Definition of Progress review

Progress review

A periodic review of a capital investment project to evaluate its continued economic viability.

Progressive tax system

A tax system wherein the average tax rate increases for some increases in income but
never decreases with an increase in income.

Work-in-progress

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

Progressive Tax

A tax in which the rich pay a larger percentage of income than the poor. Contrast with regressive tax.

Analytical Review

The process of attempting to infer the presence of potential problems
through the analysis of ratios and other relationships, often over time.

Material review board

A company committee typically comprising members representing
multiple departments, which determines the disposition of inventory
items that will not be used in the normal manufacturing or distribution process.

Visual review system

Inventory reordering based on a visual inspection of on-hand
quantities.

Progress Payments

Periodic payments to a supplier, contractor or subcontractor for work satisfactorily performed to date.

Accelerated cost recovery system (ACRS)

Schedule of depreciation rates allowed for tax purposes.

After-tax profit margin

The ratio of net income to net sales.

After-tax real rate of return

Money after-tax rate of return minus the inflation rate.

Asymmetric taxes

A situation wherein participants in a transaction have different net tax rates.

Average tax rate

taxes as a fraction of income; total taxes divided by total taxable income.

Before-tax profit margin

The ratio of net income before taxes to net sales.

Break-even tax rate

The tax rate at which a party to a prospective transaction is indifferent between entering
into and not entering into the transaction.

Cash flow after interest and taxes

Net income plus depreciation.

Clearing House Automated Payments System (CHAPS)

A computerized clearing system for sterling funds
that began operations in 1984. It includes 14 member banks, nearly 450 participating banks, and is one of the
clearing companies within the structure of the Association for Payment Clearing Services (APACS).

Clearing House Interbank Payments System (CHIPS)

An international wire transfer system for high-value
payments operated by a group of major banks.

Corporate tax view

The argument that double (corporate and individual) taxation of equity returns makes
debt a cheaper financing method.

Corporate taxable equivalent

Rate of return required on a par bond to produce the same after-tax yield to
maturity that the premium or discount bond quoted would.

Deferred taxes

A non-cash expense that provides a source of free cash flow. Amount allocated during the
period to cover tax liabilities that have not yet been paid.

Depreciation tax shield

The value of the tax write-off on depreciation of plant and equipment.

Double-tax agreement

Agreement between two countries that taxes paid abroad can be offset against
domestic taxes levied on foreign dividends.

Dupont system of financial control

Highlights the fact that return on assets (ROA) can be expressed in terms
of the profit margin and asset turnover.

Earnings before interest and taxes (EBIT)

A financial measure defined as revenues less cost of goods sold
and selling, general, and administrative expenses. In other words, operating and non-operating profit before
the deduction of interest and income taxes.

Equivalent taxable yield

The yield that must be offered on a taxable bond issue to give the same after-tax
yield as a tax-exempt issue.

European Monetary System (EMS)

An exchange arrangement formed in 1979 that involves the currencies
of European Union member countries.

Federal Reserve System

The central bank of the U.S., established in 1913, and governed by the Federal
Reserve Board located in Washington, D.C. The system includes 12 Federal Reserve Banks and is authorized
to regulate monetary policy in the U.S. as well as to supervise Federal Reserve member banks, bank holding
companies, international operations of U.S.banks, and U.S.operations of foreign banks.

Foreign tax credit

Home country credit against domestic income tax for foreign taxes paid on foreign
derived earnings.

Imputation tax system

Arrangement by which investors who receive a dividend also receive a tax credit for
corporate taxes that the firm has paid.

Interest equalization tax

tax on foreign investment by residents of the U.S. which was abolished in 1974.

Interest tax shield

The reduction in income taxes that results from the tax-deductibility of interest payments.

Investment tax credit

Proportion of new capital investment that can be used to reduce a company's tax bill
(abolished in 1986).

Just-in-time inventory systems

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

Limited-tax general obligation bond

A general obligation bond that is limited as to revenue sources.

Marginal tax rate

The tax rate that would have to be paid on any additional dollars of taxable income earned.

Multirule system

A technical trading strategy that combines mechanical rules, such as the CRISMA
(cumulative volume, relative strength, moving average) Trading system of Pruitt and White.

Net working capital

Current assets minus current liabilities. Often simply referred to as working capital.

Nonsystematic risk

Nonmarket or firm-specific risk factors that can be eliminated by diversification. Also
called unique risk or diversifiable risk. systematic risk refers to risk factors common to the entire economy.

