University of Phoenix Material

Definitions

Define the following terms using your text or other resources. Cite all resources consistent with APA guidelines.

|Term |Definition |Resource you used |
|Time value of money |“A dollar received today is worth more than a|Titman, S. Keown, A. J. & . Martin ,J. D. (n.d.). |
| |dollar received in the future. Conversely, |Financial Management. Principles and Applications: |
| |a dollar received in the future is worth less|Chapter 1: Getting Started: Principles of Finance: 1.4. |
| |than a dollar received today. Perhaps the |The Five Basic Principles of Finance. 12th,. ed. |
| |most fundamental principle of finance is that|Copyrighted by Pearson Education. (2014). Retrieved from|
| |money has a time value. A dollar received |https://newclassroom3.phoenix.edu/Classroom/#/contextid/|
| |today is more valuable than a dollar received|OSIRIS:48546409/context/co/view/activityDetails/activity|
| |one year from now. That is, we can invest the|/3195cb75-8a75-4bd9-a1c3-0092ba334301/expanded/False |
| |dollar we have today to earn interest so that| |
| |at the end of one year we will have more than| |
| |one dollar.” (Titman et al.) | |
|Efficient market | “An investment theory that states it is |Investopedia. (n.d.). Efficient Market Hypothesis – EMH.|
| |impossible to "beat the market" because stock|Copyrighted by Investopedia, LLC. (2014). Retrieved from|
| |market efficiency causes existing share |http://www.investopedia.com/terms/e/efficientmarkethypot|
| |prices to always incorporate and reflect all |hesis.asp |
| |relevant information. According to the EMH, | |
| |stocks always trade at their fair value on | |
| |stock exchanges, making it impossible for | |
| |investors to either purchase undervalued | |
| |stocks or sell stocks for inflated prices. As| |
| |such, it should be impossible to outperform | |
| |the overall market through expert stock | |
| |selection or market timing, and that the only| |
| |way an investor can possibly obtain higher | |
| |returns is by purchasing riskier | |
| |investments.” (Investopedia) | |
|Primary versus secondary market | “A primary market is a market in which new, | Titman, S. Keown, A. J. & . Martin ,J. D. (n.d.). |
| |as opposed to previously issued, securities |Financial Management. Principles and Applications: |
| |are bought and sold for the first time. In |Chapter 2: Firms and the Financial Market: 2.3. The |
| |this market, firms issue new securities to |Financial Marketplace: Securities Markets. 12th., ed. |
| |raise money that they can then use to help |Copyrighted by Pearson Education. (2014). Retrieved from|
| |finance their businesses. The key feature of |https://newclassroom3.phoenix.edu/Classroom/#/contextid/|
| |the primary market is that the firms selling |OSIRIS:48546409/context/co/view/activityDetails/activity|
| |securities actually receive the money raised.|/adfd688a-a88b-428b-ade6-3fddc4106cce/expanded/False |
| |The secondary market is where all subsequent | |
| |trading of previously issued securities takes| |
| |place. In this market the issuing firm does | |
| |not receive any new financing, as the | |
| |securities it has sold are simply being | |
| |transferred from one investor to another. The| |
| |principal benefit of the secondary market for| |
| |the shareholders of firms that sell their | |
| |securities to the public is liquidity.” | |
| |(Titman et al.) | |
|Risk-return tradeoff | “We won’t take on additional risk unless we |Titman, S. Keown, A. J. & . Martin ,J. D. (n.d.). |
| |expect to be compensated with additional |Financial Management. Principles and Applications: |
| |return. Principle 2 is based on the idea that|Chapter 1: Getting Started: Principles of Finance: 1.4. |
| |individuals are risk-averse, which means that|The Five Basic Principles of Finance. 12th,. ed. |
| |they prefer to get a certain return on their |Copyrighted by Pearson Education. (2014). Retrieved from|
| |investment rather than an uncertain return.” |https://newclassroom3.phoenix.edu/Classroom/#/contextid/|
| |(Titman et al.) |OSIRIS:48546409/context/co/view/activityDetails/activity|
| | |/3195cb75-8a75-4bd9-a1c3-0092ba334301/expanded/False |
| | | |
|Agency (principal and agent problems) |“Conflicts of interest and moral hazard |Investopedia. (n.d.). Efficient Market Hypothesis – EMH.|
| |issues that arise when a principal hires an |Copyrighted by Investopedia, LLC. (2014). Retrieved from|
| |agent to perform specific duties that are in |http://www.investopedia.com/terms/p/principal-agent-prob|
