G L O S S A R Y

FINANCE PART I
MAY 2019
INFLATION
INFLATION IS A QUANTITATIVE MEASURE OF THE RATE AT WHICH
THE AVERAGE PRICE LEVEL OF A BASKET OF SELECTED GOODS AND
SERVICES IN AN ECONOMY INCREASES OVER A PERIOD OF TIME.

DEFLATION
DEFLATION IS THE GENERAL DECLINE IN PRICES FOR GOODS AND
SERVICES OCCURRING WHEN THE INFLATION RATE FALLS BELOW
0%.

BANK RATE
A BANK RATE IS THE INTEREST RATE AT WHICH A NATION'S
CENTRAL BANK, IE, THE RBI, LENDS MONEY TO DOMESTIC BANKS,
OFTEN IN THE FORM OF VERY SHORT-TERM LOANS. NO COLLATERAL
IS INVOLVED WHILE CHARGING BANK RATE.

REPO RATE
THE RATE AT WHICH THE COMMERCIAL BANKS BORROW MONEY
FROM THE RESERVE BANK OF INDIA BY SELLING SECURITIES OR
BONDS WITH AN AGREEMENT TO REPURCHASE THE SECURITIES ON
A CERTAIN DATE AT A PREDETERMINED PRICE. REPO RATE IS THE
RATE AT WHICH THE RBI INFUSES LIQUIDITY IN THE ECONOMY.

REVERSE REPO RATE

REVERSE REPO RATE IS THE INTEREST OFFERED BY THE RBI TO
BANKS WHO DEPOSIT FUNDS INTO THE TREASURY. IT IS THE RATE
AT WHICH THE RBI SUCKS OUT EXCESS LIQUIDITY FROM THE
ECONOMY.

EXCHANGE RATE
AN EXCHANGE RATE IS THE VALUE OF ONE NATION'S CURRENCY
VERSUS THE CURRENCY OF ANOTHER NATION OR ECONOMIC ZONE.
FOR EXAMPLE, HOW MANY INDIAN RUPEES DOES IT TAKE TO BUY
ONE US DOLLAR?
GROSS DOMESTIC PRODUCT (GDP)
IT IS THE MONETARY VALUE OF ALL THE FINISHED GOODS AND
SERVICES PRODUCED WITHIN A COUNTRY'S BORDERS IN A SPECIFIC
TIME PERIOD. GDP INCLUDES ALL PRIVATE AND PUBLIC
CONSUMPTION, GOVERNMENT OUTLAYS, INVESTMENTS, ADDITIONS
TO PRIVATE INVENTORIES, PAID-IN CONSTRUCTION COSTS AND THE
BALANCE OF TRADE (EXPORTS ARE ADDED, IMPORTS ARE
SUBTRACTED).

GROSS NATIONAL PRODUCT (GNP)

THE GROSS NATIONAL PRODUCT IS THE VALUE OF ALL FINISHED
GOODS AND SERVICES OWNED BY A COUNTRY'S RESIDENTS OVER A
PERIOD OF TIME.

DEFICIT
WHEN A GOVERNMENT, BUSINESS, OR HOUSEHOLD SPENDS MORE
IN A GIVEN PERIOD OF TIME THAN THEY GENERATE IN INCOME,
THEY INCUR A DEFICIT.

FISCAL
RELATING TO PUBLIC REVENUES (TAXATION), PUBLIC SPENDING,
DEBT, AND FINANCE. IT IS ALSO ABBREVIATED FORM FOR
FINANCIAL/FISCAL YEAR.

FISCAL DEFICIT
A FISCAL DEFICIT OCCURS WHEN A GOVERNMENT'S TOTAL
EXPENDITURES EXCEED THE REVENUE THAT IT GENERATES,
EXCLUDING MONEY FROM BORROWINGS. DEFICIT DIFFERS FROM
DEBT, WHICH IS AN ACCUMULATION OF YEARLY DEFICITS.

FISCAL POLICY
IT REFERS TO THE POLICIES FRAMED BY THE GOVERNMENT IN
ORDER TO REGULATE TAXATION AND FOR ALLOCATION OF BUDGETS
TO VARIOUS DEPARTMENTS FOR THEIR FUNCTIONING.
MONETARY POLICY
MONETARY POLICY CONSISTS OF MANAGEMENT OF MONEY SUPPLY
AND INTEREST RATES, AIMED AT ACHIEVING MACROECONOMIC
OBJECTIVES SUCH AS CONTROLLING INFLATION, CONSUMPTION,
GROWTH, AND LIQUIDITY. THESE ARE ACHIEVED BY ACTIONS SUCH
AS MODIFYING THE INTEREST RATE, BUYING OR SELLING
GOVERNMENT BONDS, REGULATING FOREIGN EXCHANGE RATES,
AND CHANGING THE AMOUNT OF MONEY BANKS ARE REQUIRED TO
MAINTAIN AS RESERVES.

