Dictionary of Business

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1).GDP (gross domestic product)The value of a country's overall output of goods and services (typically during one fiscal year) at marketprices, excluding net income from abroad. Gross Domestic Product (GDP) can be estimated in threeways which, in theory, should yield identical figures. They are (1) Expenditure basis: how much money

was spent, (2) Output basis: how many goods and services were sold, and (3) Income basis: how muchincome (profit) was earned.2). socialismAn economic system in which goods and services are provided through a central system of cooperativeand/or government ownership rather than through competition and a free market system.3). Clayton Antitrust ActAn amendment, passed by the U.S. Congress in 1914, meant to further promote competition in U.S.businesses and discourage the formation of monopolies. This act prohibited price discrimination, pricefixing, and exclusive sales contracts. The act also legalized peaceful strikes and boycotts againstcompanies.4). S corporationType of the US corporate structure in which the firm's income is passed through its stockholders(shareholders) in proportion of their investment, and taxed at personal income tax rates. S corporations('S' stands for 'small') can have only one type of stock and only a limited number of stockholders. Alsocalled subchapter S corporation.5). capital gainProfit realized from the sale (disposal) of a capital asset, or from holding it during a period when itsmarket value is increasing. Such gains usually attract capital gains tax.6). inelastic demandA situation in which the demand for a product does not increase or decrease correspondingly with a fallor rise in its price. From the supplier's viewpoint, this is a highly desirable situation because price andtotal revenue are directly related; an increase in price increases total revenue despite a fall in the quantitydemanded. An example of a product with inelastic demand is gasoline.

7). statute of limitationsLegislation that sets a timeframe (limitations period) within which affected parties must take action toenforce their rights or to seek redress after a damage or injury. This period varies according to the natureof the case. Its objective is to encourage diligent prosecution of certain offenses while evidence isavailable and fresh, and thus ensure finality and predictability in litigation. It is generally not applicableto cases involving fraud and murder. Also called limitation of liability act.8). urbanizationAn increase in a population in cities and towns versus rural areas. Urbanization began during theindustrial revolution, when workers moved towards manufacturing hubs in cities to obtain jobs infactories as agricultural jobs became less common.9). trust

Legal entity created by a party (the trustor) through which a second party (the trustee) holds the right tomanage the trustor's assets or property for the benefit of a third party (the beneficiary). The four maintypes of trusts are:(1) Living: trust created by the trustor while he or she is alive.(2) Testamentary: trust established through a will and which comes into effect (is created) when thetrustor dies.(3) Revocable: trust that can be modified or terminated by the trustor after its creation.

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(4) Irrevocable: trust that cannot be modified or terminated by the trustor after its creation.Property interest held by a party (the trustee) for the benefit of another (the beneficiary).10). Ponzi schemeScam in which gullible public is enticed with the promise of very high returns in a very short time, but is

based on paying off the early 'investors' from the cash from (hopefully ever increasing number of) new'investors.' The whole structure collapses when the cash outflow exceeds the cash inflow. The originatorsof the scheme, however, usually disappear with large sums a few days before the crash. Named afterCharles Ponzi (1882-1949), an Italian immigrant to the US who, during 1919-20 collected more thanfifteen million dollars from some 40,000 eager people by promising to double their investment in 90days. See also pyramid scheme.11). sole proprietorshipSimplest, oldest, and most common form of business ownership in which only one individual acquiresall the benefits and risks of running an enterprise. In a sole-proprietorship there is no legal distinctionbetween the assets and liabilities of a business and those of its owner. It is by far the most popularbusiness structure for startups because of its ease of formation, least record keeping, minimal regulatorycontrols, and avoidance of double taxation.12). Metric systemDecimal system of weights and measures, devised in France in 1791 and now adopted by almost everycountry except a few such as the US. Originally called centimeter-gram-second (CGS) system and thenmeter-kilogram-second (MKS) system, since 1960 it is called Systme International d'Units or SISystem or SI units. It comprises of seven base units: (1) kilogram (kg) for mass of matter, (2) mole (mol)for quantity of matter, (3) meter (m) for length, (4) second (s) for time, (5) kelvin (K) for temperature,(6) ampere (A) for electric current, (7) candela (cd) for luminous intensity.13). laissez-faire economicsOne of the guiding principles of capitalism, this doctrine claims that an economic system should be freefrom government intervention or moderation, and be driven only by the market forces. Centered on thebelief (termed invisible hand by the 18th century Scottish economist Adam Smith) that human beings are