| |the best interest of the principal but may be|lem.asp |
| |costly, or not in the best interests of the | |
| |agent. The principal-agent problem develops |Titman, S. Keown, A. J. & . Martin ,J. D. (n.d.). |
| |when a principal creates an environment in |Financial Management. Principles and Applications: |
| |which an agent has incentives to align its |Chapter 1: Getting Started: Principles of Finance: 1.4. |
| |interests with those of the principal, |The Five Basic Principles of Finance. 12th,. ed. |
| |typically through incentives. Principals |Copyrighted by Pearson Education. (2014). Retrieved from|
| |create incentives for the agent to act as the|https://newclassroom3.phoenix.edu/Classroom/#/contextid/|
| |principal wants because the principal faces |OSIRIS:48546409/context/co/view/activityDetails/activity|
| |information asymmetry and risk with regards |/3195cb75-8a75-4bd9-a1c3-0092ba334301/expanded/False |
| |to whether the agent has effectively | |
| |completed a contract.” (Investopedia) | |
| |“The conflict of interest between the firm’s | |
| |managers and its stockholders is called a | |
| |principal-agent problem, or agency problem, | |
| |in which the firm’s common stockholders, the | |
| |owners of the firm, are the principals in the| |
| |relationship, and the managers act as | |
| |“agents” to these owners. The lost | |
| |shareholder value that results from | |
| |managerial actions that are inconsistent with| |
| |the goal of maximizing shareholder value is | |
| |called an agency cost.” (Titman et a;.) | |
|Market information and security prices|“Market information is what influences |Octotutor. (2014). Market Information and Security |
|and information asymmetry |investors to either buy or sell stock. If |Prices and Information Asymmetry. Copyrighted by |
| |investors receive positive information, there|Octotutor.com. (2014). Retrieved form |
| |will be more buying demand for the stock, |http://octotutor.com/market-information-and-security-pri|
| |thus raising the price. If negative |ces-and-information-asymmetry/ |
| |information is received, investors will sell | |
| |shares and drive prices down. Common sources | |
| |of information come in the form of public | |
| |financial reports and news related to a | |
| |company’s industry or business. Public | |
| |companies must release quarterly and annual | |
| |reports, which investors use to predict | |
| |future financial reports. These reports will | |
| |have a direct impact on securities prices in | |
| |the market. In some cases, news reports can | |
| |impact expected business performance. Because| |
| |our markets are not perfectly efficient, it | |
| |takes time for information to flow through | |
| |the system. The average individual investor | |
| |will receive information about a stock long | |
| |after it has already influenced the share | |
| |process. Algorithms that track news trends | |
| |and make trading decisions based on this | |
| |information contribute to the so called | |
| |information asymmetry we experience in the | |
| |financial markets.” (Octotutor, 2014) | |
|Agile and lean principles |“The lean principles of operational | Sabri, E. CFPIM. LSSMBB. & Shaikh, S. CPIM. CSCP. |
| |excellence, efficiency, and eliminating waste|(2013). Lean and Agile. Copyrighted by APICS. (2013). |
| |are essential to successful S&OP—as is |Retrieved from |
| |agility, which puts emphasis on planning and |http://www.apics.org/ebusiness/industry-content-research|
| |controlling variability. Lean and agile S&OP |/publications/apics-magazine-home/apics-magazine---landi|
| |is a company’s single-most-important |ng-page---everyone/2013/09/20/lean-and-agile |
| |competitive weapon for ensuring that | |
| |customers are being profitably served through| |
| |the right channels and with the right product| |
| |mix. Only when S&OP is truly lean and agile | |
| |can the process help companies recalibrate | |
| |business strategy through continuous | |
| |replanning. Lean and agile S&OP involves | |
| |stakeholders from sales, marketing, | |
| |development, operations, sourcing, and | |
| |finance coming together in a formal, | |
| |structured cadence to produce an integrated | |
| |company game plan. This approach reconciles | |
| |the views of all functional areas | |
| |simultaneously, making sure the strategy | |
| |aligns with strategic business objectives. | |
| |Principles The following principles are | |
| |fundamental to lean and agile S&OP: Focus on | |
| |customer success. Make sure all participants | |
