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Definition of Process

Process Image 1

Process

A series of linked activities that result in a specific objective. For example, the
payroll process requires the calculation of hours worked, multiplication by hourly
rates, and the subtraction of taxes before the final objective is reached, which is the
printing of the paycheck.



Related Terms:

Corporate processing float

The time that elapses between receipt of payment from a customer and the
depositing of the customer's check in the firm's bank account; the time required to process customer
payments.


Diffusion process

A conception of the way a stock's price changes that assumes that the price takes on all
intermediate values. dirty price. Related: full price


In-house processing float

Refers to the time it takes the receiver of a check to process the payment and
deposit it in a bank for collection.


Price discovery process

The process of determining the prices of the assets in the marketplace through the
interactions of buyers and sellers.


Process costing

A method of costing for continuous manufacture in which costs for an accounting compared are compared with production for the same period to determine a cost per unit produced.


business process reengineering (BPR)

the process of combining information technology to create new and more effective
business processes to lower costs, eliminate unnecessary
work, upgrade customer service, and increase
speed to market


cost-benefit analysis the analytical process of comparing the

relative costs and benefits that result from a specific course
of action (such as providing information or investing in a
project)


Process Image 2

FIFO method (of process costing)

the method of cost assignment that computes an average cost per equivalent
unit of production for the current period; keeps beginning
inventory units and costs separate from current period production
and costs


joint process

a manufacturing process that simultaneously
produces more than one product line
joint product one of the primary outputs of a joint process;
each joint product individually has substantial revenuegenerating
ability


modified FIFO method (of process costing)

the method of cost assignment that uses FIFO to compute a cost per
equivalent unit but, in transferring units from a department,
the costs of the beginning inventory units and the
units started and completed are combined and averaged


multiprocess handling

the ability of a worker to monitor
and operate several (or all) machines in a manufacturing
cell or perform all steps of a specific task


process benchmarking

benchmarking that focuses on practices and how the best-in-class companies achieved their results


process complexity

an assessment about the number of processes through which a product flows


process costing system

a method of accumulating and assigning costs to units of production in companies producing large quantities of homogeneous products;
it accumulates costs by cost component in each production department and assigns costs to units using equivalent units of production


processing time

the actual time consumed performing the
functions necessary to manufacture a product


process map

a flowchart or diagram indicating every step
that goes into making a product or providing a service


process productivity

the total units produced during a period
using value-added processing time


process quality yield

the proportion of good units that resulted from the activities expended


product- (or process-) level cost

a cost that is caused by the development, production, or acquisition of specific products or services


statistical process control (SPC)

the use of control techniques that are based on the theory that a process has natural variations in it over time, but uncommon variations
are typically the points at which the process produces "errors", which can be defective goods or poor service


strict FIFO method (of process costing)

the method of cost assignment that uses FIFO to compute a cost per equivalent unit and, in transferring units from a department, keeps the
cost of the beginning units separate from the cost of the
units started and completed during the current period


weighted average method (of process costing)

the method of cost assignment that computes an average cost per
equivalent unit of production for all units completed during
the current period; it combines beginning inventory units
and costs with current production and costs, respectively,
to compute the average


Ito process

Statistical assumptions about the behavior of security prices. For
details, see the book by Hull listed in the “Bibliography”.


Process costing

A costing methodology that arrives at an individual product cost through the calculation of average costs for large quantities of identical products.


Work-in-process inventory

Inventory that has been partially converted through the
production process, but for which additional work must be completed before it can
be recorded as finished goods inventory.


Purchased In-Process Research and Development

Unfinished research and development that is acquired from another firm.


Process flow production

A production configuration in which products are continually
manufactured with minimal pauses or queuing.


Reprocessed material

Material that has been reworked and returned to stock.


Work-in-process

Any items being converted into finished goods or released from
the warehouse in anticipation of beginning the conversion process.


Aggregation

process in corporate financial planning whereby the smaller investment proposals of each of the
firm's operational units are added up and in effect treated as a big picture.


Automated Clearing House (ACH)

A collection of 32 regional electronic interbank networks used to
process transactions electronically with a guaranteed one-day bank collection float.


BONDPAR

A system that monitors and evaluates the performance of a fixed-income portfolio , as well as the
individual securities held in the portfolio. BONDPAR decomposes the return into those elements beyond the
manager's control--such as the interest rate environment and client-imposed duration policy constraints--and
those that the management process contributes to, such as interest rate management, sector/quality allocations,
and individual bond selection.


Bootstrapping

A process of creating a theoretical spot rate curve , using one yield projection as the basis for
the yield of the next maturity.


