Key management personnel are employees who have the authority to directly or indirectly plan and control business operations. The term key management personnel is a relative term dealing with specific operations.
Explanation :
Top business management usually includes the CEO, CFO, COO, as well as a number of Vice presidents depending on the company. These positions are all considered key management because they have the power to influence and direct company operations, but they are not the only key management personnel in an organization. Every department head and manager can be considered a key manager to some degree because they have influence in planning and directing their departments’ operations.
In a nutshell :
- Key management personnel are those people having authority and responsibility for planning, directing, and controlling the activities of an entity, either directly or indirectly.
- Key management concerns keys at the user level, either between users or systems.
Kanban is the Japanese word that means billboard. Kanban cards are scheduling devices that authorize a production line to produce more units.
Explanation :
Kanban cards and other production flow indicators are typically used in lean business models and just in time manufacturing where raw materials are received and immediately placed into production. The Kanban card helps the manufacturing flow and other departments communicate what needs to be produced and what materials are needed for the production process.
In a nutshell :
- Kanban (Japanese for sign) is an inventory control system used in just-in-time (JIT) manufacturing to track production and order new shipments of parts and materials.
- Kanban was developed by Taiichi Ohno, an industrial engineer at Toyota, and uses visual cues to prompt the action needed to keep a process flowing.
- One of the main goals of kanban is to limit the buildup of excess inventory at any point on the production line.
Liquidity refers to the availability of cash or cash equivalents to meet short-term operating needs. In other words, liquidity is the amount of liquid assets that are available to pay expenses and debts as they become due. Obviously, the most liquid asset of all is cash.
Explanation :
Creditors and investors often use liquidity ratios to gauge how well a business is performing. Since creditors are primarily concerned with a company’s ability to repay its debts, they want to see there is enough cash and equivalents available to meet the current portions of debt.
In a nutshell :
- Liquidity refers to the ease with which an asset, or security, can be converted into ready cash without affecting its market price.
- Cash is the most liquid of assets, while tangible items are less liquid. …
- Current, quick, and cash ratios are most commonly used to measure liquidity.
A lease contract is a written agreement between two parties that identifies the terms of the lease as well as the leased property. The leased property’s owner is called the lessor and the company renting the property is considered the lessee. A business lease for a building or equipment is not much different than a personal lease for an apartment.
Explanation :
Many companies can’t afford to buy buildings or large pieces of equipment, so they rent them. When a company signs a rental contract for a period of time, the contract is considered a lease.
The most common items found in a lease contract are:
- The names of the lessor and lessee
- The name and description of the leased property
- Specific lease payment amounts and times
- Penalties for late payments
- Contract duration
- Ending buyout agreement
In a nutshell :
- A lease is a legal, binding contract outlining the terms under which one party agrees to rent property owned by another party.
- It guarantees the tenant or lessee use of the property and guarantees the property owner or landlord regular payments for a specified period in exchange.
Leasehold improvements are structural modifications made to a rental property to ensure the property meets the requirements of the tenant.
Explanation :
When a prospective tenant enters a commercial property, it very rarely meets the exact specifications of the tenant’s business. When changes to the property are required, they are called leasehold improvements. These improvements are typically discussed during the negotiation of the lease; although, they may be required by the tenant at any time during the lease term. Depending on the marketability of a rental property, a lessor may provide improvement incentives to make the property more attractive to prospective tenants. If the lessor does not provide financial support for the improvements, the burden of cost falls on the tenant who will account for the costs appropriately.
In a nutshell :
- A leasehold improvement is a change made to a rental property to customize it for the particular needs of a tenant.
- Landlords may agree with these improvements for existing or new tenants.
- Leasehold improvements may be done by the landlord or tenant.
Last twelve months (LTM) refers to the trailing 12-month period with respect to financial statement analysis, but it does not necessarily indicate the end of a company’s fiscal year.
Explanation :
LTM may also be referred to as trailing twelve months (TTM). Hence, when investors see the trailing P/E on a financial report, it means that the price to earnings ratio represents the past 12-month period. Although LTM is a relatively short time frame to determine the value of a firm with respect to certain valuation metrics, it is useful as it shows how the company performed recently and what are the trends of growth, if any. Analysts use LTM to estimate a firm’s operating performance YTD. LTM is especially useful in the case of an acquisition.
In a nutshell :
- Trailing 12 months (TTM) is the term for the data from the past 12 consecutive months used for reporting financial figures.
- A company’s trailing 12 months represent its financial performance for a 12-month period; it does not typically represent a fiscal-year ending period.
