In order to maximize the effectiveness of the program, spend a few minutes
reading over these basic terms:
Accounting is a method of gathering financial information and reporting
on the activities of a business. The ultimate end product of accounting is NOT
good financial reports. Rather, the desired end points of accounting are an
excellent understanding of your business and better management action.
Remember, accounting does not equal bookkeeping. Sageworks® fills the
gap between bookkeeping and action.
Accounts Payable are amounts owed to suppliers or vendors.
Accounts Receivable are amounts that customers owe the company for
Additional Paid-in Capital is the difference between the par value of
the stock issued to owners and the total cash contributed in exchange for the
ADRs (American Depository Receipts) are certificates issued by a U.S.
depository bank, representing foreign shares held by the bank, usually by a
branch or correspondent in the country of issue. One ADR may represent a
portion of a foreign share, one share, or a bundle of shares of a foreign
corporation. Because ADRs are quoted in U.S. dollars and traded just like any
other stock, they make it simple for investors to diversify their holdings
internationally for companies that are located outside the U.S. but traded on
Amortization is an estimate for the amount by which an intangible asset
category has decreased in value over a certain period of time.
Assets are resources that are owned by the firm which help earn profits.
Many times, assets are buildings, machinery, inventory, or other resources a
company owns or holds. Assets are listed on the Balance Sheet. Remember that
assets are not always tangible - something material that can be physically held.
For example, accounts receivable is an asset, but it is not something tangible.
Balance Sheet is a listing of assets, liabilities, and equity as of a
certain date. The Balance Sheet is one of the two most important financial
statements. The other important financial statement is the Income Statement.
Cash (Bank Funds) is the total funds available in a company's checking,
savings, and marketable securities accounts that can be used to pay bills
within 90 days.
Cash Flow Forecast is a month-by-month projection of all expected cash
receipts and cash expenditures for a company. The difference between expected
cash receipts and expected cash expenditures is referred to as Net Cash Flow.
Managers prepare a cash flow forecast to anticipate cash balances in the
Cash Flow Statements are reports of the cash inflows and outflows for a
particular period of time. In many instances, these cash flows are grouped into
3 categories: cash from operations, cash from investing activities, and cash
from financing activities.
Common Stock represents ownership in a corporation and normally
carries voting privileges.
Cost of Sales (COGS) is the direct cost of the products and services
sold. The Cost of Sales section on the Income Statement may take on different
formats. Typically, however, Cost of Sales (COGS) includes inventory costs,
direct labor costs, material costs, sales commissions, and other costs directly
associated with the generation of revenue.
Current Assets are assets a company has for a short period of time
before they are put into the business, such as cash, accounts receivable, and
inventory. Other current assets include marketable securities and prepaid
Current Liabilities are amounts owed that must be paid for in the short
term, usually within a year. Accounts payable is an example of a common current
liability. Current liabilities are considered accrued (built-up) expenses.
Current Ratio equals Total Current Assets divided by Total Current
Liabilities. The current ratio indicates the amount of liquid assets available
to pay off current liabilities or the company's ability to pay its bills and
meet its current obligations. Generally, the higher the current ratio is, the
greater the company's liquidity.
Debt (Liability) is an obligation to pay money that is due under
specified terms. It is an amount owed as of a certain date.
Depreciation is a reasonable estimate of how assets
lose value over time. Depreciation expense is the amount by which a company
estimates an asset decreases in value for an Income Statement period in
Dividends Paid are distributions made to the company's shareholders /
EBITDA is Earnings before Interest, Taxes, Depreciation and Amortization.
Employees + Contractors (FTE) are the full-time staff and full-time
contractors who do work. They are sometimes referred to as FTE (full-time
equivalents). To calculate FTE of several part-time employees, take the total
hours worked by the part-time employees and divide by the full-time equivalent
Equity (Owner's Equity, Net Worth, Shareholders' Equity) is the recorded
ownership claim of common and preferred shareholders in a corporation as
reflected on the Balance Sheet. It is defined as Total Assets minus Total
Expenses are the costs of doing business and are measured over a certain
period of time. Expenses show up on the Income Statement and are subtracted
from Sales to determine Net Profit.
Extraordinary Gain or Loss is an economic event in a company that has a
financial result which would not normally occur during the normal operating
cycle of a business.
Financial Analysis is the act of evaluating a company's financial
statements in order to understand the business better. The value of financial
analysis is to help managers understand how the business is doing AND how they
might improve performance. It can also help investors better understand the
financial performance of companies in which they might like to invest.