naturally motivated by self-interest and, when they are not interfered-with in their economic activities, abalanced system of production and exchange based on mutual benefit emerges....14). net incomeThe total revenue in an accounting period minus all expenses during the same period. If income taxesand interest are not deducted, it is called operating profit (or Loss, as the case may be). Also calledearnings, net earnings, or net profit.15). furloughA short or long term period of unpaid leave for employees of a company or government agency, usuallyresulting from adverse economic conditions. It is usually an alternative to massive layoffs.16). SequestrationA procedure of fiscal policy adopted by Congress as a part of the Fiscal Cliff that deals with the federal

budget deficit. It forces automatic cutbacks in spending on government programs such as defense andeducation, then uses that money to reduce the deficit. In 2013, sequestration will automatically cut about$55 billion in defense spending and about $55 billion in non-defense spending and over the following 10years, will cut a total of about $1.2 trillion.The word first appeared in the Gramm-Rudman-Hollings Deficit Reduction Act of 1985, which enactedsimilar spending cuts if the deficit grew past a set level.17). social media

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Primarily internet or cellular phone based applications and tools to share information among people.Social media includes popular networking websites, like Facebook and Twitter; as well as bookmarkingsites like Digg or Reddit. It involves blogging and forums and any aspect of an interactive presencewhich allows individuals ability to engage in conversations with one another, often as a discussion over

a particular blog post, news article, or event.18). inflationA sustained, rapid increase in prices, as measured by some broad index (such as Consumer Price Index)over months or years, and mirrored in the correspondingly decreasing purchasing power of the currency.It has its worst effect on the fixed-wage earners, and is a disincentive to save. There is no one single,universally accepted cause of inflation, and the modern economic theory describes three types ofinflation:(1) Cost-push inflation is due to wage increases that cause businesses to raise prices to cover higherlabor costs, which leads to demand for still higher wages (the wage-price spiral).(2) Demand-pull inflation results from increasing consumer demand financed by easier availability ofcredit.(3) Monetary inflation caused by the expansion in money supply (due to printing of more money by agovernment to cover its deficits). See also deflation and hyperinflation.19). Sharpe ratioMeasure of the performance of an investment, computed by dividing the excess return (that is over thereturn on a risk-free investment such as on Treasury bills) by the amount of risk taken to generate theexcess (the standard deviation of the rate of return). A ratio of 1 indicates one unit of return per unit ofrisk, 2 indicates two units of return per unit of risk, and negative values indicate loss or that adisproportionate amount of risk was taken to generate a positive return. Invented by the Nobel laureate(1990) US economist William Sharpe (born 1934). Also called market price of risk. See also ModernPortfolio Theory.20). ethicsThe basic concepts and fundamental principles of decent human conduct. It includes study of universal

values such as the essential equality of all men and women, human or natural rights, obedience to thelaw of land, concern for health and safety and, increasingly, also for the natural environment. See alsomorality.21). hypothesis1. A supposition or explanation (theory) that is provisionally accepted in order to interpret certain eventsor phenomena, and to provide guidance for further investigation. A hypothesis may be proven correct orwrong, and must be capable of refutation. If it remains unrefuted by facts, it is said to be verified orcorroborated.

2. Statistics: An assumption about certain characteristics of a population. If it specifies values for everyparameter of a population, it is called a simple hypothesis; if not, a composite hypothesis. If it attempts

to nullify the difference between two sample means (by suggesting that the difference is of no statisticalsignificance), it is called a null hypothesis.

22). fidelity bondType of insurance bought by an employer to protect against losses (such as embezzlement or theft byemployees) that are not generally covered under normal theft or burglary policies. It may either be a

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blanket bond (applying to all employees) or for each employee on an individual basis. The insurancecompany may set certain guidelines to be followed in the insured firm's hiring practices, and theprotection continues only so long as the duties of the covered employees remain the same (unlessarranged otherwise). Some businesses such as brokerages, cash carriers, and security firms are required

by law to obtain fidelity bonds. Also called fidelity guaranty or fidelity insurance.23). linear relationshipStatistics: A relationship of direct proportionality that, when plotted on a graph, traces a straight line. Inlinear relationships, any given change in an independent variable will always produce a correspondingchange in the dependent variable. For example, a linear relationship between production hours andoutput in a factory means that a 10 percent increase or decrease in hours will result in a 10 percentincrease or decrease in the output.24). Federal Stimulus PackageAmerican Recovery And Reinvestment Act. An investment recovery package of $32 billion, passed inCongress on February 13, 2009, by the U.S. government to serve these main purposes, among others:- to provide financial assistance to struggling states and to stave off rising unemployment in publiccareers such as educational, police and fire services- to stimulate economic activity through a $288 billion middle class tax cut- to award new homebuyers with up to $8,000 in credit- to reduce health insurance costs for the unemployed (COBRA)- to reduce college costs through savings plans to restart a stalled economy- to increase government infrastructure jobs with the dual purpose of improving public transportationnetworks and building green energy technology.Also called 2009 Stimulus Package.25). trademarkDistinctive design, graphics, logo, symbols, words, or any combination thereof that uniquely identifies afirm and/or its goods or services, guarantees the item's genuineness, and gives it owner the legal rights toprevent the trademark's unauthorized use. A trademark must be (1) distinctive instead of descriptive, (2)

