A Complete MBA Glossary of Terms for New Students
Specialized terms refer to the many components of a Master’s in Business Administration. If you’re just getting started in this MBA journey or looking to pursue it, all the technical jargon can be quite overwhelming!
This page is a guide to industry terminologies that will get you well on your way to comprehending what MBAs are talking about.
Accounting (Earnings) Quality – reflects the company’s earning potential based on its reported earnings. The accounting earnings quality predicts the company’s changing financial position in the market.
Accounting Manipulation – an illicit and purposeful misapplication of the legal federal and national accounting standards. It is intended to inflate the financial statements submitted by an organization to conceal fraud and financial losses.
Accounts receivable – a record of all the completed transactions, evidencing money owed by clients to the company, to be paid at a specific time.
Amortization – an accounting technique practiced by companies to periodically record their loan and intangible assets at a lower value or spread the cost of spending over a period of time.
Annual Bonus – additional compensation, usually in the form of cash, awarded to an employee or an executive when the company’s yearly performance exceeds the projected financial targets. Annual bonuses are given out of the company’s goodwill and tradition and do not form part of the salary.
Annual Salary – a fixed amount regularly received as compensation for work done for one year. It is typically set before work commences in a given year.
Assets – the sum of property, money, and other valuable resources within the commerce of man-owned or provides beneficial gains to a company.
Assurance – interchangeably used with insurance, it is financial coverage that companies secure to provide remuneration in the event of a financial collapse. Assurance also means the degree of care organizations exercise to maintain their satisfactory operations and secure their stakeholders’ confidence.
Audit – it is an objective review and evaluation of an organization’s financial statements. A financial audit is conducted to assess the organization’s financial records, ensuring that the information is accurately represented and reported in the company’s tax returns.
Ballpark – a jargon used in less formal conversations between colleagues, which is an estimate or an average of something of value.
Bankruptcy – a situation in which a corporation, which has lost its capacity to engage in financial transactions, becomes insolvent. When a corporation faces bankruptcy, it is legally obligated to maximize its remaining assets to satisfy the claims of its creditors.
Bear market – a market trend that pertains to a steady decline in the market value of stocks and marketable securities. It pertains to a 20% drop based on the prior market condition.
Benefits Compensation – additional compensation provided by an employer, which may include health insurance, life insurance, supplemental executive retirement plans (SERPs), defined contribution retirement accounts (401[k]), and tax refunds.
Best Practices – a set of practices, procedures, and rules that govern the management and organizational operations. Best practices are in place to improve both financial and nonfinancial outcomes of transactions across various firms.
Blockholder – an investor who owns a significant portion of a corporation’s common stock, more or less a 1% to 5% stake in the stocks. No statutory regulation classifies a blockholder from the rest of the stockholders.
Blue sky – a jargon used to describe the ideal forecast of a company’s future.
Board of Directors – individuals who were elected to represent the interests of shareholders. Simply referred to as the “Board,” they are required to own a stake in the company. They take on advisory and oversight roles to ensure the company’s strategy and direction.
Business Model – a business model that business organizations adhere to. It pertains to strategies that allow companies to accomplish stated financial targets. As part of their role, the Board of Directors is tasked to evaluate and approve the business model.
Capital – the sum of money and other tangible assets owned by a company that supports its operation.
Codetermination – a principle owing to German corporate law that establishes a system that the interests of all the stakeholders in a corporation are taken with equal weight in corporate decision-making.
Competitive Advantage – viewed as an upper hand in terms of production, delivery of service, or capacity-building that will positively result in a lower cost of manufacturing or having higher sales than the competition.
Compliance – it is when organizations ensure conformity with all mandatory federal and national regulations, as well as voluntary requirements.
Corporate Defense – the measures taken by a corporation to safeguard the interests of stakeholders from a potential loss or risk in the exercise of its business.
Corporate Governance – a set of principles that govern the corporation, ensuring a unified action eliminating the self-interests of shareholders.
Creditworthiness – the measure of a debtor’s ability to make good on his debts with his creditors, including the availability of collateral under his ownership and possession.
Cumulative Voting – a system of voting adopted by the Board. It allows proxy voting and enables shareholders to accumulate their votes to one board candidate, instead of rendering one vote for each candidate. A shareholder’s number of votes is computed by multiplying the number of shares by the number of seats the corporation has on its board.
Debt – the amount of money owed by a party from another and must be paid at a specified time.
Demand – an economic principle that represents the willingness of a consumer to purchase goods and services at a specific price.
Depreciation – an accounting method used to measure the percentage of the corporation’s assets that have been utilized.
Due diligence – diligence required of a prudent man, usually necessary during an audit, review of financial documents, and gathering information concerning an organization.
Duty of Candor – the fiduciary duty required under state corporal law. The duty of candor imposed upon corporations and other business organizations requires that the board and the management exercise transparency. They need to inform the shareholders of all accurate, pertinent information concerning the business.
Duty of Care – another fiduciary duty under state corporate law which requires the director, before making any decisions affecting the corporation, must first undergo a deliberation with the Board and other shareholders. In the United States, it is enforced through the rubric “business judgment rule.”
Duty of Loyalty – also a fiduciary duty under the state corporate law. It addresses the question of loyalty in times of conflict of interest.
Elasticity – a mode of measuring the probable change in demand when a product, already available in the market, changes its price.
Empirical Testing – a method of testing a hypothesis through practical, real-world observation, like field studies, case studies, and statistical testing.
Equity – represents the amount of money or degree of ownership a party holds after the company’s assets are liquidated and distributed to individual shareholders. Simply put, your piece of the pie.