Capital budgeting

The process of choosing the firm's long-term capital assets.


Capital market imperfections view

The view that issuing debt is generally valuable but that the firm's
optimal choice of capital structure is a dynamic process that involves the other views of capital structure (net
corporate/personal tax, agency cost, bankruptcy cost, and pecking order), which result from considerations of
asymmetric information, asymmetric taxes, and transaction costs.


Clearing house / Clearinghouse

An adjunct to a futures exchange through which transactions executed its floor are settled by a
process of matching purchases and sales. A clearing organization is also charged with the proper conduct of
delivery procedures and the adequate financing of the entire operation.


Competitive bidding

A securities offering process in which securities firms submit competing bids to the
issuer for the securities the issuer wishes to sell.


Compounding

The process of accumulating the time value of money forward in time. For example, interest
earned in one period earns additional interest during each subsequent time period.


Continuous compounding

The process of accumulating the time value of money forward in time on a
continuous, or instantaneous, basis. Interest is earned continuously, and at each instant, the interest that
accrues immediately begins earning interest on itself.


Credit analysis

The process of analyzing information on companies and bond issues in order to estimate the
ability of the issuer to live up to its future contractual obligations. Related: default risk


Debtor in possession

A firm that is continuing to operate under Chapter 11 bankruptcy process.


Debtor-in-possession financing

New debt obtained by a firm during the Chapter 11 bankruptcy process.


Discounting

Calculating the present value of a future amount. The process is opposite to compounding.


Discriminant analysis

A statistical process that links the probability of default to a specified set of financial ratios.


Execution

The process of completing an order to buy or sell securities. Once a trade is executed, it is reported
by a Confirmation Report; settlement (payment and transfer of ownership) occurs in the U.S. between 1
(mutual funds) and 5 (stocks) days after an order is executed. Settlement times for exchange listed stocks are
in the process of being reduced to three days in the U. S.


Financial planning

The process of evaluating the investing and financing options available to a firm. It
includes attempting to make optimal decisions, projecting the consequences of these decisions for the firm in
the form of a financial plan, and then comparing future performance against that plan.


Foreign currency translation

The process of restating foreign currency accounts of subsidiaries into the
reporting currency of the parent company in order to prepare consolidated financial statements.


Horizontal analysis

The process of dividing each expense item of a given year by the same expense item in
the base year. This allows for the exploration of changes in the relative importance of expense items over time
and the behavior of expense items as sales change.


Institutionalization

The gradual domination of financial markets by institutional investors, as opposed to
individual investors. This process has occurred throughout the industrialized world.


Inventory

For companies: Raw materials, items available for sale or in the process of being made ready for
sale. They can be individually valued by several different means, including cost or current market value, and
collectively by FIFO, LIFO or other techniques. The lower value of alternatives is usually used to preclude
overstating earnings and assets.
For security firms: securities bought and held by a broker or dealer for resale.


Investment income

The revenue from a portfolio of invested assets.
Investment management Also called portfolio management and money management, the process of
managing money.


Investor relations

The process by which the corporation communicates with its investors.


Just-in-time inventory systems

Systems that schedule materials/inventory to arrive exactly as they are
needed in the production process.


Lockbox

A collection and processing service provided to firms by banks, which collect payments from a
dedicated postal box that the firm directs its customers to send payment to. The banks make several
collections per day, process the payments immediately, and deposit the funds into the firm's bank account.


Long hedge

The purchase of a futures contract(s) in anticipation of actual purchases in the cash market. Used
by processors or exporters as protection against an advance in the cash price. Related: Hedge, short hedge


Mail float

Refers to the part of the collection and disbursement process where checks are trapped in the postal system.


Mark-to-market

The process whereby the book value or collateral value of a security is adjusted to reflect
current market value.


MBS Depository

A book-entry depository for GNMA securities. The depository was initially operated by
MBSCC and is currently in the process of becoming a separately incorporated, participant-owned, limitedpurpose
trust company organized under the State of New York Banking Law.


Modeling

The process of creating a depiction of reality, such as a graph, picture, or mathematical
representation.


Parallel loan

A process whereby two companies in different countries borrow each other's currency for a
specific period of time, and repay the other's currency at an agreed maturity for the purpose of reducing
foreign exchange risk. Also referred to as back-to-back loans.


Plan for reorganization

A plan for reorganizing a firm during the Chapter 11 bankruptcy process.


Randomized strategy

A strategy of introducing into the decision-making process a random element that is
designed to reduce the information content of the decision-maker's observed choices.