INSOLVENCY
INSOLVENCY IS A TYPE OF FINANCIAL DISTRESS, MEANING THE
FINANCIAL STATE IN WHICH A PERSON OR ENTITY IS NO LONGER
ABLE TO PAY THE BILLS OR OTHER OBLIGATIONS.

CASH FLOW INSOLVENCY

CASH-FLOW INSOLVENCY IS WHEN A PERSON OR COMPANY HAS
ENOUGH ASSETS TO PAY WHAT IS OWED, BUT DOES NOT HAVE THE
LIQUIDITY TO MAKE THE PAYMENT.

BALANCE SHEET INSOLVENCY

BALANCE SHEET INSOLVENCY INVOLVES HAVING NEGATIVE NET
ASSETS—WHERE LIABILITIES EXCEED ASSETS.

BANKRUPTCY
BANKRUPTCY IS A LEGAL TERM FOR WHEN A PERSON OR BUSINESS
CANNOT REPAY THEIR DEBTS. IT INVOLVES A COURT ORDER THAT
DECIDES HOW A COMPANY WILL DEAL WITH THEIR DUES.

COLLATERAL
AN ASSET THAT A LENDER ACCEPTS AS SECURITY FOR A LOAN.

AMORTIZATION
PAYING OFF OF DEBT WITH A FIXED REPAYMENT SCHEDULE IN
REGULAR INSTALLMENTS OVER TIME LIKE WITH A MORTGAGE OR A
CAR LOAN.
EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION, AND
AMORTIZATION (EBITDA)
EBITDA IS A METRIC USED TO EVALUATE A COMPANY’S OPERATING
PERFORMANCE, WHICH CAN BE SEEN AS A PROXY FOR CASH FLOW
FROM THE ENTIRE COMPANY’S OPERATIONS.

CAPITAL ALLOCATION
CAPITAL ALLOCATION IS ABOUT WHERE AND HOW A COMPANY
DECIDES TO SPEND THE MONEY IT HAS EARNED. IT HAS TO DO
WITH DISTRIBUTING AND INVESTING IN A COMPANY'S FINANCIAL
RESOURCES IN WAYS THAT WILL INCREASE ITS EFFICIENCY, AND
MAXIMIZE ITS PROFITS.

OFFSET
SOMETHING, USED PARTICULARLY IN TERMS OF MONEY, USED TO
NEUTRALIZE THE NEGATIVE IMPACT ON BUSINESS

COST-COMPETITIVENESS
A PRODUCT OR SERVICE THAT IS COST COMPETITIVE IS CHEAP
COMPARED TO OTHER SIMILAR PRODUCTS, OR SERVICES.

INTELLECTUAL CAPITAL
INTELLECTUAL CAPITAL IS THE VALUE OF A COMPANY OR
ORGANIZATION'S EMPLOYEE KNOWLEDGE, SKILLS, BUSINESS
TRAINING OR ANY PROPRIETARY INFORMATION THAT MAY PROVIDE
THE COMPANY WITH A COMPETITIVE ADVANTAGE.

NATURAL CAPITAL
ALL RENEWABLE AND NONRENEWABLE ENVIRONMENTAL RESOURCES
AND PROCESSES.

FINANCIAL CAPITAL
THE MONEY USED BY ENTREPRENEURS AND BUSINESSES TO BUY
WHAT THEY NEED TO MAKE THEIR PRODUCTS OR PROVIDE THEIR
SERVICES.
COMPOUND ANNUAL GROWTH RATE (CAGR)
THE COMPOUND ANNUAL GROWTH RATE (CAGR) IS A USEFUL
MEASURE OF GROWTH OVER MULTIPLE TIME PERIODS. IT CAN BE
THOUGHT OF AS THE GROWTH RATE THAT GETS YOU FROM THE
INITIAL INVESTMENT VALUE TO THE ENDING INVESTMENT VALUE IF
YOU ASSUME THAT THE INVESTMENT HAS BEEN COMPOUNDING
OVER THE TIME PERIOD. CAGR IS THE RATE OF RETURN THAT
WOULD BE REQUIRED FOR AN INVESTMENT TO GROW FROM ITS
BEGINNING BALANCE TO ITS ENDING BALANCE, ASSUMING THE
PROFITS WERE REINVESTED AT THE END OF EACH YEAR OF THE
INVESTMENT’S LIFESPAN.

