Profit plan: A company’s total budget used in achieving a desired profit goal. Sometimes the term refers only to the operating budget, and sometimes it is used synonymously with the term master budget. Prospectus: Part I of a Registration Statement filed by a company offering its securities to the
Trang 1Profit plan: A company’s total budget used in achieving a desired profit goal
Some-times the term refers only to the operating budget, and someSome-times it is used synony-mously with the term master budget
Prospectus: Part I of a Registration Statement filed by a company offering its
secu-rities to the public, which Registration Statement is filed with and must be approved
by the Securities and Exchange Commission The Prospectus describes the registering company, its business and finances, and the risk factors the company faces
Proxy: The grant by a shareholder to another party of the right to vote the
stock-holder ’s shares of stock
Proxy contest: An attempt to gain control of a corporation by soliciting shareholder
votes
Purchase method: After the acquisition, the target firm’s assets are put on the
bid-der ’s balance sheet at their fair market value
Put option: An asset that gives the owner the right but not the obligation to sell
some other asset for a set price on or up to a specified date
RAM: Random access memory is the hardware which a computer uses for storing
programs and data that the computer is currently using In human terms, you can think of RAM as the memory storing part of your brain When you are thinking about
a problem, you are using your own RAM to work through various calculations and thoughts
Rate of return: An amount of income (loss) and /or change in value realized or
anticipated on an investment, expressed as a percentage of that investment
Red herring: A preliminary, nonfinal Prospectus distributed by underwriters for
the purpose of generating interest in shares of stock to be offered to the public
Registration statement: A filing made with the SEC by a company issuing its
secu-rities to the public, which describes the company and its financial condition Part I consists of the Prospectus
Regulation FD: A Securities and Exchange Commission Regulation which among
other matters requires a company which purposely or inadvertently releases previ-ously unknown material information to promptly further distribute that information
to the public
Regulation S-K: A Regulation of the Securities and Exchange Commission that sets
forth the standards for drafting the body of a Prospectus
Regulation S-X: A Regulation of the Securities and Exchange Commission that sets
forth the standards for the preparation of financial statements to be included in doc-uments filed with the Securities and Exchange Commission
Remeasurement: See temporal translation procedure.
Reporting currency: The currency in which a firm prepares its financial statements Residual value: The prospective value as of the end of the discrete projection
period in a discounted benefit streams model
Restructuring charges: Expenses typically recognized in conjunction with
down-sizings, reengineerings, reorganizations, and comparable activities The expenses are usually made up of cash costs, accruals of obligations for future expenditures, as well
as the write-down of assets
Risk factors: That section of a Prospectus, or of a Form 10-K or other SEC filing,
which lists the operational and financial risks faced by a company
Trang 2Risk-free rate: The rate of return available in the market on an investment free of
default risk
Risk premium: A rate of return in addition to a risk-free rate to compensate the
in-vestor for accepting risk
Road show: A trip, generally of two or more weeks’ duration, by underwriters and
company management to meet with underwriters, brokers, and investors in different cities in order to explain a proposed public offering of securities
Roll over: To enter a new future or forward contract to replace a contract that is
expiring
ROM: Read-only memory are forms of data storage which cannot be written to (or
changed), but from which data can only be retrieved A music CD (and, hence, CD ROM) is a device from which you can play back music, but you cannot record your
own music to a CD ROM (If you can record to a CD, the device is called a CD-R (for recordable), not a CD ROM.)
Securities Act of 1933: The U.S statute that permits the private placement or
pri-vate sale of securities without registration provided full and fair disclosure is made and that requires the registration of public offerings of securities
Securities and Exchange Commission (SEC): An agency of the U.S government
which regulates the public issuance of securities under the Securities Act of 1933 and the conduct of trading markets and brokerage firms under the Securities Ex-change Act of 1934, so as to protect investors from fraud and misleading or inade-quate corporate and financial information
Securities Exchange Act of 1934: The U.S statute which established the
Securi-ties and Exchange Commission and regulates the operation of broker/dealers Under this statute, companies with publicly held securities are required to make periodic reports to the public on various forms, most typically Forms 10-K, 10-Q, and 8-K Of-ficers, directors, and significant shareholders of publicly held companies are required
to report purchases and sales of securities and the formation of “groups” for the hold-ing, vothold-ing, purchase, or sale of publicly traded securities
Short: To enter a future or forward as the short party Also known as “selling” the
future or forward
Short party: The party in a forward or future contract that will deliver the
under-lying asset and receive payment (i.e., the selling party) The party in a forward or fu-ture contract that benefits from a decline in the price of the underlying asset
Single-step income statement: An income statement format that simply deducts
expenses and losses from revenues and gains in arriving at a single measure of income from continuing operations
Speculate: Attempt to profit by taking on a risk exposure.