Financial Accounting Standards Board (FASB) – the nonprofit organization in the United States that sets the accounting standards in the country.
Financial Risk – represents the degree to which an organization depends on financing acquired from third parties, including capital markets and private lending institutions.
Fixed costs – the cost attached to a good or service that will remain unaffected by the overhead or production cost. It shall remain the same unless changed by the organization that sets the fixed cost.
Fungibility – a characteristic attached to goods or assets having the ability to be replaced with another without causing any damage to the company.
Golden Handcuff (Golden Handshakes) – the financial incentives awarded to employees, with the end goal of encouraging them to remain with the company. These are usually given to key employees to reduce the attrition rate.
Hedge – the economic contract existing between a stockholder and the corporation. It is used to preserve the value attached to a common stock position.
Hedge fund – represents the funds pooled together to form a sizable investment used aggressively in one business venture, ensuring that owners will gain absolute return or investment.
Independence – a position maintained by a company, which allows them to carry its operation free from conflicts, external and internal that would impair its objectives. Corporations organized in the United States are required by law to have independent directors owning the majority shares.
Inflation – an economic situation that affects the purchasing power of a country’s currency. This is brought about by the uncontrolled increase in the prices of goods and services in the market. A gradual rise in the inflation rate is usually a good sign, indicating a growing economy.
Insider Trading – as used by the Securities Exchange Commission (SEC) of the United States, an “insider” is an individual who has acquired material information regarding a company before it has been made public. When a trader uses this information to gain a financial advantage, this is considered “insider trading.” Insider trading is an illegal trade and is sanctioned by the SEC.
Key Performance Indicators (KPIs) – a metric used to measure both the financial and non-financial status of the company, reflecting its current and future performance. KPI is also used to evaluate employees in the frontline of the business operation.
Liquidity – the status of an individual or an organization, representing its capacity to engage in financial undertakings having sufficient liquid assets.
Labor Market Efficiency – it is the capacity of the labor market in various industries to supply workers to the appropriate sector. Labor market efficiency pertains to a situation when the labor market functions properly.
Long-term Incentives – benefits, cash, or otherwise that are awarded to an executive for long-term association and performance in the company.
Margin – represents the difference that separates revenue produced by the sale of products and services and the actual cost of production.
Mark-to-market – a mode of reporting required under the Generally Accepted Accounting Principles (GAAP). Corporations must report the change in value in the current net income, despite contracts being enforceable at a given future time.
Notional Value – a term used to attach value to the underlying asset, including options, futures, and currency markets.
Operational Risk – the degree to which businesses are left unprotected from the inevitable disruptions as a result of their operations. It may result from redundancy in the supply chain when buyers are concentrated on buying a specific product, or issues with suppliers.
Political, Economic, Social, and Technological (PEST) – a framework of analysis that analyzes the company’s external environments as a vital part of its strategic planning process. It focuses on four elements – political, economic, social, and technological – in a situation where the company ought to put up its business.
Perquisites – the resources bought or provided by the company to its shareholders as well as its employees. They may include a company car, club memberships, or room and board.
Pledging – a loan agreement where the company’s shares are put as collateral or as security. The profit gained from such an agreement is used for further investment, to purchase new assets, or to start a new business.
Qualitative analysis – a method of analyzing qualitative data, collected from the narrative, content analysis, or discourse, to determine the efficacy of a marketing strategy.
Quantitative analysis – a form of method of analysis that utilizes scientific and/or mathematical modes of gathering data to determine the approximate value of an act of an asset.
Revenue – the total amount of money gained by a company during a specified time or operation.
Risk – represents the likelihood of loss that a company might face after an unexpected outcome.
Risk Management – a management strategy that requires that a company must evaluate the existing risks it faces to reduce its effects on the business.
Strengths, Weaknesses, Opportunities, and Threats (SWOT) – a method of analysis, a standard analytical approach by which a company assesses both internal and external factors that may affect the company’s success other than the products and services it offers. The outcome of the SWOT analysis is taken into consideration when the company evaluates the strengths of its strategies.
Security – the fungible assets, including negotiable financial instruments, usually valuable, including stocks, debts, and bonds. The company holds inchoate rights and ownership over security.
Short selling – a practice exercised in the stock market of borrowing and selling shares under the belief that its value will decrease.
Supply – represents the amount of product or service that is available in the market and open for the public to purchase.
Tender Offer – a public offer that wishes to acquire the shares of a specific company at a given price. It is commonly practiced in hostile takeovers of one company or another.
Total Shareholder Return (TSR) – represents the total return gained by an investor after a specified time.
Transparency – a corporate practice that imposes a responsibility on companies to disclose material information that supplements and explains details of accounts, items, and financial statements that must be reported.
Ultra Vires – a Latin phrase that translates to “beyond the power.” Under the ultra vires doctrine, corporations having separate and distinct juridical personalities cannot be held accountable for acts or omissions that are done beyond the authority given to a director or a corporate agent. Any ultra vires contract entered into by the corporation is considered illegal and with no force and effect.
Variable cost – a change in the cost set for a specific product or service.
Wolf-pack Strategy –a strategy practiced by various hedge funds having minority stakes in a company come together to enforce change on a chosen company.
Written Consent – the form of consent necessary to implement and give force to a resolution passed by the board of directors at a board meeting. The board must act with written consent.
Zero-cost Collar – a short-term options trading strategy used by traders to protect their investments by purchasing and holding a position in a stock option while simultaneously selling an option that cancels both transactions.
Below, you will find several resource articles that we hope you will find very useful and informative while on your educational journey! Best of luck to you!