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O – S

O

Operating costs

Costs in addition to direct costs generally linked with the selling and administrative activities of a business. Also known as overheads.

Obsolete

An asset that is considered to no longer be valuable to a business.

Occupational pension scheme

Scheme set up by companies that entitles employees to a pension upon their retirement.

Operating expenses

Relates to costs linked in with the selling and administrative activities of a business.

OMO (Open market option)

Scheme dating back to 1975 Finance act that offers an individual upon their retirement the right to buy an annuity from a provider other than the one who has given them a pension fund.

OEIC (Open ended investment company)

A set of managed funds you can buy into. Shares issued are unlimited to meet demand with their value being derived from the value of the underlying assets of the fund. The price of shares should be the same whether they are bought or sold.

Operating profit

The profit of a business after deducting operating costs from gross profit.

Ordinary shares

Authorised shares issued by a limited company representing the ownership of that company. Shareholders have the right to vote on matters such as corporate policy and the composition of members of the board of directors and usually have an entitlement to any dividends declared. Once issued shares can be traded either privately or publicly, if the company is listed on a recognised stock exchange. Ordinary shares are not secured on the company’s assets.

Output Tax

The VAT charged on the supply of goods or services made by a person or company registered for VAT which must be paid to HM Revenue & Customs.

Option

The right, but not obligation, to buy (call option) or sell (put option) shares or other financial instruments at a predetermined price on or before a predetermined date.

Overdraft

A short term banking facility enabling an account holder to borrow up to an agreed amount.

Operating margin

Calculated as operating profit divided by turnover, it reflects the return on a business sales after taking account of the core trading costs.

Operating cash flow

Cash generated from the operations of a business during the year. The calculation takes account of non operating cash flows such as interest, tax, depreciation and amortisation, as well as any changes in working capital.

Overlap profits

Profits which have been taxed twice because part of an accounting period falls within the basis period for tax computations for more than one year.

Overlap relief

Tax relief given for overlap profits brought forward on a change of accounting date, if the basis period is longer than 12 months, or on the cessation of trade.

P

Pre-emptive rights

Rights given to existing shareholders entitling them to first refusal on the purchase of shares in a new issue. This allows them to maintain their fractional ownership or stake in the company.

Personal pension scheme

A scheme dedicated to those who are self-employed or are employed but are not members of an occupational scheme. Here they can make their own provisions towards their pension.

Paper profit

Represents an assets increase in value whilst it remains on the market and therefore would be realised if it were sold.

Per capita income

A measurement of average income earned for a particular group, usually the population of a country. It is calculated as total income divided by total population of the group.

Performing asset

An asset that generates a positive annual return.

Phased retirement

A personal pension plan given in segments allowing the recipient to phase the purchase of annuities or income drawdowns.

Preference shares

Shares in a company with preferential rights over ordinary shares, usually giving the holder an entitlement to a fixed dividend. Preference shares do not usually carry voting rights but do entitle the holders to any balance of proceeds following the liquidation of a company before ordinary shareholders.

Price earning ratio – P/E ratio

Calculated as the current share price of a company divided by its earnings per share. The ratio is used by investors to assess the expected future growth of earnings.

Premium bonds

Bonds offered under the National Savings and Investments scheme which do not pay interest but are instead entered into monthly prize draws. Any winnings are exempt from income and capital gains tax.

Prepayments

Costs paid in advance of the accounting period to which they relate and therefore not recognised in the profit and loss account for the current accounting period.

Present value

See ‘net present value’.

Prudence concept

Exercise of caution when making judgements or estimates required under conditions of uncertainty, in order to prevent the overstatement of assets and/or understatement of liabilities.

Profit before tax

A company’s net profit before deduction of corporation tax.

Provisions

A present obligation of uncertain timing or amount arising from a past event.

Public limited company (plc)

A limited company permitted to offer its shares to the general public which are usually traded on a recognised exchange such as the London Stock Exchange.

Q

Qualitative research

Based on an understanding of human tendencies or behaviour and the drivers behind these.

Quantitative research

Uses data for evaluation and applies models to analyse data over time periods.

Quasi subsidiary

A company or other arrangement not fulfilling the definition of a subsidiary but is directly or indirectly controlled by a reporting entity and gives rise to benefits for that entity, in substance the same as those arising if it were a subsidiary.

R

Rate of return

The measure of the profitability of an investment, generally calculated as net profits divided by capital employed for a business.

Real interest rate

Nominal interest rate net of the current rate of inflation.

Regressive tax

Tax imposed at a rate which decreases as the amount subject to taxation increases. Most commonly arising with the levy of fixed, lump sum taxes.

Receivables

Outstanding debts owed to a company.

Recession

A period of general economic decline, normally with stagnating or declining economic activity, often defined as a period of two or more consecutive quarters of falling economic output.

Redeemable preference shares

Preference shares that the issuing company reserves the right to redeem.

Registrar of Companies

The official body, Companies House, with responsibility for the registration of limited companies, storing appropriate information and making it available to the general public.

Residence status

The definition of a person’s status when living or working abroad with regard to his/her taxation liabilities.

Retained earnings

A company’s post tax profits not distributed as dividends.

Returns to scale

Term referring to the change in outputs subsequent to a change in inputs. If outputs increase proportionately more than inputs there are increasing returns to scale, if outputs increase in line with inputs there are constant returns to scale, and if outputs increase proportionately less than inputs there are decreasing returns to scale.

Risk premium

The additional return expected for investing in a riskier class of asset over a less risky one.

Revenue

The right to consideration in exchange for performance, usually in the form of the supply of goods or services to a customer. Generally stated in the financial statements net of value added tax and trade discounts.

Reversionary interest

The right to receive property which is held in a trust at a future date.

Rights issue

An offer to buy shares made by a company to existing shareholders in proportion to their existing holding.

RPI (Retail Price Index)

The measurement of inflation calculated by comparing the change in price of a basket of consumer goods, reflecting typical spending patterns, over a period of time.

ROCE (return on capital employed)

Calculated as earnings before interest and tax divided by total capital employed, giving a measure of a company’s profitability.

Rollover relief

Capital gains tax relief applying to a person or company which disposes of a business or an asset and then reinvests the sale proceeds in a qualifying replacement within a qualifying period.

S

Sales ledger

See ‘ledger’.

Securities

A generalised name for stocks, shares and other financial instruments.

SERPS (State Earnings Related Pension Scheme)

Scheme allowing employees to increase their basic state pension via additional payments based on earnings.

Self-assessment

Term used to indicate an individual or company is responsible for the computation of their tax liability payable to HM Revenue & Customs.

Share capital

The proportion of a company’s capital issued to shareholders in the form of ordinary and preference shares.

Stakeholder pension

Scheme to encourage people to make provisions for their own future if they have not been able to afford a personal pension.

Share option

Option to buy shares in a company at a fixed price between a specified exercise period. This is used as an incentive, offered to company directors and employees, to promote loyalty and commitment.

Shareholder

The owner of shares in a company.

Share

A stake in a company entitling the holder to receive a pro-rata share of the company’s profits through dividends, based on their holding.

Stamp duty

A UK tax imposed on the buying of shares and property.

Statement of account

Statement suppliers issue to customer detailing transactions entered into over a given period.

Statutory accounts

See ‘annual report’.

Statutory sick pay

Payments made by employers to employees when they are unable to work due to illness or injury for more than three consecutive days.

Stocks

Goods that a company has produced or purchases but not yet sold, and are thus are held as current assets. Also known as inventories.

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