Contingent Capital

Funds that would be available under a pre-negotiated agreement if a specific contingency (such as a natural disaster) occurs or a threshold (such as the maximum price of a raw material or the minimum price of product) is crossed. In this off balance-sheet arrangement, a party pays a capital commitment fee to a second party which undertakes (in advance) to extend a loan or purchase debt or equity security of a certain amount in case a stated situation occurs. Thus, the first party does not transfer its risk (as in insurance, which affects the income statement) and does not have to show a liability on its books (as for a loan, which affects the balance sheet), but receives a critical capital injection exactly when it is needed without having to negotiate from a position of weakness. Contingent capital arrangements take several forms, such as a catastrophe equity put option, contingent surplus note, or standby loan.

Balance of Payments (BOP)

Set of accounts that record a country's international transactions, and which (because double entry bookkeeping is used) always balance out with no surplus or deficit shown on the overall basis. A surplus or deficit, however, can be shown in any of its three component accounts: (1) Current account, covers export and import of goods and services, (2) Capital account, covers investment inflows and outflows, and (3) Gold account, covers gold inflows and outflows. BOP accounting serves to highlight a country's competitive strengths and weaknesses, and helps in achieving balanced economic-growth.

Inventory

An itemized catalog or list of tangible goods or property, or the intangible attributes or qualities. The value of materials and goods held by an organization (1) to support production (raw materials, subassemblies, work in process), (2) for support activities (repair, maintenance, consumables), or (3) for sale or customer service (merchandise, finished goods, spare parts). Inventory is often the largest item in the current assets category, and must be accurately counted and valued at the end of each accounting period to determine a company's profit or loss. Organizations whose inventory items have a large unit cost generally keep a day to day record of changes in inventory (called perpetual inventory method) to ensure accurate and on-going control. Organizations with inventory items of small unit cost generally update their inventory records at the end of an accounting period or when financial statements are prepared (called periodic inventory method). The value of an inventory depends on the valuation method used, such as first-in, first-out (FIFO) method or last-in, first-out (LIFO) method. GAAP require that inventory should be valued on the basis of either its cost price or its current market price whichever is lower of the two to prevent overstating of assets and earning due to sharp increase in the inventory's value in inflationary periods. The optimum level of inventory for an organization is determined by inventory analysis. Called also stock in trade, or just stock.

Contingent Capital

Funds that would be available under a pre-negotiated agreement if a specific contingency (such as a natural disaster) occurs or a threshold (such as the maximum price of a raw material or the minimum price of product) is crossed. In this off balance-sheet arrangement, a party pays a capital commitment fee to a second party which undertakes (in advance) to extend a loan or purchase debt or equity security of a certain amount in case a stated situation occurs. Thus, the first party does not transfer its risk (as in insurance, which affects the income statement) and does not have to show a liability on its books (as for a loan, which affects the balance sheet), but receives a critical capital injection exactly when it is needed without having to negotiate from a position of weakness. Contingent capital arrangements take several forms, such as a catastrophe equity put option, contingent surplus note, or standby loan.

Generation Y

The generation of people born during the 1980s and early 1990s. The name is based on Generation X, the generation that preceded them. Members of Generation Y are often referred to as echo boomers because they are the children of parents born during the baby boom (the baby boomers). Because children born during this time period have had constant access to technology (computers, cell phones) in their youth, they have required many employers to update their hiring strategy in order to incorporate updated forms of technology. Also called millennials, echo boomers, internet generation, iGen, net generation.

Visa

Certificate issued or a stamp marked (on the applicant's passport) by the immigration authorities of a country to indicate that the applicant's credentials have been verified and he or she has been granted permission to enter the country for a temporary stay within a specified period. This permission, however, is provisional and subject to the approval of the immigration officer at the entry point. The common types of visas include: (1) Single entry visa: valid only for one visit. (2) Multiple entry visa: allows any number of visits within its validity period. (3) Business visa: for a short visit to conduct discussions, negotiations, and/or presentations, but not to take up employment. (4) Tourist visa: allows freedom to move around the country and briefly cross its frontiers to another country and return. (5) Residence visa: allows an extended stay but does not grant permission to take up employment. (6) Work visa: gives the permission to stay and take up employment, for a specific job and only for a limited period. Called also work permit. (7) Electronic visa: permission recorded in a computer instead of being issued as a certificate or stamp.

Balance Sheet

A condensed statement that shows the financial position of an entity on a specified date (usually the last day of an accounting period). Among other items of information, a balance sheet states (1) what assets the entity owns, (2) how it paid for them, (3) what it owes (its liabilities), and (4) what is the amount left after satisfying the liabilities. Balance sheet data is based on a fundamental accounting equation (assets = liabilities + owners' equity), and is classified under subheadings such as current assets, fixed assets, current liabilities, Long-term Liabilities. With income statement and cash flow statement, it comprises the set of documents indispensable in running a business. An audited balance sheet is often demanded by investors, lenders, suppliers, and taxation authorities; and is usually required by law. To be considered valid, a balance sheet must give a true and fair view of an organization's state of affairs, and must follow the provisions of GAAP in its preparation.

Due Diligence

General: Measure of prudence, responsibility, and diligence that is expected from, and ordinarily exercised by, a reasonable and prudent person under the circumstances. Business: Duty of a firm's directors and officers to act prudently in evaluating associated risks in all transactions.

Investing: Duty of the investor to gather necessary information on actual or potential risks involved in an investment.

Negotiating: Duty of each party to confirm each other's expectations and understandings, and to independently verify the abilities of the other to fulfill the conditions and requirements of the agreement.