Agreement Between an Investor and Company Whereby the Investor Is to Receive a Percentage of the Sales of the Company in by iuc12605


Agreement Between an Investor and Company Whereby the Investor Is to Receive a Percentage of the Sales of the Company in Exchange for the Investment. document sample

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									           PA R T   4

Accounting period                                 Break-even point
A regular period of time, such as a               Volume of sales at which total costs
quarter or year, for which a financial            equal total revenues. Sales above this
statement is produced.                            volume generate profits.

Accounts payable                                  Broker
Debts owed to creditors.                          Individual or company authorised to
                                                  buy or sell something for another party
Accounts receivable                               without ever owning the goods.
Debts owed to a business, usually due
from customers for goods or services              Business Plan
purchased from the business.                      A detailed description of a new or
                                                  existing business, including the
Appreciation                                      company’s product or service,
An increase in the value of an asset.             marketing plan, financial statements
                                                  and projections, and management
Asset                                             principles.
Any useful or valuable thing owned by
an individual, corporation or other               Capital
organisation.                                     Property of a business, such as money,
                                                  used to conduct its business.
To transfer ownership of an asset to              Capital expenditure
another party by signing a document.              Purchase of long-term assets, especially
                                                  of equipment, used in manufacturing a
Audit                                             product
Inspection and verification of financial
accounts, records and accounting                  Cash flow
procedures.                                       Incoming cash less outgoing cash
                                                  during a given period.
Balance sheet
Financial statement showing assets on             Collateral
the left side and liabilities on the right.       Property that is offered to secure a loan
A balance sheet provides an overview              or other credit and that becomes
of a company’s financial position at the          subject to seizure upon default.
given time.
                                                  Commercial credit
Balloon payment                                   Short-term credit extended by a seller
The last payment on a loan, significantly         to the buyer to finance the purchase of
larger than previous installments, which          a product or service.
pays the loan in full.

                                     60    G L O S S A R Y
Compensating balance                             Debt ratio
Money required by a bank to be left in           Calculation of total liabilities divided by
a deposit account as part of a loan              total liabilities plus capital, measuring
agreement.                                       the debt level of the business
Compound interest
Interest earned on previously                    Debenture
accumulated interest as well as the              Debt secured by the creditor based on
principal.                                       the general creditworthiness of the
                                                 debtor, as opposed to security based
Corporation                                      on specific assets.
Form of business ownership that is a
legal entity on its own in which                 Default
stockholders and the board of directors          Failure of a borrower to make interest
are in control.                                  and/or principal payments when due.

Credit bureau                                    Depreciation
Company that compiles and maintains              Decrease in the value of equipment
information on consumer credit and               from wear and tear and the passage of
provides the information to potential            time. Depreciation on business
creditors for a fee.                             equipment is generally deductible for
                                                 tax purposes.
Credit rating
Evaluation of an individual or                   Distribution
corporation’s history of repaying past           Payment made to the owner(s) of an
loans. Credit ratings are used as a              asset, such as stock dividends or funds
benchmark to assess the future ability           in a retirement plan.
of a creditor to pay back loans.
Current ratio                                    Distribution of earnings to shareholders.
Calculation of current assets divided
by current liabilities, measuring the            Equity
ability of a company to pay its current          In banking, the difference between the
obligations from current assets.                 market value of an asset and the
                                                 amount of claims (such as mortgages)
Current assets                                   against it. In investing, equity refers to
Cash or other assets that the business           financing by means of shareholders
expects to use in the operation of the           investing in a venture, usually through
company within one year.                         stock. Equity financing is the major
                                                 alternative to debt financing
Current liabilities                              (borrowing).
Debts that the business expects to pay
within one year.

                                  61      G L O S S A R Y
Escrow                                          Guarantee
Temporary deposit with a third party of         Pledge by a third party to repay a loan
assets by agreement between two                 in the event that the borrower cannot.
parties to a contract. The money is
released when the conditions of the             Income statement
contract have been met.                         Financial statement that provides a
                                                historical perspective about a
Extraordinary items                             company’s revenues, costs, and
Unusual or nonrecurring event that              profitability for a specific time period.
must be explained to shareholders.              Also called profit and loss statement.