Spot market: The market in which transactions are executed for immediate
deliv-ery of an asset
Spot price: The price to be paid for immediate delivery of an asset or commodity Spot rate: Rate at which currencies are exchanged for immediate delivery.
Standard and Poor’s 500: A stock portfolio consisting of 500 large corporations.
The composition and value of the stock portfolio is tracked and reported by the Stan-dard and Poor ’s publishing company The S&P 500 value is widely used as a bench-mark index of overall stock bench-market performance
Trang 3Standard of value: The identification of the type of value being utilized in a
spe-cific engagement (e.g., fair market value, fair value, investment value)
Standards: Predetermined, expected levels of efficiency or measures of desired
performance (e.g., a budget amount, a standard cost, or a nonquantitative statement
of desired performance) A standard cost is the predetermined cost of an input per unit of output Standards may be unchanging (basic), perfect (ideal), or currently attainable
Statements of Financial Accounting Standards (SFAS): Pronouncements of
the Financial Accounting Standards Board that are the central elements of generally accepted accounting principles
Stock acquisition: The purchase of a controlling interest in a firm by buying its
outstanding equity
Strategic information system: An application used by senior management to
cre-ate a company’s strcre-ategy
Streaming media: Typically, refers to Internet sites that send out a continuous
f low of sound or video signal to user An example might be www.radiotango.com, which plays tangos 24 hours per day
Strike price: The prespecified purchase or sale price for the underlying asset in an
option contract
Sustainable earnings base: A revised historical earnings series from which the effects of all nonrecurring items have been removed (see core earnings).
Sustainable earnings worksheet: A worksheet used to organize and summarize
nonrecurring items so that their effects can be removed from as-reported net income
in order to arrive at a sustainable earnings base
Swap: An agreement between two parties to exchange cash f lows over a period of
time Cash f lows are determined by an agreed upon formula specified in the swap agreement—a formula that is contingent on the performance of other underlying instruments
Symmetric risk: An exposure that results in profits when an underlying price or
economic variable moves in one direction, and proportional losses if the variable moves in the opposite direction
Synergy: The incremental value generated by the combination of two or more firms Synthetic stock portfolio: A portfolio that consists of Treasury bills and a long
position in equity futures contracts A properly constructed synthetic stock portfolio behaves the same as a portfolio consisting of actual stocks
Systematic risk: The risk that is common to all risky securities and cannot be
elim-inated through diversification When using the capital asset pricing model, system-atic risk is measured by beta
Takeover: The transfer of corporate control from one group of shareholders to
another
Target: A firm that is the subject of takeover or acquisition activities.
Tau: The amount of time remaining prior to an option’s expiration.
Taxable transaction: An acquisition in which the target firm shareholders are
im-mediately subject to capital gains on their sale of shares
Trang 4Tax-adjusted nonrecurring items: Pretax nonrecurring items of revenue, gain,
expense, and loss that are multiplied by one minus a representative income tax rate The result is the after-tax effect of each of these items on net income
Tax-free transaction: An acquisition in which the primary consideration paid to
the target’s shareholders is the acquirer ’s common stock, thereby deferring capital gains taxes until the new shares are sold
TCP/ IP: The communications standard that is used by the Internet A protocol is
the understanding that computers have for how information will be delivered over the communications network, which enables computers with different operating sys-tems to communicate with each other and to eliminate errors in data
Temporal (remeasurement) translation procedure: A method for translating
foreign currency financial statements in which monetary assets (including assets valued at market) and liabilities are translated at current exchange rates Nonmone-tary assets, liabilities, and paid-in capital accounts are translated at historical ex-change rates; cost of sales and depreciation expense are translated at the rates in existence when the related inventory or fixed assets were acquired; and revenues and other expenses are translated at the average exchange rate in existence during the reporting period Translation gains and losses are reported as a component of net income
Transaction exposure: The potential for gains and losses as foreign-denominated
assets and liabilities (e.g., accounts receivable, accounts payable, notes payable), in-crease or dein-crease in value with changes in exchange rates
Transfer prices: Prices charged when goods or services are transferred either
within firms (e.g., from one division of a firm to another) or between related firms (e.g., between a parent and its subsidiaries)
Translation exposure: Typically, the excess of foreign-currency assets over foreign
currency liabilities of foreign subsidiaries Translation gains result from increases in the value of the foreign currency and losses in the event of decreases
Translation of foreign currency financial statements: The restatement of the
financial statements of a foreign entity from its local currency to the reporting cur-rency of its parent
UNIX: An open operating system running on many manufacturers’ computers The
first successful nonproprietary operating system It was developed by Bell Labs in the 1970s
Unsystematic risk: The portion of total risk specific to an individual security that
can be avoided through diversification
Unwind: To close out a future or forward position.
