Teacher Resource 1.4
Key Vocabulary: Course Introduction
These are terms to be introduced or reinforced in this lesson.
Term / Definitionfinance / The science of the management of money and other assets.
taxonomy / A categorized list of words that are related to a particular topic.
Teacher Resource 2.4
Key Vocabulary: Financial Concepts
These are terms to be introduced or reinforced in this lesson.
Term / Definitionbond / A debt instrument is a legal contract—and often called an “indenture.” Bonds are one type of fixed-income security since each payment is set by the contract. Bonds require the issuer to both return the original investment money (or face value or principal) and to pay interest as stated in the indenture.
business life cycle / The stages that a business moves through, from an idea through startup, growth or takeoff, maturity, decline, and closing down (cessation of operation).
buyout / A transaction in which an employer makes a lump-sum payment to compensate an employee for leaving or retiring early from a job.
capital / Any form of wealth that can be used to create more wealth, such as cash, which can be invested to generate income.
corporation / A legally recognized form of organizing a business that protects its owners from being personally responsible for business debts.
debt / Owing money, goods, or services to someone else.
entrepreneur / A person who takes initiative in business, organizes and manages business resources and operations, and assumes the risks of the business.
fixed income security / A broad category of investments that includes bonds. Fixed income securities get their name from the fact that the stream of payments are fixed by contract. Corporations and the government can issue a variety of these securities.
intangible / Something bought and sold that cannot be touched—for example, legal advice.
intellectual property / Intangible property that is a result of something created by the mind—for example, trademarks, and patents.
interest / In bankers’ terms, money paid for the use of another person’s money.
interest (ownership interest) / Ownership of all or part of a business or property.
liability / Legal responsibility for damage or for debt.
limited liability company / A legal form of organizing a business that limits the owner’s personal liability for business debts.
liquidation / Selling a business capital item such as machinery in order to have access to ready cash.
market share / The percentage of total industry sales that a single company makes on a particular product.
marketplace / The world of business, trade, and economics.
partnership / A legal form of organizing a business in which owners share profits and are personally responsible for debts of the business.
principal / The money originally invested or the amount borrowed on which interest is calculated.
prototype / An experimental model of a product.
sole proprietorship / A legal form of business organization in which a single individual is personally liable for business debts.
stock / A share of the ownership of a corporation. Companies sell stock (or “shares”) to raise money to expand. Generally, companies that are sold on the public stock exchanges will increase in value as the firm performs better—and will decrease in value if the firm does poorly.
strategy / Top management’s “game plan” for achieving targeted, long-term objectives.
tangible / Something bought and sold that can be touched—a computer, for example.
valuation / Estimating the value or worth of something (such as a building or machinery owned by a business).
venture capitalist firm / A firm that often can have access to a great amount of capital and expertise to help your firm—all in exchange for a substantial ownership stake. Though, these only invest in firms that offer the prospect of becoming very profitable.
Teacher Resource 3.3
Key Vocabulary: The Financial Environment
These are terms to be introduced or reinforced in this lesson.
Term / Definitionaccountant / A professional who measures and assesses financial information for an individual or firm.
cash flow cycle / The cycle of purchasing inventory and then converting that inventory back into cash through sales.
Chief Financial Officer (CFO) / The corporate officer responsible for financial risks, record keeping, and financial reporting in a firm.
expense / All business costs. These are deducted from revenue to determine net income (profit or loss).
financial manager / An analyst who studies financial information for a firm, ranging from cash flow analysis to profit forecasting.
intangible products / Something bought and sold that cannot be touched; for example, legal advice.
net income / A figure representing a firm’s profit or loss for a period.
product development cycle / The process of bringing a new product to market, including engineering and market research.
obsolescence / The decline of a product in the market due to the introduction of better competitor products or rapid technology developments.
revenue / Dollar amounts earned by a firm from selling products, services, or both
tangible products / Something bought and sold that can be touched; for example, a book.
tax / A charge imposed by the government. Examples include sales tax and income tax. From an accounting perspective, taxes are expenses.
utility / The satisfaction one receives from a good (a product, service or combination thereof)
Teacher Resource 4.3
Key Vocabulary: Profit
These are terms to be introduced or reinforced in this lesson.