| |share the same goals and are linked to the | |
| |end customer. Create a mutually advantageous | |
| |and trusted environment for all stakeholders.| |
| |S&OP is a cross-functional process, so | |
| |organizations must look beyond local | |
| |departmental efficiencies and performance | |
| |metrics and instead focus on a performance | |
| |measurement system that creates benefits for | |
| |all stakeholders and aligns to the business | |
| |plan. Eliminate waste and reduce non-value | |
| |added activities. This principle encourages | |
| |firms to free resources to enable greater | |
| |focus process rather than a reporting | |
| |exercise. | |
| |Institutionalize continuous improvement. A | |
| |formalized, structured S&OP process that | |
| |rewards continuous improvement should be | |
| |institutionalized so that it becomes a part | |
| |of the company culture. Close the loop | |
| |between planning and execution. This | |
| |principle emphasizes a “one number" plan to | |
| |which the whole organization is aligned. This| |
| |is made possible through vertical integration| |
| |among strategic, tactical, and operational | |
| |planning. In addition, using agility to | |
| |mitigate risk via scenario analysis enables | |
| |businesses to become more flexible and | |
| |responsive.” (Sabri et al, 2013) | |
|Return on investment |“A profitability measure that evaluates the |Entrepreneur. (n.d). Return On Investment ROI. |
| |performance of a business by dividing net |Copyrighted by Entrepreneur Media, Inc. (2014). |
| |profit by net worth. Return on investment |Retrieved from |
| |isn't necessarily the same as profit. ROI |http://www.entrepreneur.com/encyclopedia/return-on-inves|
| |deals with the money you invest in the |tment-roi |
| |company and the return you realize on that | |
| |money based on the net profit of the | |
| |business. Profit, on the other hand, measures| |
| |the performance of the business. You can use | |
| |ROI in several different ways to gauge the | |
| |profitability of your business. For instance,| |
| |you can measure the performance of your | |
| |pricing policies, inventory investment, | |
| |capital equipment investment, and so forth. | |
| |Some other ways to use ROI within your | |
| |company are by: | |
| |Dividing net income, interest, and taxes by | |
| |total liabilities to measure rate of earnings| |
| |of total capital employed. | |
| |Dividing net income and income taxes by | |
| |proprietary equity and fixed liabilities to | |
| |produce a rate of earnings on invested | |
| |capital. | |
| |Dividing net income by total capital plus | |
| |reserves to calculate the rate of earnings on| |
| |proprietary equity and stock equity.” | |
| |(Entrepreneur) | |
|Cash flow and a source of value | “Profit is an accounting concept designed to|Titman, S. Keown, A. J. & . Martin ,J. D. (n.d.). |
| |measure a business’s performance over an |Financial Management. Principles and Applications: |
| |interval of time. Cash flow is the amount of |Chapter 1: Getting Started: Principles of Finance: 1.4. |
| |cash that can actually be taken out of the |The Five Basic Principles of Finance. 12th,. ed. |
| |business over this same interval. Cash flows |Copyrighted by Pearson Education. (2014). Retrieved from|
| |represent actual money that can be spent and,|https://newclassroom3.phoenix.edu/Classroom/#/contextid/|
| |cash flows are what determine an investment’s|OSIRIS:48546409/context/co/view/activityDetails/activity|
| |value.” (Titman et al.) |/3195cb75-8a75-4bd9-a1c3-0092ba334301/expanded/False |
|Project management |“The planning and organization of an |Investopedia. (n.d.). Project Management. Copyrighted by|
| |organization's resources in order to move a |Investopedia, LLC. (2015). Retrieved from |
| |specific task, event or duty toward |http://www.investopedia.com/terms/p/project-management.a|
| |completion. Project management typically |sp |
| |involves a one-time project rather than an | |
| |ongoing activity, and resources managed | |
| |include both human and financial capital. A | |
| |project manager will help define the goals | |
| |and objectives of the project, determine when| |
| |the various project components are to be | |
| |completed and by whom, and create quality | |
| |control checks to ensure that completed | |
| |components meet a certain standard.” | |
| |(Investopedia) | |
|Outsourcing and offshoring |“Outsourcing refers to an organization |Diffin. (n.d.). Offshoring vs. Outshourcing. Retrieved |
| |contracting work out to a 3rd party, while |from |