RETURN ON INVESTMENT (ROI)

IT MEASURES THE GAIN OR LOSS GENERATED ON
AN INVESTMENT RELATIVE TO THE AMOUNT OF MONEY INVESTED.

RETURN ON ASSETS (ROA)

RETURN ON ASSETS (ROA) IS A FINANCIAL RATIO THAT SHOWS THE
PERCENTAGE OF PROFIT A COMPANY EARNS IN RELATION TO ITS
OVERALL RESOURCES. IT IS COMMONLY DEFINED AS NET INCOME
DIVIDED BY TOTAL ASSETS. IT MEASURES THE EFFICIENCY WITH
WHICH THE MANAGEMENT IS UTILIZING ASSETS.

RETURN ON CAPITAL EMPLOYED (ROCE)

RETURN ON CAPITAL EMPLOYED (ROCE) IS A FINANCIAL RATIO
THAT MEASURES A COMPANY'S PROFITABILITY AND THE
EFFICIENCY WITH WHICH ITS CAPITAL IS USED. IN OTHER WORDS,
THE RATIO MEASURES HOW WELL A COMPANY IS GENERATING
PROFITS FROM ITS CAPITAL.
MICRO, SMALL AND MEDIUM ENTERPRISES (MSME)
THE GOVERNMENT OF INDIA HAS ENACTED THE MICRO, SMALL AND
MEDIUM ENTERPRISES DEVELOPMENT (MSMED) ACT, 2006 IN TERMS
OF WHICH THE DEFINITION OF MICRO, SMALL AND MEDIUM
ENTERPRISES IS AS UNDER:
-ENTERPRISES ENGAGED IN THE MANUFACTURE OR PRODUCTION,
PROCESSING OR PRESERVATION OF GOODS AS SPECIFIED BELOW:
-A MICRO ENTERPRISE IS AN ENTERPRISE WHERE INVESTMENT IN
PLANT AND MACHINERY DOES NOT EXCEED RS 25 LAKH;
-A SMALL ENTERPRISE IS AN ENTERPRISE WHERE THE INVESTMENT
IN PLANT AND MACHINERY IS MORE THAN RS 25 LAKH BUT DOES
NOT EXCEED RS 5 CRORE;
-A MEDIUM ENTERPRISE IS AN ENTERPRISE WHERE THE
INVESTMENT IN PLANT AND MACHINERY IS MORE THAN RS.5 CRORE
BUT DOES NOT EXCEED RS 10 CRORE.

NATIONAL COMPANY LAW TRIBUNAL (NCLT)

THE NATIONAL COMPANY LAW TRIBUNAL (NCLT) IS A QUASI-
JUDICIAL BODY IN INDIA THAT ADJUDICATES ISSUES RELATING TO
INDIAN COMPANIES.[1] THE NCLT WAS ESTABLISHED UNDER THE
COMPANIES ACT 2013 AND WAS CONSTITUTED ON 1 JUNE 2016 BY
THE GOVERNMENT OF INDIA & IS BASED ON THE RECOMMENDATION
OF THE JUSTICE ERADI COMMITTEE ON LAW RELATING TO
INSOLVENCY AND WINDING UP OF COMPANIES.

NATIONAL COMPANY LAW APPELLATE TRIBUNAL (NCLAT)

NATIONAL COMPANY LAW APPELLATE TRIBUNAL (NCLAT) WAS
CONSTITUTED UNDER SECTION 410 OF THE COMPANIES ACT, 2013
FOR HEARING APPEALS AGAINST THE ORDERS OF NATIONAL
COMPANY LAW TRIBUNAL(S) (NCLT), WITH EFFECT FROM 1ST JUNE,
2016. NCLAT IS ALSO THE APPELLATE TRIBUNAL FOR HEARING
APPEALS AGAINST THE ORDERS PASSED BY NCLT(S) UNDER
SECTION 61 OF THE INSOLVENCY AND BANKRUPTCY CODE, 2016
(IBC), WITH EFFECT FROM 1ST DECEMBER, 2016.
STATEMENT OF STOCKHOLDERS' EQUITY
THE STATEMENT OF SHAREHOLDERS' EQUITY IS A FINANCIAL
DOCUMENT A COMPANY ISSUES AS PART OF ITS BALANCE SHEET. IT
HIGHLIGHTS THE CHANGES IN VALUE TO STOCKHOLDERS' OR
SHAREHOLDERS' EQUITY, OR OWNERSHIP INTEREST IN A COMPANY,
FROM THE BEGINNING OF A GIVEN ACCOUNTING PERIOD TO THE
END OF THAT PERIOD.