Term / Definitionbequests / Gifts made in a will.
cost / The expense required to acquire or produce something.
endowment / A pool of donated money that is usually invested. The earnings from those investments are used to fund an organization’s goals.
not-for-profit organization / An organization whose purpose is to support activities of public or private interest. It is not operated solely for the purpose of making a profit.
profit / Money earned after expenses are subtracted from revenue.
profit margin / A measure of a company’s profitability, usually measured as a percentage.
revenue / Total sales from goods and services before expenses and taxes.
Teacher Resource 5.4
Key Vocabulary: Risk and Risk Management
These are terms to be introduced or reinforced in this lesson.
Term / Definitionasset / An item of value owned by an individual or firm.
business interruption insurance / Insurance that pays for income lost when a business is closed because of a covered disaster.
diversification / Increasing market penetration by moving into new markets and broadening the consumer base.
employee confidentiality agreement / An agreement, signed by an employee, not to disclose sensitive information about a business. Confidentiality agreements often cover trade secrets and client information. They allow the firm to sue an ex-employee in court.
fire insurance / Insurance protecting a business or individual from the costs of damage by fire.
general liability insurance / Insurance protecting a business from lawsuits.
insurance / A principal way of transferring risk to a third party (the insurance company). It is an agreement (or legal contract) in which, in exchange for regular payments (a premium), a business or individual is protected from the possibility of future financial harm.
malpractice / Misconduct by a professional, such as a doctor, lawyer, or accountant. It is judged by comparing the professional’s action or inaction against a “reasonable person” standard. In the case of malpractice, the reasonable person will be broad group of professionals in that same area of expertise.
mitigate / To lessen or minimize the severity of one's losses or damage.
premiums / A fixed periodic payment made to insurance companies in exchange for insurance.
product liability insurance / Insurance protecting a company from lawsuits if someone is injured by its product.
product testing / Testing to determine the safety and functionality of a product.
pure risk / Situation where there is a chance of either loss or no loss, but no chance of gain; for example, either a building will burn down or it won't. Only pure risks are insurable, because otherwise insurance is akin to gambling.
quality assurance / Steps a manufacturer takes to ensure that itsproductsare safe and meet the company’s standards.
risk / The potential for a negative event.
risk mitigation / To reduce the risk to an asset through reducing the probability of a problem and limiting the effects of a problem once it occurs. Risk mitigation is sometimes called risk management.
speculative risk / A situation where the possibility of either a financialloss or a financial gain exists, as in purchase of shares. Unlike pure risks, speculativerisks are usually not insurable.
strategic partnership / A partnership between two businesses, where the businesses share resources instead of developing them internally. Sometimes the term joint venture is used for these partnerships.
surety bond / A monetary guarantee that an obligation will be fulfilled. If the obligation is not fulfilled, the offended party gets to recoup its losses via the bond.
theft insurance / Insurance protecting a business or individual from theft.
vehicle insurance / Insurance that protects a vehicle. It often covers both the vehicle itself and any other expenses associated with an accident such as injury to another person or damage to that person’s property.
workers compensation / Monetary compensation for an employee injured while working, often mandated by law. Such compensation pays a percentage of lost wages and the employee’s medical care for that injury.
workers compensation insurance / Insurance protecting a business from workers’ compensation claims.
Teacher Resource 6.3
Key Vocabulary: Financial Record-Keeping and Analysis
These are terms to be introduced or reinforced in this lesson.
Term / Definitionannual report / A document sent to shareholders at the end of every year. Annual reports are required by the SEC.
balance sheet / A summary of a firm’s assets, liabilities, and owner equity. It can also be called a statement of financial position.
cash flow statement / A document describing a company’s sources of cash and uses of cash..
EBIT / A company’s earnings before interest and taxes.
EBITDA / A company’s earnings before interest, taxes, depreciation, and amortization.
financial analysis tools / Methods for analyzing the financial status of a firm, including balance sheets and cash flow statements.
gross profit margin / Sometimes called the gross margin, the gross profit margin is a measure of profitability. It is calculated by subtracting the cost of goods sold from revenue, and then dividing the result by revenue.
net income / The income of a firm, after subtracting expenses from revenue.
net income margin / Net income expressed as a percentage of revenue.
profit and loss statement / A financial document showing a company’s revenues and expenses, and the difference between them. It is usually published quarterly or annually—though many managers prepare one each month. The profit and loss statement is often called the income statement or the statement of operations.