| |offshoring refers to getting work done in a |http://www.diffen.com/difference/Offshoring_vs_Outsourci|
| |different country, usually to leverage cost |ng |
| |advantages. It's possible to outsource work | |
| |but not offshore it; for example, hiring an | |
| |outside law firm to review contracts instead | |
| |of maintaining an in-house staff of lawyers. | |
| |It is also possible to offshore work but not | |
| |outsource it; for example, a Dell customer | |
| |service center in India to serve American | |
| |clients. Offshore outsourcing is the practice| |
| |of hiring a vendor to do the work offshore, | |
| |usually to lower costs and take advantage of | |
| |the vendor's expertise, economies of scale, | |
| |and large and scalable labor pool.” (Diffin) | |
|Inventory turnover |“Inventory turnover may be defined as annual | Mayo, H. B. (n.d.). Basic Finance. An Introduction to |
| |sales divided by average inventory.” (Mayo) |Financial Institutions, Investments, and Management: |
| | |Chapter 9: Analysis of Financial Statements: Activity |
| |“A ratio showing how many times a company's |Ratios. Copyrighted by Cengage Learning. (2010). |
| |inventory is sold and replaced over a period.|Retrieved from |
| |The days in the period can then be divided by|https://newclassroom3.phoenix.edu/Classroom/#/contextid/|
| |the inventory turnover formula to calculate |OSIRIS:48546409/context/co/view/activityDetails/activity|
| |the days it takes to sell the inventory on |/4612e916-7bfa-4e82-aa0d-88545fe0e8bd/expanded/False |
| |hand or "inventory turnover days." | |
| |(Investopedia) |Investopedia. (n.d.). Inventory Turnover. Copyrighted by|
| | |Investopedia, LLC. (2015). Retrieved from |
| | |http://www.investopedia.com/terms/i/inventoryturnover.as|
| | |p |
|Just-in-time inventory (JIT) |“Just in time (JIT) inventory is a management|Kokemuller, N & Demand Media. (n.d.). Just in Time |
| |system in which materials or products are |Inventory Definition. Copyrighted by Hearst Newspapers, |
| |produced or acquired only as demand requires.|LLC. (2015). Retrieved from |
| |Just in time inventory is intended to avoid |http://smallbusiness.chron.com/just-time-inventory-defin|
| |situations in which inventory exceeds demand |ition-23475.html |
| |and places increased burden on your business | |
| |to manage the extra inventory. Manufacturers | |
| |using JIT processes want to use materials for| |
| |production at levels that meet distributor or| |
| |retailer demand but not in excess. Retailers | |
| |only want to acquire and carry inventory that| |
| |meets immediate customer demand. Excess | |
| |inventory requires storage and management | |
| |costs.” (Kokemuller, Demand Media) | |
|Vender managed inventory (VMI) |“Vendor-managed inventory (VMI) is an |Rouse, M. (n.d.) vender-managed inventory (VMI). |
| |inventory management technique in which a |Copyrighted by Tech Target. (2008-2015). Retrieved from |
| |supplier of goods, usually the manufacturer, |http://searchmanufacturingerp.techtarget.com/definition/|
| |is responsible for optimizing the inventory |Vendor-managed-inventory-VMI |
| |held by a distributor. VMI requires a | |
| |communication link—typically electronic data | |
| |interchange (EDI) or the Internet—that | |
| |provides the supplier with the distributor | |
| |sales and inventory data it needs to plan | |
| |inventory and place orders. In contrast, | |
| |under the traditional arrangement the | |
| |distributor handles those tasks. The | |
| |inventory can be owned by the distributor, or| |
| |by the supplier, often under consignment.” | |
| |(Rouse) | |
|Forecasting and demand management |“Demand management and forecasting is |APICS. (n.d.). APICS Operations Management Body of |
| |recognizing all demand for goods and services|Knowledge Framework, Third Edition. Copyrighted by |
| |to support the marketplace. Demand is |APICS. (2015). Retrieved from |
| |prioritized when supply is lacking. Proper |http://www.apics.org/industry-content-research/publicati|
| |demand management facilitates the planning |ons/ombok/apics-ombok-framework-table-of-contents/apics-|
| |and use of resources for positive and |ombok-framework-5.4 |
| |profitable results and may involve marketing | |
| |programs designed to increase or reduce | |
| |demand in a relatively short time. | |
| |Forecasting is attempting to predict or | |
| |project future statistics—typically, demand | |
| |or sales. It requires that all factors | |
| |surrounding the decision-making process are | |
| |recorded.” (APICS) | |