URL: Universal Resource Locator is the Internet address for a given Web site The
URL for the president of the United States is www.whitehouse.gov
Valuation date: The specific point in time at which the valuator ’s opinion of value
applies (also referred to as “Effective Date” or “Appraisal Date”)
Variances: Measures of the difference between actual costs and standard costs.
They are favorable if costs are less than expected and unfavorable otherwise Vari-ances may be analyzed by the effect of changing prices (price variVari-ances) or changing usage (quantity or usage variances)
Trang 5Vertical merger: A merger in which the two firms are from different stages of the
same industry or production process (e.g., an automobile manufacturer purchases a steelmaker)
WAN: A wide area network is a connection of two or more computers which are
geo-graphically distant from each other The typical purpose of a WAN is to send data or communicate with distant facilities Thus, an airline might have a WAN connecting all of its airports world wide to allow for the quick communications of scheduling changes between its various facilities
Weighted average cost of capital (WACC): The cost of capital (discount rate)
de-termined by the weighted average, at market value, of the cost of all financing sources in the business enterprise’s capital structure
Windows NT or 2000: Quickly becoming the network operating system standard
of the industry Developed by Microsoft
Write an option: Sell an option The writer is paid the option premium up front.
The writer of a call must later sell the underlying asset if the call option owner exercises The writer of a put must later buy the underlying asset if the put option owner exercises The writer of the option is essentially liable for any future payoffs received by the option owner Also known as shorting the option
Trang 6Charles A Anderson’s career includes academic and business experience He
has been a faculty member of both the Harvard Business School and the Stan-ford Business School He was the president, chief executive officer, and a director of Walker Manufacturing Co., J.I Case, and the Stanford Research Institute He has served on a number of corporate boards of directors, includ-ing NCR Corp., Owens-Corninclud-ing Fiberglas Corp., Boise-Cascade Corp., and the Eaton Company
Robert N Anthony is Ross Graham Walker Professor of Management
Con-trol, Emeritus, at Harvard Business School He has been a director and chair-man of the audit committee of Carborundum Company and Warnaco, Inc He has been a director of several smaller organizations and a trustee (including chairman of the board) of Colby College, and of Dartmouth-Hitchcock Med-ical Center He is the author or coauthor of some 20 books and 100 articles on management subjects, especially management control; his books and articles have been translated into 12 languages He is a past president of the American Accounting Association
Richard T Bliss has been involved in corporate financial analysis since 1987
and is currently on the finance faculty at Babson College He teaches at the un-dergraduate, MBA, and executive levels, specializing in the areas of Corporate Financial Strategy and Entrepreneurial Finance Prior to coming to Babson,
Dr Bliss was on the faculty at Indiana University and he has also taught exten-sively in Central and Eastern Europe, including at the Warsaw School of Eco-nomics, Warsaw University, and the University of Ljubljana in Slovenia With publications in the areas of corporate finance, entrepreneurship, and banking, Dr Bliss has an active research agenda His recent work on the
impact of bank mergers on CEO compensation has been cited in Fortune
mag-azine and numerous other business publications and will be published in the
Journal of Financial Economics.