Teacher Resource 7.3
Key Vocabulary: Financial Strategies
These are terms to be introduced or reinforced in this lesson.
Term / Definitionbudgeting / Establishing a planned level of spending for a given time period.
cash budget / A planned level of cash income and spending for a given time period.
external factors / Opportunities, risks, and threats that are outside of an organization’s control. Political, environmental, technological, and social factors are all considered external factors.
extrapolation / To estimate for the future based on current data.
forecasting / The process of making extrapolations about the future based on past data.
irregular expenses / Expenses that are not paid regularly each month. Also referred to as unexpected expenses.
manage / The process of allocating a firm’s resources to maximize value.
measure / The process of assessing a firm’s resources and value.
operating budget / A projection of income and expenses based on a forecasted sales revenue for a given time period.
qualitative analysis / An analysis based on subjective judgment that is not quantifiable, such as management expertise, labor relations, etc.
quantitative analysis / An analysis based on understanding the reasoning of a given event or behavior.
resource allocation / The process of allocating money to a specific project, business unit, or cause. A way to assign the available resource in a very specific and economic way.
Teacher Resource 8.3
Key Vocabulary: Business Financing Options
These are words to be introduced or reinforced in this lesson.
Word / Definition401(k) financing / Financing in which an entrepreneur funds a business with money from his own 401(k) retirement account. The 401(k) account is typically set up with an employer and used to fund retirement needs.
504 loans / A long-term loan from the Small Business Administration.
angel investors / An investor who uses her own money for startup capital for a business, usually in exchange for a share of ownership.
asset-based loans / A loan secured by a company’s assets.
bank term loans / A loan from a bank, usually at a fixed interest rate and for a predetermined period of time.
CDFIs (Community Development Financial Institutions) / Financial organizations that provide services to underserved areas, including investment capital, credit unions, and personal loans.
equipment leasing / An investor buys a piece of equipment that a business needs, and then leases it to the business. Equipment leasing means that businesses do not need as much capital up front.
federal government venture capital / A loan from the federal government for developing startup businesses.
initial public offering / The first time a business sells stock (a share in the company) to the public.
institutional venture capital / Investment capital from firms that specialize in business investment, usually for a very large amount of money.
long-term financing / Money needed for the purchase of assets, like buildings or land. It is usually repaid within 3 to 10 years.
microloans / A very small loan to an entrepreneur who, because of a lack of assets or a credit history, would not ordinarily be able to get one.
private loan guarantees / Aguarantee by an investor of repayment ofa bank loan to a business that would not otherwise be able to get a loan.
royalty financing / A loan to a business in which the lender gets a percentage of future sales.
SBA-guaranteed loans / The Small Business Administration guarantees up to 80% of a bank loan to a business that would not otherwise be able to get a loan.
short-term financing / Money needed for the daily operations of the business, such as purchasing supplies. It is generally repaid in less than one year.
Teacher Resource 9.5
Key Vocabulary: Stocks
These are terms to be introduced or reinforced in this lesson.
Term / Definitionbest efforts underwriting / An agreement in whichan underwriter will use all efforts to sell as much of an issue as possible to the public.
common stock / Securities representing part ownership in a corporation, providing voting rights, and entitling the holder to a share of the company’s success through dividends and/or capital appreciation.
dividends / A portion of a company’s profits that is paid out to its shareholders. Dividends can be paid regularly or intermittently, and are usually paid out as cash, though they can be paid out as stocks.
initial public offering (IPO) / A company’s first (or initial) offering of stock for sale. The underwriter managing the sale sells shares into the primary market.
investment bank / A securities firm that helps corporations sell securities to the public.
preferred stock / Capital stock that provides a specific dividend that is paid before any dividends are paid to common stock holders, and which takes precedence over common stock. Like common stock, preferred stocks represent partial ownership in a company, although preferred stock shareholders cannot vote.
primary market / The marketplace where an issue of stock is first sold. In a transaction here, the company is the seller.
prospectus / A document that must be filed with the federal Securities and Exchange Commission (SEC) and made available to potential investors before stock can be sold. The prospectus offers a detailed analysis of the company’s finances, its management team, and its products and/or services, and spells out potential difficulties the company may face in the future and the risks of investing in the company.
secondary market / The market in which an investor purchases a security from another investor rather than from the issuing company.