Factoring                                       Indemnity
Type of accounts receivable financing           Obligation of one party to reimburse
in which receivables are assigned to a          another party for losses which have
factoring company which is responsible          occurred or which may occur.
for collecting the receivables.
Fiduciary                                       Value of a business’ raw materials,
Person or company entrusted with                work in process, supplies used in
assets owned by another party                   operations, and finished goods.
(beneficiary), and is responsible for
investing the assets until they are             Investor
turned over to the beneficiary.                 Individual who takes an ownership
                                                position in a company, thus assuming
Financial projections                           risk of loss in exchange for anticipated
Estimates of the future financial               returns.
performance of a company.
Fiscal year                                     The process of incurring debt in order
Any 12-month period used by a                   to continue or expand the scope of a
company or government as an                     business operation. An enterprise is said
accounting period.                              to be highly leveraged if it relies heavily
                                                on debt financing as opposed to equity
Grace period                                    financing.
Time allowed a debtor in which legal
action will not be undertaken by the            Liability
creditor when payment is late.                  Any obligation to pay another party
                                                now or in the future.
Gross profit
Revenues of the business before                 Lien
consideration of operating expenses,            Legal right to hold property of another
calculated by subtracting cost of goods         party or to have it sold or applied in
sold from net sales.                            payment of a claim.

                                    62   G L O S S A R Y
Line of credit                                     Overhead
A financial institution’s promise to lend          Business expenses not directly related
up to a specific amount during a                   to a particular good or service
specific time frame.                               produced. Examples are insurance,
                                                   utilities, and rent.
Liquid assets
Those assets of a business which are               Partnership
easily convertible into cash.                      A company owned by two or more
                                                   people, who are jointly and personally
Liquidation                                        liable for debts and assets of the
Sale of the assets of a business to pay            company. General partners, who have
off debts.                                         control, have unlimited liability; limited
                                                   partners have limited liability.
Local development corporation
A local organisation designed to                   Prime Rate
improve the economy of the area by                 The interest rate that banks charge
inducing businesses to locate there. A             their best commercial customers.
local development corporation usually              Rates charged to other borrowers are
has financing capabilities.                        often expressed in terms of the prime
                                                   rate plus a specified number of
Marginal cost                                      percentage points.
Additional cost associated with
producing one more unit of output.                 Principal
                                                   The currently unpaid balance of a loan,
Net income                                         not including interest owed.
Sum remaining after all expenses have
been met or deducted: net profit or net            Profit sharing
loss.                                              Compensation arrangement whereby
                                                   employees receive additional pay or
Net worth                                          benefits when the company earns or
Excess of assets over debt.                        increases profits.

Operating expenses                                 Receivables
Costs associated with the day-to-day               Unsettled claims and transactions
activities of the business.                        representing money owed to a creditor,
                                                   usually the result of a sale of the
Operating profit/loss                              creditor’s product or service.
Income (or loss) before taxes and                  Also referred to as Accounts Receivable
extraordinary items (resulting from                and listed as a current asset on the
transactions other than those in the               balance sheet.
normal course of business) are

                                    63      G L O S S A R Y
Retained earnings
Net profits kept to accumulate in a
business after dividends are paid.

Changes in business, employment or
buying patterns which occur
predictably at given times of the year.

Seed money
Funds used to start a new business or
to finance a new venture by an existing

Simple interest
Interest paid only on the principal of a
loan. No interest is paid on interest
accrued during the term of the loan.

Sole proprietorship
Business or financial venture in which
the owner has full control and
unlimited liability.

Purchase of an asset with the
expectation of selling it quickly for a
large gain.

Variable cost
Any costs which change significantly
with the level of output.

Venture capital
Money used to purchase an equity
stake in a new or existing enterprise;
equity, risk or speculative investment
capital. This funding is usually provided
to new or existing firms that exhibit
potential for above-average growth.

                                    64     G L O S S A R Y

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