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Layman's Terms

Executives have their own language with an alphabet soup of acronyms. Here are some phrases and what they mean.

Acid-test ratio
A stringent measure of liquidity.

Asset turnover
The measurement of sales as a percentage of assets. This shows how well management is using the company's assets to generate sales.

Capital expenditure
An expense that is placed on the balance sheet as an asset with its cost to be allocated in future accounting periods.

Cash flow statement
This shows the sources or uses of cash that flowed through the company during a particular period.

Common stock
Stock for which its holders have voting rights and do not receive dividends at a fixed rate.

Cost-benefit analysis
A way of measuring the benefits expected from a decision, measuring the costs expected to be incurred in the decision, and then seeing if the benefits exceed the costs. If they do, then the analysis is in favor of going ahead with the planned course of action.

Cost plus pricing
Determining the price of a product based on the company's costs, plus the company's desired profit for the product.

Debt ratio
Compares the company's long-term debt to the amount of owner's equity. The debt ratio

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compares the amount of financing that comes from creditors relative to the amount invested by shareholders.

Deferred charges
Money that has already been spent that will yield benefits in upcoming years. Money allocated to research and development is an example.

This was first published in July 2007

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