reverse stock split

LAW & General Terminology
24. define intrenal audit and staturory aduit, tax audit
25. define mutual funds (very imp)

27. deffrecne between capital lease and finacial lease (it is better to give one glance on AS-19)
(for definations only)
29. define adr and gdr (very imp)
30. do the preferecne share holders have the voitng rights
32. investments (short and long term)
33.what is the meaning of derivatives (very very very imp)
34. difference between the SENSEX AND NIFTY
35.valution methods of shares
36. non performing assets (npa) (very imp)
40. articles of association and memorandum of associastion objectives of these (very imp)
41 .what is stock exchange and give examples of (us stock exchanges names; what is SEBI and its
1. Minority Interest means
2. Stock turover ratio
3. Call in advance shown in the balance sheet as
part of the capital
5. Marginal profit
6. IRP
7. contingent liability shown in balance sheet under which head.
10. cost reduction means
14. what is amortisation
15. why should we provide depreciation
16. what is a free reserve.
one of the method of depreciation,
difference between intangible and fictious assets,
cashflows purpose,

Asset write down and depreciation difference
Is in india it is mandatory of preparing cashflow,
marginal cost means,
operating profit means,
normal earnings means,
goodwill impairment means
Difference between cost control and cost reduction,
differed revenue expenditure means,
miscelleneous expenditure unwritten off amt shown in...., mortgage means,
lease and agreement difference
acquisition and merger difference,
capital structure contains of......,
capital budgeting is the method for finding.....,
one of the method of depreciation,
difference between intangible and fictious assets,
cashflows purpose,
asset write down and depreciation difference
is in india it is mandatory of preparing cashflow,
marginal cost means,
operating profit means,
normal earnings means,
goodwill impairment means

Difference between cost control and cost reduction,
What is meant by portfolio management?
Can you say the difference between a share and a stock
What is difference between prospective and retrospective effect
Difference between broker and an underwriter?
Difference between hedging and swapping?
What is loan syndication
Difference between merger and reverse merger.
Difference between horizontal and vertical takeover.
Difference between primary markets and secondary markets.
Is there any concept of irredeemable preference shares?
What is opportunity cost of capital?
Rights issue and bonus issue.