affixed to the item sold, and (3) registered with the appropriate authority to obtain legal ownership andprotection rights. Trademark rights are granted usually for 7 to 20 years and, unlike in case of patents,are renewable indefinitely. These rights are protected worldwide by international intellectual propertytreaties and may be assigned by their owner to other parties. Although a trademark has no limited term ofexistence, the rights to use it may be lost due to misuse or lack of use.26). love moneyCapital given by family and friends of an individual, usually an entrepreneur, to start a business. Themoney is lent based on a relationship of trust in the individual by the lenders. It usually occurs when anindividual would not meet the criteria to be granted financing by a lending institution.27). The FedFederal Reserve System. US central-banking system comprising of 12 regional central banks (called the

Federal Reserve Banks) owned by private banks. Governed by seven-member (each appointed by the USpresident for 14 years) board of governors, the Fed regulates interest rates and availability of bank creditand sets other monetary policies such as legal reserve requirements for banks. Both its chairman (who isits money.28). demographic factorsSocioeconomic characteristics of a population expressed statistically, such as age, sex, education level,income level, marital status, occupation, religion, birth rate, death rate, average size of a family, average

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age at marriage. A census is a collection of the demographic factors associated with every member of apopulation.29). mom and pop storeA small, independent, usually family-owned, controlled, and operated business that has a minimum

amount of employees, has only a small amount of business volume, and is typically not franchised,therefore open for business only in a single location.30). Loudermill rightsEmployee rights deriving from a 1985 US Supreme court decision ('Cleveland Board of Education vs.Loudermill') that most public (but not private) employees have a property right in their jobs. Anemployee cannot be dismissed without due process involving pre-termination hearing that gives them theopportunity to present their side of the story.31). Harvard Business ReviewMagazine published by the Harvard Business School, in existence since 1922. Offers useful informationand ideas for people interested in leading, creating or changing business practices. Articles cover a widerange of topics from leadership, strategy, finance, organizational change, operations and managementwhich are relevant to many different industries. The target audience of the magazine are seniormanagers.32). intellectual propertyKnowledge, creative ideas, or expressions of human mind that have commercial value and areprotectable under copyright, patent, servicemark, trademark, or trade secret laws from imitation,infringement, and dilution. Intellectual property includes brand names, discoveries, formulas, inventions,knowledge, registered designs, software, and works of artistic, literary, or musical nature. It is one of themost readily tradable properties in the digital marketplace.33). Microsoft OfficeSuite of products developed by Microsoft Corporation that includes Microsoft Word, Excel, Access,Publisher, PowerPoint, and Outlook. Each program serves a different purpose and is compatible withother programs included in the package. The suite of programs is compatible with both the Windows and

Macintosh operating system. Microsoft Office is the most common form of software used in the westernworld.34). FordismA manufacturing philosophy that aims to achieve higher productivity by standardizing the output, usingconveyor assembly lines, and breaking the work into small deskilled tasks. Whereas Taylorism (onwhich Fordism is based) seeks machine and worker efficiency, Fordism seeks to combine them as oneunit, and emphasizes minimization of costs instead of maximization of profit. Named after its famousproponent, the US automobile pioneer Henry Ford (1863-1947).35).spaghetti diagramA complex diagram that maps the path of production for a product or service, typically from requirementto deliverable. A spaghetti diagram can also be used to map the steps taken by employees within an

organization as they move a product or service toward completion within the company. As a result of themany steps typically involved in the process, the spaghetti diagram gets its name from its finishedappearance, often resembling a bowl of spaghetti.36).Google AdWordsAdvertising program offered by Google, Inc. that pays websites on a pay-per-click basis foradvertisements that the company displays on the websites. The advertisements are typically banner andtext ads that show content related to the website's offerings. The program has grown in popularity due to