Personal tax view (of capital structure)

The argument that the difference in personal tax rates between
income from debt and income from equity eliminates the disadvantage from the double taxation (corporate
and personal) of income from equity.

Short-term tax exempts

Short-term securities issued by states, municipalities, local housing agencies, and
urban renewal agencies.

Split-rate tax system

A tax system that taxes retained earnings at a higher rate than earnings that are
distributed as dividends.

Systematic

Common to all businesses.

Systematic risk

Also called undiversifiable risk or market risk, the minimum level of risk that can be
obtained for a portfolio by means of diversification across a large number of randomly chosen assets. Related:
unsystematic risk.

Systematic risk principle

Only the systematic portion of risk matters in large, well-diversified portfolios.
The, expected returns must be related only to systematic risks.

TANs (tax anticipation notes)

tax anticipation notes issued by states or municipalities to finance current
operations in anticipation of future tax receipts.

Tax anticipation bills (TABs)

Special bills that the Treasury occasionally issues that mature on corporate
quarterly income tax dates and can be used at face value by corporations to pay their tax liabilities.

Tax books

Set of books kept by a firm's management for the IRS that follows IRS rules. The stockholder's
books follow Financial Accounting Standards Board rules.

Tax clawback agreement

An agreement to contribute as equity to a project the value of all previously
realized project-related tax benefits not already clawed back to the extent required to cover any cash
deficiency of the project.

Tax differential view ( of dividend policy)

The view that shareholders prefer capital gains over dividends,
and hence low payout ratios, because capital gains are effectively taxed at lower rates than dividends.

Tax-exempt sector

The municipal bond market where state and local governments raise funds. Bonds issued
in this sector are exempt from federal income taxes.

Tax free acquisition

A merger or consolidation in which 1) the acquirer's tax basis in each asset whose
ownership is transferred in the transaction is generally the same as the acquiree's, and 2) each seller who
receives only stock does not have to pay any tax on the gain he realizes until the shares are sold.

Tax haven

A nation with a moderate level of taxation and/or liberal tax incentives for undertaking specific
activities such as exporting or investing.

Tax Reform Act of 1986

A 1986 law involving a major overhaul of the U.S. tax code.

Tax shield

The reduction in income taxes that results from taking an allowable deduction from taxable income.

Tax swap

Swapping two similar bonds to receive a tax benefit.

Tax deferral option

The feature of the U.S. Internal Revenue Code that the capital gains tax on an asset is
payable only when the gain is realized by selling the asset.

Tax-deferred retirement plans

Employer-sponsored and other plans that allow contributions and earnings to
be made and accumulate tax-free until they are paid out as benefits.

Tax-timing option

The option to sell an asset and claim a loss for tax purposes or not to sell the asset and
defer the capital gains tax.

Taxable acquisition

A merger or consolidation that is not a tax-fee acquisition. The selling shareholders are
treated as having sold their shares.

Taxable income

Gross income less a set of deductions.

Taxable transaction

Any transaction that is not tax-free to the parties involved, such as a taxable acquisition.

Two-tier tax system

A method of taxation in which the income going to shareholders is taxed twice.

Unsystematic risk

Also called the diversifiable risk or residual risk. The risk that is unique to a company
such as a strike, the outcome of unfavorable litigation, or a natural catastrophe that can be eliminated through diversification.
Related: systematic risk

Value-added tax

Method of indirect taxation whereby a tax is levied at each stage of production on the value
added at that specific stage.

Withholding tax

A tax levied by a country of source on income paid, usually on dividends remitted to the
home country of the firm operating in a foreign country. tax levied on dividends paid abroad.

Working capital

Defined as the difference in current assets and current liabilities (excluding short-term
debt). Current assets may or may not include cash and cash equivalents, depending on the company.

Working capital management

The management of current assets and current liabilities to maximize shortterm liquidity.

Working capital ratio

working capital expressed as a percentage of sales.

Workout

Informal arrangement between a borrower and creditors.

Workout period

Realignment period of a temporary misaligned yield relationship that sometimes occurs in
fixed income markets.

INCOME TAX

What the business paid to the IRS.

MACRS (Modified Accelerated Cost Recovery System)

A depreciation method created by the IRS under the tax Reform Act of 1986. Companies must use it to depreciate all plant and equipment assets installed after December 31, 1986 (for tax purposes).

Accounting system

A set of accounts that summarize the transactions of a business that have been recorded on source documents.