Securities and Exchange Commission (SEC) / A federal agency that regulates the U.S. financial markets and securities industry.
shareholder / Someone who owns one or more shares of common or preferred stock.
stock market / A market for the buying and selling of stocks.
supply and demand / A model in economics that determines the price and quantity of a product or service sold: If there is less of the product offered (“supply”) than consumers want (“demand”), the price will rise. If there is more of the product than consumers want, the price will fall.
underwriter / An investment bank or syndicate of investment banks that attempts to sell securities for an issuing company in the primary market.
underwriting / The process of selling securities for an issuing company in the primary market.
Teacher Resource 10.4
Key Vocabulary: Bonds
These are terms to be introduced or reinforced in this lesson.
Term / Definitionbond / A long-term debt security issued by corporations and governments offering fixed interest payments periodically for a period of more than 1 year. Bonds do not represent ownership; rather an investor who buys a bond is actually lending money to the issuer, to help finance current operations and new acquisitions of property, plant, or equipment.
callable / A feature available for most bonds and preferred stocks that gives the issuer the ability to buy the security back from investors before the scheduled date of maturity. A surcharge might be assessed to the issuer if the security is repurchased.
compound interest / Interest upon interest, where accrued interest is added to the principal sum, and the whole treated as new principal, for the calculation of the interest for the next period.
coupon bonds / A bond that pays the holder of the bond a fixed interest payment (a coupon payment) every year until the bond reaches maturity. Examples of coupon bonds include Treasury bonds, Treasury notes, and corporate bonds.
coupon rate / The stated percentage rate of interest on a bond, which is usually paid out twice a year. Just as a bond’s face value never changes, its coupon rate also never changes.
current yield / The percentage paid out from a stock dividend or interest payments made on a bond, stated in terms of the current market price of the security. The current yield for a bond moves up or down as the price of the bond moves up or down. The price of the bond has an inverse relationship with the current market interest rates.
dealer market / A market where dealers are assigned for specific securities. For example, Nasdaq is considered a dealer market.
debenture bonds / Unsecured bonds that are only issued by creditworthy firms. Convertible bonds are usually debentures. Also known as an unsecured junior bond.
discount / A situation that occurs when the price of a bond is lower than its par value. This is because the bond is paying at an interest rate lower than what is presently being paid by similarly rated bonds.
face value / The specified final amount that an issuer promises to pay to the owner of a bond at the date of maturity. Also called par value.
fixed income securities / Securities whose nominal (or current dollar) yield is fixed or determined with certainty at the time of purchase, typically debt securities.
inverse relationship / A relationship between two numbers in which an increase in the value of one number results in a decrease in the value of the other number.
junk, or high yield, bonds / Wall Street slang for bonds listed at below investment grade (below the top four ratings) by agencies that rate bonds. Such bonds are frequently unsecured or thinly backed by company assets, and thus carry a relatively high level of risk for investors.
market price / The last reported price at which a security was sold.
maturity date / The date on which an issuer of a bond promises to repay the full amount borrowed.
mortgage bonds / A bond that is secured by a guarantee of real property.
note / An instrument bearing legal evidence of debt. A note is signed by the maker (borrower) and promises to pay a specified sum of money to the lender at a certain future date and place.
par value / The face value of a security.
premium / A situation that occurs when the value of a bond exceeds its principal amount. This is because similarly rated bonds are paying a lower interest rate than the bond that was issued earlier; therefore, the bond sells at a premium.
present value / The current equivalent value of an asset that will be received in the future.
private placement / The sale of new securities, typically bonds or preferred stock, directly to a group of investors or institutional investors, such as banks, pension funds, or insurance companies.
public offering / An offering of a set number of new shares of a company’s stock at a specified price to the investing public. Using this procedure to issue common stock, a company will need to register the issue with the SEC and will often work with an underwriter to help with the entire process.
senior securities / Preferred securities and bonds that receive higher priority for payment than common stock when a company is liquidated.
stated yield / The interest rate stated on the face of the bond.
yield / The measure commonly used to estimate or determine a bond’s expected return.
yield to maturity (YTM) / The return expected on a bond if it is held until the maturity date.
zero-coupon bonds / Municipal, corporate, or treasury bonds that pay no annual interest over the life of the bond, are offered at a deep discount to par value, and are redeemed at full value upon maturity. The investor’s return on investment comes when redeeming the bond at its face value. Also called zeros or deep discount bonds.
Teacher Resource 11.2