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its low start up costs and potential profits for the site owners.37).competitive advantageA superiority gained by an organization when it can provide the same value as its competitors but at alower price, or can charge higher prices by providing greater value through differentiation. Competitive

advantage results from matching core competencies to the opportunities.38).EEOCEqual Employment Opportunity Commission. Federal enforcement agency enacted to ensure thatemployers follow and abide by rules set forth in the Civil Rights Act of 1964. Under the act employersmust not deny employment or promotions based on someone's race, religion, sex, or national origin. TheEEOC handles all claims of discrimination within the workforce and will investigate and prosecute allviolators. The agency is also in charge of implementing anti-discrimination laws to protect employeesfrom unlawful actions. Some companies and states have similar agencies to handle requests at the locallevel.39). Sherman Antitrust ActUS federal legislation of 1890 that prohibited the creation of monopolies by outlawing direct or indirectattempts to interfere with the free and competitive nature of the production and distribution of goods.Amended by the Clayton Act of 1914. Also called Sherman Act.40). EurozoneComprises of 12 countries that have adopted the Euro as their national currency is a part of the processtowards 'Economic And monetary union' (EMU) under the Maastricht treaty. They are: Austria,Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain, andGreece.41). Real GDPAn economic assessment that involves quantifying the inflation adjusted market value of goods andservices produced by an economic system during a given time. A business might use the real grossdomestic product (real GDP) of a nation to indicate the standard of living within that country that canhelp them determine whether or not their products will be successful.

42). LogisticsPlanning, execution, and control of the procurement, movement, and stationing of personnel, material,and other resources to achieve the objectives of a campaign, plan, project, or strategy. It may be definedas the 'management of inventory in motion and at rest.'43). last in, first out (LIFO) DefinitionAccounting: Method of inventory valuation based on the assumption that the goods purchased mostrecently (the last in) are sold or used first (the first out). The remaining items are assumed to have beenpurchased at successively-earlier periods. In this method, value of the inventory at the end of anaccounting period is based on the value of items purchased earliest. During periods of high inflationrates, the LIFO method yields lower value of the ending inventory, higher cost of goods sold, and alower gross profit (hence lower taxable income) than that yielded by the application of the first-in,

first-out (FIFO) method.44). Gantt chart DefinitionType of bar-chart that shows both the scheduled and completed work over a period. A time-scale isgiven on the chart's horizontal axis and each activity is shown as a separate horizontal rectangle (bar)whose length is proportional to the time required (or taken) for the activity's completion. In projectplanning, these charts show start and finish dates, critical and non-critical activities, slack time, andpredecessor-successor relationships. Also called chronogram, it was invented in 1917 by the US

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engineer and a scientific-management pioneer, Henry L. Gantt (1861-1919).45). opportunity costA benefit, profit, or value of something that must be given up to acquire or achieve something else.Since every resource (land, money, time, etc.) can be put to alternative uses, every action, choice, or

decision has an associated opportunity cost. Opportunity costs are fundamental costs in economics, andare used in computing cost benefit analysis of a project. Such costs, however, are not recorded in theaccount books but are recognized in decision making by computing the cash outlays and their resultingprofit or loss.opportunity cost is in the Decision Making, Problem Solving, & Strategy, Economics, Politics, &Society, Investing and Planning & Scheduling subjects.opportunity cost appears in the definitions of the following terms: financial economics, demand risk,shadow price, comparative advantage, and tradeoffs.46). austerity budgetA budget that is imposed on a country by its government with the purpose of reducing the nationaldeficit by way of cutting down on consumer spending.47). socializationProcess by which individuals acquire the knowledge, language, social skills, and value to conform to thenorms and roles required for integration into a group or community. It is a combination of bothself-imposed (because the individual wants to conform) and externally-imposed rules, and theexpectations of the others. In an organizational setting, socialization refers to the process through whicha new employee 'learns the ropes,' by becoming sensitive to the formal and informal power structure andthe explicit and implicit rules of behavior. See also organizational culture and orientation.48). cost controlThe process or activity on controlling costs associated with an activity, process, or company. Costcontrol typically includes (1) investigative procedures to detect variance of actual costs from budgetedcosts, (2) diagnostic procedures to ascertain the cause(s) of variance, and (3) corrective procedures toeffect realignment between actual and budgeted costs.

49). vision statementAn aspirational description of what an organization would like to achieve or accomplish in the mid-termor long-term future. It is intended to serves as a clear guide for choosing current and future courses ofaction. See also mission statement.50). operating expensesAn expense incurred in carrying out an organization's day-to-day activities, but not directly associatedwith production. Operating expenses include such things as payroll, sales commissions, employeebenefits and pension contributions, transportation and travel, amortization and depreciation, rent, repairs,and taxes. These expenses are usually subdivided into selling expenses and administrative and generalexpenses. Also called non-manufacturing expenses.51). business plan Definition

Set of documents prepared by a firm's management to summarize its operational and financial objectivesfor the near future (usually one to three years) and to show how they will be achieved. It serves as ablueprint to guide the firm's policies and strategies, and is continually modified as conditions change andnew opportunities and/or threats emerge. When prepared for external audience (lenders, prospectiveinvestors) it details the past, present, and forecasted performance of the firm. And usually also containspro-forma balance sheet, income statement, and cash flow statement, to illustrate how the financingbeing sought will affect the firm's financial position.