Last in, first out (LIFO) is an accounting inventory valuation method based on the principle that the last asset acquired (the newest), is the first asset sold.
Explanation :
The LIFO method is most commonly applied to an organization’s inventory valuation procedures. There are a lot of different valuation methodologies applied to inventory, and often management has to make a strategic decision to determine the most advantageous method to use. Under LIFO, the valuation is structured around the concept that the last unit of inventory received (the newest inventory) is the first unit of inventory used. Depending on the unit cost and timing of inventory transactions, the LIFO method can generate a number of tax benefits due to profitability impacts on the income statement. In theory, the cost to purchase inventory will increase over time. The strategy associated with the LIFO valuation method is based on the concept of selling your most expensive inventory first. Upon selling the inventory, the value of the units sold is transferred into the Cost of Sales account and expensed on the company’s income statement.
In a nutshell :
- Last in, first out (LIFO) is a method used to account for inventory.
- Under LIFO, the costs of the most recent products purchased (or produced) are the first to be expensed.
- LIFO is used only in the United States and governed by the generally accepted accounting principles (GAAP).
- Other methods to account for inventory include first in, first out (FIFO) and the average cost method.
- Using LIFO typically lowers net income but is tax advantageous when prices are rising.
A large stock dividend is a stock dividend that distributes more than 25% of the outstanding shares of the company.
Explanation :
Many companies issue dividends to shareholders to maintain stock prices and stock demand. Companies like GE issue dividends to its shareholders every year. These quarterly and annual payments drive the demand for GE stock. Obviously, in order for a company to issue a dividend, it has to have the cash to give to its shareholders. What happens when a company wants to incentivize its shareholders with a dividend, but it doesn’t have the cash to issue a dividend? Companies can issue a stock dividend. Instead of giving shareholders cash, the company gives them additional, unissued stock. A stock dividend is also different from a cash dividend in that a cash dividend reduces assets and equity. Cash is given away while the dividend reduces the company’s retained earnings.
In a nutshell :
- A stock dividend is a dividend paid to shareholders in the form of additional shares in the company, rather than as cash.
- Stock dividends are not taxed until the shares granted are sold by their owner.
- Like stock splits, stock dividends dilute the share price, but as with cash dividends, they also do not affect the value of the company.
A land improvement is any type of alteration to the land to make it more usable. Improvements have a limited life and can be depreciated unlike land.
Explanation :
When a company buys a building, the building is usually depreciated of its useful life. The land that is purchased with the building, however, does not get depreciated. Why, you might ask? The land has an infinite life. It’s not like the building that will deteriorate over time. Land can’t be destroyed and can never be used up. Land improvements are completely separate from the land itself. That is why land improvements are considered a completely different asset than land. The money spent on improving land does not get added to the original cost of the land. Instead, it gets treated as a completely separate asset purchase and is depreciated over its useful life just like other fixed assets.
In a Nutshell :
- The term land improvement refers to any changes made to customize a rental property to satisfy the particular needs of a specific tenant.
- These changes and alterations may include painting, installing partitions, changing the flooring, or putting in customized light fixtures.
- Improvements may be undertaken by the landlord or the tenant and may be paid by the tenant.
- While the useful economic life of most land improvements is anywhere between five and 10 years, the internal revenue code (IRC) requires that depreciation for such improvements to occur over the economic life of the building.
Laissez faire is a term that means “allow to do”. In other words, it means to allow some room for non-strictly-supervised activities.
Explanation :
The term was first coined in France and it means “allow to do” or “leave it be”. The idea behind this term is mostly applied to the field of economics. It is one of the principles that support the free market system and theory. This concept was mostly supported by Jean-Baptiste Colbert and Dr. Francois Quesnay and it backs the idea that the market works more efficiently when the government leaves some room to market participants to interact between each other without strict supervision. This idea was also backed by Adam Smith, the father of classical economics. He stated that the market was able to self-regulate through supply and demand interactions and he recommended low government participation to increase productivity and economic development. The concept of laissez faire can also be applied to leadership. In this case, by allowing individuals to have some freedom to act and make decisions, this principle predicts a better outcome than if the leader micro-manages strictly each of the activities being performed.
In a nutshell :
- Laissez-faire is an economic philosophy of free-market capitalism that opposes government intervention.
- The theory of laissez-faire was developed by the French Physiocrats during the 18th century and believes that economic success is more likely the less governments are involved in business.
- Later free-market economists built on the ideas of laissez-faire as a path to economic prosperity, though detractors have criticized it for promoting inequality.
