Definitions

Asset (accounting definition): an economic resource that a company uses to operate its business, e.g. cash, inventories, and equipment.

Asset (investing definition): something that puts money in your pocket every month (i.e. your house and your car are not assets). For more information, read the article: What is an asset? What does it mean to be wealthy?.

Business Mutualism: an association between two separate enterprises, or fields of activity, where (1) each enterprise benefits the other, and (2) collective discoveries emerge beyond those of any single field. For more information, read the article: Business Mutualism.

CFA: stands for “Chartered Financial Aanalyst”. For more information, visit the CFA Institute.

Cost benefit analysis: an analysis framework that involves weighing up the total expected costs and benefits of one course of action against another. For more information, read the article: Analysis framework: understanding the cost benefit analysis.

Diseconomies of scale: a situation where the average cost of production increases as output increases. For more information, read the article: Economies of scale.

Economic indicator: any economic statistic (e.g. the unemployment rate, GDP, or the inflation rate), which indicates the current strength of the economy and/or the future expected performance of the economy. For more information, read the article: Economic recession 2008: measuring the strength of the economy.

Economies of scale: a situation where the average cost of producing one unit of a good or service decreases as the quantity of output increases. For more information, read the article: Economies of scale.

Elevator pitch: a high-level overview of whatever it is that you are selling and is designed to just get the conversation started. For more information, read the articles: The Elevator Pitch, and 12 Tips for Creating an Effective Pitch.

Equity: the net worth of a company equal to Assets minus Liabilities. Equity holders are the owners of the business.

Expenses: costs incurred by a business over a specified period of time to generate the revenues earned during the same period. For more information, read the article Understanding Financial Statements 101.

Investment banking: a profession that involves raising money to allow a company to grow its business. This money might be raised by selling securities (stocks and bonds).

Investment operation: an operation in which, upon thorough analysis, promises safety of principal and an adequate return. Operations not meeting these requirements are speculative. (Ben Graham, The Intelligent Investor) An investment operation is one which, upon thorough analysis promises safety of principal and an adequate return. Operations not meeting these requirements are speculative.

Liability (accounting definition): the debt of a company, a claim that creditors have on the company’s resources.

Madoff Scheme: see Ponzi Scheme.

Management consulting (Tom’s definition): a profession that aims to assist management by (a) providing expert knowledge, (b) facilitating the examination of business problems, (c) implementing solutions, and (d) supporting organisational change. For more information, read the article: What is management consulting?.

Management consulting (Institute of Management Consultants’ definition): “The provision to management of objective advice and assistance relating to the strategy, structure, management and operations of an organisation in pursuit of its long-term purposes and objectives. Such assistance may include the identification of options with recommendations; the provision of an additional resource and/or the implementation of solutions.”

MECE: mutually exclusive, collectively exhaustive.

MECE analysis: refers to the idea that, when analysing a business problem, issues should be divided into groups so that each grouping is separate and distinct (mutually exclusive), and all groups taken together should comprehensively represent all of the issues related to the problem at hand (collectively exhaustive). For more information, read the article: Analysis framework: McKinsey’s MECE framework.

NPV (net present value): The net present value of an investment is the present value of the series of cash flows generated by the investment minus the cost of the initial investment. For more information, read the article: Analysis Framework: Net Present Value.

Ponzi Scheme: any kind of fraudulent investment operation that pays returns to investors from their own money or money paid by subsequent investors rather than from any profits earned.

Porter’s Five Forces: a framework used to determine the competitive intensity and attractiveness of an industry, it considers five forces affecting the competitive pressure exerted on a business: existing competition, barriers to entry, substitutes, customer bargaining power, and supplier bargaining power. For more information, read the article: Analysis framework: Porter’s Five Forces.

Product differentiation: the process of describing the differences between a good or service in order to demonstrate the unique aspects of your good or service and create an impression of value in the mind of the consumer.

Recession: broadly speaking, a recession is a period of slow or negative economic growth, usually accompanied by rising unemployment. Economists have other more precise definitions of a recession, the easiest of which to understand is “two consecutive quarters of falling GDP”. For more information, read the article: Economic recession 2008: measuring the strength of the economy. Alternatively, visit the Economist A-Z.

Revenue: income generated from trading or, for example, selling off a piece of the business or a piece of equipment. Revenue is recorded when the sale is made as opposed to when the cash is received. For more information, read the article: Understanding Financial Statements 101.

Résumé: a document which summarises your background and accompanies your cover letter as part of your job application. For more information, read the article: Creating a winning résumé.

Seven S framework: a diagnostic tool that provides a guide for organisational change, it describes seven factors which together determine the way in which an organisation operates: shared values, staff, skills, style, strategy, structure, and systems. For more information, read the article: Analysis framework: McKinsey’s 7-S Framework.

SWOT: strengths, weaknesses, opportunities and threats.

SWOT analysis: a strategic planning tool used to evaluate the strengths (S), weaknesses (W), opportunities (O), and threats (T) involved in a business venture. It involves specifying the objective of the business venture and identifying the factors that are expected to help or hinder the achievement of that objective. For more information, read the article: Analysis framework: SWOT analysis.

Value Chain Analysis: the process of separating a business operation into a series of value-generating activities in order to understand the activities that provide the business with a competitive advantage. For more information, read the article: Analysis framework: Value Chain Analysis

Wealth: a measure of a person’s ability to survive so many number of days forward into the future if they were to stop working today. For more information, read the article: What is an asset? What does it mean to be wealthy?.