Reclamation

A claim for the right to return or the right to demand the return of a security that has been
previously accepted as a result of bad delivery or other irregularities in the delivery and settlement process.


Risk management

The process of identifying and evaluating risks and selecting and managing techniques to
adapt to risk exposures.


Sales forecast

A key input to a firm's financial planning process. External sales forecasts are based on
historical experience, statistical analysis, and consideration of various macroeconomic factors.


Securitization

The process of creating a passthrough, such as the mortgage pass-through security, by which
the pooled assets become standard securities backed by those assets. Also, refers to the replacement of
nonmarketable loans and/or cash flows provided by financial intermediaries with negotiable securities issued
in the public capital markets.


Signal

The process of conveying information through a firm's actions.


Speculator

One, who attempts to anticipate price changes and, through buying and selling contracts, aims to
make profits. A speculator does not use the market in connection with the production, processing, marketing
or handling of a product.
See: trader.


Spot lending

The origination of mortgages by processing applications taken directly from prospective borrowers.


Tolling agreement

An agreement to put a specified amount of raw material per period through a particular
processing facility. For example, an agreement to process a specified amount of alumina into aluminum at a
particular aluminum plant.


Vertical acquisition

Acquisition in which the acquired firm and the acquiring firm are at different steps in the
production process.


Vertical analysis

The process of dividing each expense item in the income statement of a given year by net
sales to identify expense items that rise faster or slower than a change in sales.


MERCHANDISE INVENTORY

The value of the products that a retailing or wholesaling company intends to resell for a profit.
In a manufacturing business, inventories would include finished goods, goods in process, raw materials, and parts and components that will go into the end product.


Accountability

The process of satisfying stakeholders in the organization that managers have acted in the best interests of the stakeholders, a result of the stewardship function of managers, which takes place through accounting.


Accounting

A collection of systems and processes used to record, report and interpret business transactions.


Balanced Scorecard

A system of non-financial performance measurement that links innovation, customer and process measures to financial performance.


Budgetary control

The process of ensuring that actual financial results are in line with targets – see variance
analysis.


Cost control

The process of either reducing costs while maintaining the same level of productivity or maintaining costs while increasing productivity.


Cost object

Anything for which a measurement of cost is required – inputs, processes, outputs or responsibility centres.


Cost pool

The costs of (cross-functional) business processes, irrespective of the organizational structure of the business.


Feedback

The retrospective process of measuring performance, comparing it with plan and taking corrective action.


Feedforward

The process of determining prospectively whether strategies are likely to achieve the target
results that are consistent with organizational goals.


Financial year

The accounting period adopted by a business for the production of its financial statements.
Finished goods Inventory that is ready for sale, either having been purchased as such or the result of a conversion from raw materials through a manufacturing process.


Kaizen

A method of costing that involves making continual, incremental improvements to the
production process during the manufacturing phase of the product/service lifecycle, typically
involving setting targets for cost reduction.


Overhead allocation

The process of spreading production overhead equitably over the volume of production of goods or services.


Raw materials

Unprocessed goods bought for manufacture, part of inventory.


Routing

A list of all the labour or machining processes and times required to convert raw materials into finished goods or to deliver a service.


Set-up

The time required to make ready a machine or process for production, e.g. changing equipment
settings.


Working capital

Current assets less current liabilities. Money that revolves in the business as part of the process of buying, making and selling goods and services, particularly in relation to debtors, creditors, inventory and bank.


Work-in-progress

Goods or services that have commenced the production process but are incomplete and unable to be sold.


Bank reconciliation

The process of taking the balances from the bank statement and the general ledger and making adjustments so that they agree.


Journalizing

The process of taking a transaction and putting it into a form that allows it to be recorded in the accounting records.


Posting

The process of taking journal entries and recording them in the general ledger.


conversion cost

Refers to the sum of manufacturing direct labor and overhead
costs of products. The cost of raw materials used to make products
is not included in this concept. Generally speaking, this is a rough measure
of the value added by the manufacturing process.


Capital Budgeting

The process of ranking and selecting investment alternatives and
capital expenditures


Continuous Compounding

The process of continuously adding interest to a principal plus
interest amount and calculating the resulting compound amount


Continuous Discounting

The process of calculating the present value of a stream of future
cash flows by discounting over a continuous period of time


Discounting

The process of calculating the present value of a stream of future
cash flows


Discrete Compounding

The process of adding interest to a principal plus interest amount
and calculating the resulting compound amount at specific
intervals, such as monthly or annually


 

 

 

 

 

 

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