Trang 7Dr Bliss holds a PhD in Finance from Indiana University He also re-ceived his MBA in Finance/Real Estate from Indiana University and graduated with honors from Rutgers University, earning a BS degree in Engineering and a
BA degree in Economics
Edward G Cale Jr is a professor of information systems at Babson College in
Wellesley, Massachusetts Dr Cale holds a BS in electrical engineering from Stanford University and an MBA and a DBA from the Harvard Business School After working for five years in the aerospace and integrated circuits in-dustries, Dr Cale has spent the past 20 years in academia, teaching, conducted research, and consulting in the management of information technology
Eugene E Comiskey received his PhD from Michigan State University and
his professional qualifications include both Certified Public Accountant (CPA) and Certified Management Accountant (CMA) Professor Comiskey taught from 1965 to 1980 at the Krannert Graduate School of Management at Purdue University and also as a visiting faculty member during 1972 and 1973 at the University of California, Berkeley While at Purdue, he twice received the Salgo Noren Foundation Award as the outstanding professor in the Graduate Management Program Since arriving at Georgia Tech he has six times been recognized as Professor of the Year by the Graduate Students in Management organization In 1999, Professor Comisky was the recipient of the Educator of the Year award from the Georgia Society of CPAs
Professor Comiskey has published over 60 papers in a wide range of profes-sional and scholarly journals and edited books A book, with Charles W
Mulford, Financial Warnings (478 pages), was published in 1996 by John Wiley
& Sons and is now in its fifth printing Another book, Guide to Financial
Re-porting and Analysis (624 pages), also with Charles W Mulford, was published
by John Wiley & Sons in 2000 A third book, The Financial Numbers Game, is
under contract with John Wiley and should be published in late 2001 or early
2002 Current research interests center on financial analysis and financial re-porting practices, financial early warnings, international financial rere-porting practices, and the role of financial data in credit decisions For over 25 years, Professor Comiskey has worked with commercial banks, both in the United States and in Europe and Asia, in the design and delivery of educational pro-grams to improve the financially oriented credit analysis skills of lenders Since
1988, he has been a partner in Financial Training Associates, a financial training and consulting firm that he founded with his colleague Charles W Mulford Professor Comiskey served from 1978 to 1980 as Director of Research for the American Accounting Association He also served (1995–1996) as pres-ident of the Financial Accounting and Reporting Section of the American Accounting Association The Section has a membership of over 1,500 and is made up of scholars and practitioners who have a primary interest in matters related to the measurement and disclosure of financial information Professor
Trang 8Comiskey served two terms on the editorial review board of the Accounting
Review—the second term was as an editorial consultant, or under current
nomenclature, an associate editor He has also served a term on the editorial
review board of Issues in Accounting Education and is now serving a three-year term on the editorial board of Accounting Horizons.
Michael A Crain, CPA /ABV, ASA, CFE, MBA, is a business appraiser and
lit-igation consultant practitioner in Ft Lauderdale, Florida He is an Accredited Senior Appraiser in business valuation awarded by the American Society of Appraisers and he is Accredited in Business Valuation from the American Insti-tute of Certified Public Accountants (AICPA) He has served on the examina-tion committee for the AICPA’s business valuaexamina-tion accreditaexamina-tion and on other AICPA national committees He has been retained as an expert witness and
testified on numerous occasions His articles have appeared in the Journal of
Accountancy, CPA-Expert, and other professional publications, and he has
spo-ken on numerous occasions to national audiences
Steven P Feinstein, PhD, CFA, is an associate professor of finance at Babson
College and a consultant with the Michel/Shaked Group in Boston He holds a PhD in economics from Yale University Prior to entering academia, Dr stein served as an economist at the Federal Reserve Bank of Atlanta Dr Fein-stein’s primary areas of research are financial valuation and the use and pricing
of derivatives He has presented his research at numerous academic confer-ences including the annual meetings of the American Finance Association and
the Financial Management Association His articles have appeared in
Deriva-tives Quarterly, the Journal of Risk, Risk Management, the Atlanta Federal Re-serve Bank Economic Review, the American Bankruptcy Institute Journal, and
the Journal of Financial Planning Dr Feinstein conducts professional
semi-nars for executives and has consulted for a wide variety of institutions Clients have included Bankers Trust, Cho Hung Bank of Korea, Chrysler, Honeywell, ITT, Lehman Brothers, Nippon Life Insurance, Travelers Insurance, and nu-merous law firms
Theodore Grossman is a member of the faculty of Babson College, where he
teaches information technology and accounting He lectures on various infor-mation technology topics such as Web technologies, e-commerce, strategic in-formation systems, managing inin-formation technology, and systems analysis and design He also performs extensive consulting for food and nonfood retailers, suppliers of technology products to the retail industry He is called upon fre-quently to act as an expert witness in complex litigation in matters relating to technology and cyber law Prior to joining Babson College, he was the founder and CEO of a computer software company for the retail industry He holds a
BS degree in engineering from the University of New Hampshire and an MS in management from Northeastern University
Trang 9Robert Halsey has an MBA in finance and a PhD in accounting from the
Uni-versity of Wisconsin—Madison During his business career, he managed the commercial lending division of a large Midwestern bank, and served as the Chief Financial Officer of a privately held retailing and manufacturing com-pany Prior to joining the faculty of Babson College, Dr Halsey taught at the University of Wisconsin—Madison where he received the Douglas Clarke Memorial Teaching Award His research interests are in the area of financial reporting and include firm valuation, financial statement analysis, and
disclo-sure issues He has published in Advances in Quantitative Analysis of Finance
and Accounting, the Journal of the American Taxation Association, and Issues
in Accounting Education.