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52).balance sheet ratiosComparisons of balance sheet items to gain insight into the (1) changes in the financial position, (2)strength/weakness of the financial position, and (3) relationship between different items. Two basicbalance sheet ratios are the debt ratio (total debt / total assets) and debt to equity ratio (total debt / total

equity).53). elasticity of demandThe degree to which demand for a good or service varies with its price. Normally, sales increase withdrop in prices and decrease with rise in prices. As a general rule, appliances, cars, confectionary andother non-essentials show elasticity of demand whereas most necessities (food, medicine, basic clothing)show inelasticity of demand (do not sell significantly more or less with changes in price). Also calledprice demand elasticity. See also cross price elasticity of demand.54). New DealA series of economic policies introduced by President Franklin D. Roosevelt after the Great Depressionleft the U.S. economy in a dismal state. The programs were implemented to provide relief to millions ofAmericans that were stuck in a state of poverty as a result of the Great Depression. The various programswere rolled out over five years (1933-1938) and covered a range of items including labor, bank, andrelief reforms. The New Deal had many opponents who felt the programs implemented built up thepower held by the government and promoted capitalism. With the start of World War II, the programscreated by the New Deal became practically unnecessary as GNP and unemployment rates improveddrastically as men became soldiers and women took over jobs previously held by the men.55). J. D. Rockefeller DefinitionAn American industrialist who founded the Standard Oil Company. John Davison Rockefeller livedfrom 1839 to 1937, and he spent his later years on philanthropic endeavors and gave away roughly halfof his fortune. He established the Rockefeller Foundation and the University of Chicago.56). Six Sigma DefinitionOriginally developed in 1986 by Motorola, the business management strategy is now used in manydifferent industries in an effort to improve the quality of products or services produced by the business

through the removal of defects and errors. The strategy involves creating groups of people within thebusiness or organization who have expert status in various methods, and then each project is carried outaccording to a set of steps in an effort to reach specific financial milestones. A six sigma process isdefined as one in which 99.99966% of products created are expected to be statistically free from defects.See also Lean Six Sigma.57). Yankee bondDollar denominated bond sold in the US by a foreign bank, corporation, or government utility. It the USequivalent of Eurobond.58). operating expensesAn expense incurred in carrying out an organization's day-to-day activities, but not directly associatedwith production. Operating expenses include such things as payroll, sales commissions, employee

benefits and pension contributions, transportation and travel, amortization and depreciation, rent, repairs,and taxes. These expenses are usually subdivided into selling expenses and administrative and generalexpenses. Also called non-manufacturing expenses.59). hiring freeze DefinitionA shut down of all non-essential hiring. This action is taken by an employer in an attempt to managehuman capital costs in times of general economic contraction or when the specific organization isexperiencing a financial crisis. The freeze may be short or long term and is sometimes used as an

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alternative to layoffs. Some downsizing may occur through attrition during a hiring freeze if terminatedemployees are not replaced.60). angel investor DefinitionUsually, a former entrepreneur or professional who provides starting or growth capital in promising

ventures, and helps also with advice and contacts. Unlike venture capitalists, angel investors usuallyoperate alone (or in very small groups) and play only an indirect role as advisors in the operations of theinvestee firm. They are deemed to be 'angels' in comparison with grasping investors who are termed'business angels'.61). Fourier analysis DefinitionData series analysis based on the concept that any graph (representation of a function) can be regarded ascomposed of an (almost) infinite series of sine and cosine functions. Thus, the response of a system tocomplex changes (stimuli) can be computed on the basis of its known response to simple changes.Fourier analysis is an important tool in disparate fields such as physical sciences and sales forecasting.Based on the work of the French mathematician Jean Baptiste Joseph Fourier (1768-1830) on heat flowin 1807. Also called harmonic analysis.62). Human Resource Information System (HRIS) DefinitionA system which seeks to merge the activities associated with human resource management (HRM) andinformation technology (IT) into one common database through the use of enterprise resource planning(ERP) software. The goal of HRIS is to merge the different parts of human resources, including payroll,labor productivity, and benefit management into a less capital-intensive system than the mainframesused to manage activities in the past. Also called Human Resource Management System (HRMS).63).

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