Mortgage
A loan secured by the collateral of some specified real estate property that the borrower is obliged to pay back with predetermined set of payments.
Capital Asset
A long-term asset that is not bought or sold in the regular course of business.
Capital Expenditure - CAPEX
Funds used by a company to acquire or upgrade physical assets such as property, industrial buildings, or equipment.
This can include everything from repairing a roof to building a fire escape.
Capital Budgeting
The process of determining whether or not projects such as building a new plant or investing in a long-term venture are worthwhile.
Popular methods of capital budgeting include net present value (NPV), internal rate of return (IRR), discounted cash flow (DCF), and payback period.
Budget
An estimation of the revenue and expenses over a specified future period of time. A budget can be made for a person, a family or a group of people, a business, government, country or multinational organization or just about anything else that makes and spends money. Budgets are a microeconomic concept that show the tradeoff made when one good is exchanged for another.
Cash Budget
An estimation of the cash inflows and outflows for a business.
A cash budget is extremely important, especially for small businesses because it allows a company to determine how much credit can be extended to customers before they begin to have liquidity problems.
Zero Based Budgeting - ZBB
A method of budgeting in which all expenditures must be justified each new period, as opposed to only explaining the amounts requested in excess of the previous period's funding.
Expenses
- Money spent by a firm to continue its ongoing operations.
2. Money spent or costs incurred that are deductible and reduce your taxable income.
Income
Money received by a person or organization because of effort (work) or from return on investments.
Net Income - NI
An individual's or company's total earnings, calculated by revenues adjusted for costs of doing business, depreciation, interest, taxes and other expenses. Often referred to as "the bottom line".
Revenue
- The dollar amount of sales during a specific period, including discounts and returned merchandise. It is the "top line" figure from which costs are subtracted to determine net income.
2. When evaluating stocks, revenue growth serves as an indication of a company's health.
Credit Report
A detailed report of an individual's credit history prepared by a credit bureau and used by a lender to in determining a loan applicant's creditworthiness, including:
1. Personal data (current and previous addresses, social security number, employment history)
2. Summary of credit history (number and type of accounts that are past-due or in good standing)
3. Detailed account information
4. Inquires into applicant's credit history (number and type of inquiries into applicant's credit report)
5. Details of any accounts turned over to credit agency (such as information about liens, wages garnishments via federal, state or county records)
7. Information on how to dispute any of the above information.
Bankruptcy
The state of a person or firm unable to repay debts.
Notes:
If the bankrupt entity is a firm, the ownership of the firm's assets is transferred from the stockholders to the bondholders. Shareholders are the last people to get paid if a company goes bankrupt. Secure creditors always get first grabs at the proceeds from liquidation.
Credit risk is the risk of loss due to a debtor's non-payment of a loan.
Credit scoring
A statistical technique that combines several financial characteristics to form a single score to represent a customer's creditworthiness.
Good credit score:
what is credit scoring?
Simply put, credit scoring is a method of assessing the credit risk of a loan applicant. It uses mathematical models to evaluate a person's credit worthiness based on their credit history and current credit accounts. The system was first developed in the 1950s, but has come into widespread use in just the last couple of decades.
In the early '80s, the three major credit bureaus (Experian, Equifax and Trans Union) each developed scoring models that allowed them to offer a score based solely on the data of one individual. Creditors, especially those in the home mortgage industry, frequently use these scores when deciding who gets a loan and at what rate. However, it's worth remembering that creditors also consider other information, such as your salary or employment history, when making loan decisions.