Fiscal Year is a twelve-month period during which the company reports income and expenses.
Most companies use January 1 to December 31 as their fiscal year, however,
companies may choose to select a twelve-month period other than the calendar
year. Basically, it is important to note that fiscal year does not always mean
Fixed Assets are any assets on the Balance Sheet considered to have a
life or usefulness in excess of one year. Common examples include land,
buildings, and machinery. It is best to enter gross fixed assets into the
Sageworks expert system. In other words, the Fixed Assets entry
should not include any deductions for depreciation.
Fixed Costs are any costs or expenses that do not vary too much with
changes in the volume of operations over a specified time. Rent expense is
usually considered a fixed expense. However, no cost is fixed over the long
General & Administrative Expenses (G&A) are overhead costs such
as rent, utilities, staff personnel, professional fees, and depreciation.
G&A expenses are also referred to as "Operating Expenses".
Gross Profit is the difference between Sales and Cost of Sales. It is
the profit earned before paying operating expenses.
Gross Profit Margin equals Gross Profit divided by Sales, expressed as a
percentage. It represents the cents of gross profit per sales dollar.
Income Statement shows a company's sales, expenses, and profits or
losses for a certain period of time. The Income Statement is also referred to
as a Profit & Loss Statement. The Income Statement and Balance Sheet are
the two most important financial statements.
Intangible Assets are intellectual property or other "soft assets" that
have a useful life but are not fixed assets.
Interest Expense is the cost of borrowed funds (debt). Companies must
typically pay a premium for the use of another's money.
Inventory is the value of goods that have been produced or purchased for
Net Income is the bottom line net earnings (or losses) of a company.
Net Operating Income is the operating income for a company; how much
profit is made from operations. In our model, Net Operating Income equals Net
Income + Depreciation + Amortization + Interest Expense + Income Taxes +
Extraordinary Gains or Losses.
Net Profit Before Taxes is what is left over after all expenses are paid
(except income taxes in our model). Profit is always expressed as monies earned
during a certain period of time. It is probably a good idea to add back owner's
compensation in excess of salary to Net Profit Before Taxes on the input
Net Profit Margin equals Net Operating Income divided by Sales,
expressed as a percentage. It represents the cents per dollar of sales that the
company extracts in profits. Finance professionals view this metric as a
critical gauge because it indicates operating efficiency.
Operating Expenses are expenses that are paid from the gross profits of
the company. They are often referred to as General & Administrative or
Preferred Stock generally provides the shareholder with preferential payment
of dividends, but does not carry voting rights.
Principal is the original amount of a loan. The rate of interest is
based on the original amount of the loan.
Quick Ratio is the sum of Cash and Accounts Receivables divided by Total
Current Liabilities. Both the quick ratio and current ratio assess a company's
ability to meet short-term obligations. The current ratio measures a company's
overall liquidity, while the quick ratio measures liquidity by considering only
readily liquid assets, items that can be quickly converted to cash. It should
be noted that not one ratio or metric can in itself accurately depict
liquidity, which is largely driven by future events, not present conditions.
Ratio Analysis is the use of a variety of ratios in analyzing the
financial performance and condition of a company.
Retained Earnings are all profits that the company has earned and re-invested
Salary Expense is the cost of all full-time employees, including direct
labor expenses used in calculating Cost of Sales. Salary Expense appears on the
Income Statement and is used to assess labor productivity.
Sales (Income) is the revenue a company earns over time. Sometimes this
is referred to as Gross Sales. Sales is equal to the total funds or monies
generated before expenses. It is measured by time. In other words, companies
earn a certain amount of sales over a day, week, month, or year.
Selling, General, and Administrative Costs (S,G,&A) are the costs
associated with the day-to-day operations of the company. These costs may
include rent, utilities, staff personnel, and all selling, general, and
administrative costs incurred that are not covered by COGS. Some people refer
to S,G,&A expenses as "Operating Expenses".
Total Assets is the sum of all assets a company has as of a certain
date. Total Assets equals Total Current Assets plus Total Fixed Assets plus
Total Liabilities (Total Debt) is the total amount owed as of a certain
date. Try not to confuse liabilities with expenses. Expenses are the costs of
doing business, while liabilities are accrued expenses - expenses that have added up
over time. For example, a mortgage balance is a liability, but monthly mortgage
payments are expenses. Expenses show up on an Income Statement while
liabilities show up on a Balance Sheet.
Variable Costs are any costs or expenses that vary with changes in the
volume of operations over a specified period. Inventory is an example of a