Stephen M Honig is senior partner with the Boston office of the national law
firm of Schnader, Harrison, Segal & Lewis, LLP A holder of a BA from Co-lumbia College and an LLB from Harvard University, Mr Honig has worked in the private and public finance of emerging technology companies since 1966
He was assisted in the preparation of his chapter by his partner Albert Dan-dridge, formerly on the staff of the Securities and Exchange Commission, and associate Craig Circosta, both of Schnader’s Philadelphia office
William C Lawler is an Associate Professor of Accounting at Babson College,
Wellesley, Massachusetts, and Director of the Consortium for Executive De-velopment at Babson College’s School of Executive Education Dr Lawler did his undergraduate work at the University of Connecticut and his graduate studies at the University of Massachusetts His teaching and research focus on two areas: financial footprints of business unit strategy and the impact of new technologies on cost systems design
Professor Lawler has authored several papers and given numerous profes-sional presentations His primary focus is on aiding operational managers in un-derstanding the financial consequences of their decisions He has run seminars
on this topic for such diverse groups as telecom managers in China, production managers in the Czech Republic, and R&D managers in the United States Dr Lawler consults with a number of companies, ranging from small biotechs to Fortune 100 computer companies, concerning the design and use of cost infor-mation systems for management decision support rather than external financial reporting His most recent publications in this area are chapters on Activity
Based Accounting and Profit Planning for the third edition of The Portable
MBA in Finance and Accounting.
John Leslie Livingstone earned MBA and PhD degrees from Stanford
Uni-versity He is a CPA, licensed in New York and Texas, and a CVA (certified in business valuation) Les directs a nationwide business consulting practice, headquartered in West Palm Beach, Florida He has been a partner in Coop-ers & Lybrand (now PricewaterhouseCoopCoop-ers), an international accounting firm, and in The MAC Group, an international management consulting firm
Trang 10specializing in business strategy with offices in Boston, Chicago, Los Angeles, New York, San Francisco, Washington, D.C., London, Paris, Munich, Rome, Madrid, and Tokyo (since acquired by Cap Gemini/Ernst & Young) He has consulted to major corporations and other organizations such as the U.S Postal Service and the SEC He was the Arthur Young Distinguished Professor
of Accounting at Ohio State University, Fuller E Callaway Professor of Accounting at Georgia Institute of Technology, and Chairman of the Depart-ment of Accounting and Law at Babson College He has authored or coau-thored 10 books, several chapters in authoritative accounting handbooks, and many articles in professional journals
Richard P Mandel is an associate professor of law at Babson College, where
he teaches a variety of courses in business law and taxation on the undergradu-ate and graduundergradu-ate school levels and has served as chairman of the Finance Divi-sion He is also a partner in the law firm of Bowditch and Dewey, of Worcester and Framingham, Massachusetts, where he specializes in the representation of growing businesses and their executives Mr Mandel has written a number of articles regarding the legal issues encountered by small businesses He holds an
AB in Government and Meteorology from Cornell University and a JD from Harvard Law School
Charles W Mulford is Invesco Chair and professor of accounting in the
DuPree College of Management at Georgia Tech Since joining the faculty in
1983, he has been recognized nine times as the Core Professor of the Year and once as the Professor of the Year by the Graduate Students in Management In
1999 the Graduate Students in Management voted to rename the Core Profes-sor of the Year Award the “Charles W Mulford Core ProfesProfes-sor of the Year Award.” An additional teaching award received in 2000 was the university-wide W Roane Beard Class of 1940 Outstanding Teacher Award
Dr Mulford’s scholarly pursuits include the publication of numerous pa-pers in scholarly as well as professional accounting and finance journals His research interests center on the effects of accounting standards on investment and credit decision making, earnings forecasts, the relationship between accounting-based and market-based measures of risk and international ac-counting and reporting practices More recently, his research interests have turned to the use of published financial reports in the prediction of financial
distress He has coauthored a book on the subject, Financial Warnings, pub-lished in 1996 A second book on financial analysis, Guide to Financial
Re-porting and Analysis, was published in July 2000 A third book on how
accounting is used to mislead investors, The Financial Numbers Game:
Identi-fying Creative Accounting Practices, is scheduled for publication in 2001 All
three books were or will be published by John Wiley & Sons, New York
In addition to his work at Georgia Tech, Professor Mulford regularly con-sults with major domestic and international commercial banks on issues related
to credit decision making