Cottonwood Management Consulting
PO Box 44287
Tucson, AZ 85733
520-624-7127
Twenty five business terms to know
Ratios
Asset Turnover (AT) - A ratio that indicates how your receivables and inventory
compare to sales. Sales/Assets=AT
Current Ratio or Acid Test Ratio (CR) - Tells how many times the current
liabilities can be paid with the current assets. Total Current assets/total current
liabilities=CR
Return on assets (ROA) - Profit before taxes divided by your total assets,
measures a company’s profitability. Net income/total assets=ROA
Return on Sales (ROS) - A ratio that tells you how costs and expenses compare
to actual sales. Operating income/revenue=ROS
Income statement
General and Administrative expenses (G & A) - The income statement item that
combines salaries, commissions, travel expenses and payroll expenses
Overhead Costs - Rent, utilities, and insurance are typical examples of overhead
costs
Gross profit or gross margin - Sales minus the cost of goods sold
Balance - The difference between credit and debits in an account
Risk - A state in which each alternative leads to a set of specific outcomes that
effect performance or financial positions
Balance sheet
Equity - If you have no liabilities, equity equals your total assets
Current Assets (C/A) – A Company’s assets that are expected to be converted
into cash within 365 days or less
Fixed assets – Includes such items as land, building, machines, and furniture
Long Term Debt (LTD) - Loans and obligations that have a maturity of longer
than one year
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Retained earnings - Earnings not paid out as dividend or drawn on by the owner
but reinvested in the business or used to pay off debt
Some more Definitions
Working Capital - Current assets minus current liabilities
Assets - Tangible and intangible economic resources that provide future benefit
to a company
Owner’s Equity - Interest of the owners of the assets of a company represented
by capital contributions and retained earnings
Depreciation - A non-cash expense that reduces the value of an asset as a result
of age, wear and tear, or obsolescence
Balance sheet - This statement gives you a snapshot of your company’s key fact
as of any date
General Finance
Balance Sheet, Income Statement, and Cash Flow Statement - Three valuable
tools that indicate the financial health of a company
North American Industry Classification System (NAICS) - The standard used by
the Federal government for classifying business establishments to gather
statistical data
Risk Management Association Financial Ratio Benchmarks - Source for
researching single industry data from industry Annual Financial Statements
GAAP - Generally Accepted Accounting Principles?
Goodwill - The intangible value of a company’s name/reputation, customer
relations the give it an edge or advantage calculated by the purchase price minus
book value
Decision tree - A pictorial representation of decision situations when uncertainty
and risk are present
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