Earnings before interest and taxes (EBIT)

The operating profit before deducting interest and tax.

Earnings before interest, taxes, depreciation and amortization (EBITDA)

The operating profit before deducting interest, tax, depreciation and amortization.

Planning, programming and budgeting system (PPBS)

A method of budgeting in which budgets are allocated to projects or programmes rather than to responsibility centres.

Profit before interest and taxes (PBIT)

See EBIT.

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.

Payroll tax expense

The amount of tax associated with salaries that an employer pays to governments (federal, state, and local).

Payroll taxes payable

The amount of payroll taxes owed to the various governments at the end of a period.

Periodic inventory system

An inventory system in which the balance in the Inventory account is adjusted for the units sold only at the end of the period.

Perpetual inventory system

An inventory system in which the balance in the Inventory account is adjusted for the units sold each time a sale is made.

earnings before interest and income tax (EBIT)

A measure of profit that
equals sales revenue for the period minus cost-of-goods-sold expense
and all operating expenses—but before deducting interest and income
tax expenses. It is a measure of the operating profit of a business before
considering the cost of its debt capital and income tax.

Systematic Risk

The amount of total risk that cannot be eliminated by portfolio
diversification. The risk inherent in the general economy as a
whole. Also known as market risk.

Unsystematic Risk

The amount of total risk that can be eliminated by diversification by
creating a portfolio. Also known as asset-specific risk or
company-specific risk.

actual cost system

a valuation method that uses actual direct
material, direct labor, and overhead charges in determining
the cost of work in Process Inventory

business intelligence (BI) system

a formal process for gathering and analyzing information and producing intelligence to meet decision making needs; requires information about
internal processes as well as knowledge, technologies, and competitors

charge-back system

a system using transfer prices; see transfer
price

cost control system

a logical structure of formal and/or informal
activities designed to analyze and evaluate how well
expenditures are managed during a period

cost management system (CMS)

a set of formal methods
developed for planning and controlling an organization’s
cost-generating activities relative to its goals and objectives
cost object anything to which costs attach or are related

economically reworked

when the incremental revenue from the sale of reworked defective units is greater than
the incremental cost of the rework

enterprise resource planning (ERP) system

a packaged software program that allows a company to
(1) automate and integrate the majority of its business processes,
(2) share common data and practices across the entire enterprise, and
(3) produce and access information in a realtime environment

flexible manufacturing system (FMS)

a production system in which a single factory manufactures numerous variations
of products through the use of computer-controlled
robots
focused factory arrangement
an arrangement in which a
vendor (which may be an external party or an internal corporate
division) agrees to provide a limited number of
products according to specifications or to perform a limited
number of unique services to a company that is typically
operating on a just-in-time system

hybrid costing system

a costing system combining characteristics
of both job order and process costing systems

job order costing system

a system of product costing used
by an entity that provides limited quantities of products or
services unique to a customer’s needs; focus of recordkeeping
is on individual jobs

just-in-time manufacturing system

a production system that attempts to acquire components and produce inventory only as needed, to minimize product defects, and to
reduce lead/setup times for acquisition and production

management control system (MCS)

an information system that helps managers gather information about actual organizational occurrences, make comparisons against plans,
effect changes when they are necessary, and communicate
among appropriate parties; it should serve to guide organizations
in designing and implementing strategies so that
organizational goals and objectives are achieved

management information system (MIS)

a structure of interrelated elements that collects, organizes, and communicates
data to managers so they may plan, control, evaluate
performance, and make decisions; the emphasis of the
MIS is on internal demands for information rather than external
demands; some or all of the MIS may be computerized
for ease of access to information, reliability of input
and processing, and ability to simulate outcomes of
alternative situations

network organization

a flexible organization structure that
establishes a working relationship among multiple entities,
usually to pursue a single function

normal cost system

a valuation method that uses actual
costs of direct material and direct labor in conjunction with
a predetermined overhead rate or rates in determining the
cost of work in Process Inventory

performance management system

a system reflecting the entire package of decisions regarding performance measurement and evaluation

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

pull system

a production system dictated by product sales
and demand; a system in which parts are delivered or produced
only as they are needed by the work center for which
they are intended; it requires only minimal storage facilities

push system

the traditional production system in which
work centers may produce inventory that is not currently
needed because of lead time or economic production/
order requirements; it requires that excess inventory be
stored until needed

red-line system

an inventory ordering system in which a red
line is painted on the inventory container at a point deemed
to be the reorder point

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