BALANCE SHEET
A STATEMENT OF THE ASSETS, LIABILITIES, AND CAPITAL OF A
BUSINESS, IT PROVIDES DETAILS OF THE BALANCE OF INCOME AND
EXPENDITURE OVER THE PRECEDING PERIOD.

ASSET
AN ASSET IS A RESOURCE WITH ECONOMIC VALUE THAT AN
INDIVIDUAL, CORPORATION OR COUNTRY OWNS OR CONTROLS
WITH THE EXPECTATION THAT IT WILL PROVIDE A FUTURE
BENEFIT.

LIQUID ASSET
CASH AND OTHER ASSETS THAT CAN BE EASILY CONVERTED TO
CASH.

INTANGIBLE ASSET
AN INTANGIBLE ASSET IS AN ASSET THAT IS NOT PHYSICAL IN
NATURE. GOODWILL, BRAND RECOGNITION AND INTELLECTUAL
PROPERTY, SUCH AS PATENTS, TRADEMARKS AND COPYRIGHTS, ARE
ALL INTANGIBLE ASSETS.

LIABILITY
A COMPANY'S LEGAL FINANCIAL DEBTS OR OBLIGATIONS THAT
ARISE DURING THE COURSE OF BUSINESS OPERATIONS.

EQUITY
THE (MONETARY) VALUE OF THE SHARES ISSUED BY A COMPANY.
DEPRECIATION
DEPRECIATION IS AN ACCOUNTING METHOD OF ALLOCATING THE
COST OF A TANGIBLE ASSET OVER ITS USEFUL LIFE AND IS USED
TO ACCOUNT FOR DECLINES IN VALUE. BUSINESSES DEPRECIATE
LONG-TERM ASSETS FOR BOTH TAX AND ACCOUNTING PURPOSES.

APPRECIATION
THE INCREASE IN VALUE OF A FINANCIAL ASSET.

ACCOUNTS PAYABLE
THIS REPRESENTS A COMPANY’S OBLIGATIONS TO PAY DEBTS OWED
TO LENDERS, SUPPLIERS, AND CREDITORS.

ACCOUNTS RECEIVABLE
ASSETS OF A BUSINESS AND REPRESENT MONEY OWED TO A
BUSINESS BY OTHERS.

INVENTORY
INVENTORY OR STOCK IS THE GOODS AND MATERIALS THAT A
BUSINESS HOLDS FOR THE ULTIMATE GOAL OF RESALE.

GOODWILL
MARKET VALUE OF AN INTANGIBLE ASSET.

CASH EQUIVALENTS
CASH EQUIVALENTS ARE SHORT-TERM, LOW-RISK INVESTMENTS
WHICH CAN BE EASILY CONVERTED INTO CASH.

CASH AND CASH EQUIVALENTS (CCE)

CASH AND CASH EQUIVALENTS REFER TO THE ITEM ON THE
BALANCE SHEET THAT REPORTS THE VALUE OF A COMPANY'S
ASSETS THAT ARE CASH OR CAN BE CONVERTED INTO CASH
IMMEDIATELY.

NON-PERFORMING ASSET (NPA)

AN ASSET BECOMES NON-PERFORMING WHEN IT CEASES TO
GENERATE INCOME.
NON-PERFORMING LOAN (NPL)
NON-PERFORMING LOAN (NPL) IS A SUM OF BORROWED MONEY
UPON WHICH THE DEBTOR HAS NOT MADE THE SCHEDULED
PAYMENTS FOR A SPECIFIED PERIOD.

TURNOVER
THE AMOUNT OF BUSINESS THAT A COMPANY DOES IN A PERIOD OF
TIME.
CURATED BY TEAM KNOWLEDGE @ADFACTORS PR
SAILEE NAYAK
SHARWARI BHOPE
SHEKARSINGH BATHAM
POOJA ADVANI
VIKAS GOPE
REENA KAMBLE
ROLLY AGARWAL
KAILASH YEVALE
TASNIM AHMED
SAGARIKA B

TEAM MENTOR: S ROY KANDPAL