Important Terms in Financials of Companies

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Important Terms in Financials of Companies :

Depreciation

Assets : asset is meant economic resources controlled by an entity as a result of past transactions or events and from which future economic benefits may be obtained.
Assets have three essential characteristics:
They embody a future benefit that involves a capacity, singly or in combination with other assets, in the case of profit oriented enterprises, to contribute directly or indirectly to future net cash flows, and,in the case of not-for-profit organizations, to provide services;
The entity can control access to the benefit; and,
The transaction or event giving rise to the entity's right to, or control of, the benefit has already
occurred.

Cash flow :Cash flow refers to the amounts of cash being received and spent by a business during a defined period of time, sometimes tied to a specific project. It can be used to determine problems with liquidity. Being profitable does not necessarily mean being liquid.
A company can fail because of a shortage of cash, even while profitable. to generate project rate of returns. The time of cash flows into and out of projects are inputs to models like internal rate of return and net present value. to measure income or growth of a business when it is believed that accrual accounting rules do not represent economic realities. Alternately, the cash flow can be used to 'validate' the net income generated by accrual accounting.

Cash flows can be classified by:
Operational cash flows: Cash received or expended as a result of the company's core business activities.
Investment cash flows: Cash received or expended by making capital expenditures that will benefit the business for many years (e.g. the purchase of new machinery), investments or acquisitions.
Financing cash flows: Cash received or expended as a result of financial activities, such as receiving or paying loans, issuing or repurchasing stock, and paying dividends
All three together are necessary to reconcile the beginning cash balance to the ending cash balance.

Capital Expenditure :Capital expenditures ("CAPEX") are expenditures used by a company to acquire or upgrade physical assets such as equipment, property, industrial buildings. In accounting, a capital expenditure is added to an asset account (i.e. capitalized), thus increasing the asset's basis (i.e. the cost or value of an asset as adjusted for tax purposes).

Transfer Pricing :Transfer pricing refers to the pricing of goods and services within a multi-divisional organization, particularly in regard to cross-border transactions. For example, goods from the production division may be sold to the marketing division, or goods from a parent company may be sold to a foreign subsidiary, with the choice of the transfer price affecting the division of the total profit among the parts of the company. This has led to the rise of transfer pricing regulations as governments seek to stem the flow of taxation revenue overseas, making the issue one of great importance for multinational corporations.

Sunk Costs :Sunk costs are costs that have already been incurred and which cannot be recovered to any significant degree. Sunk costs are sometimes contrasted with variable costs, which are the costs that will change due to the proposed course of action