Glossary

This glossary of some of the terms used in this book is somewhat limited by space. Several exhaustive glossaries exist online, notably those by the Wall Street Journal and the New York Times. Readers who have questions not answered here are invited to slake their financial thirst for monetary terminology at those well-founded founts.

accelerated depreciation.  A method of calculating depreciation with proportionately larger dollar amounts allocated during the first year(s) of the worthwhile life of the purchased item. See depreciation.

account.  The detailed record of a particular asset, liability, owners’ equity, revenue, or expense.

account executive.  Another title for the traditional salesperson, someone who sells advertising to various businesses or “accounts.”

accounting equation.  A mathematical expression reported on a balance sheet used to describe the relationship among assets, liabilities, and owners’ equity of the business model. The basic accounting equation states that assets equal liabilities and owners’ equity. See balance sheet.

accounts receivable.  A financial reporting category representing current assets earned that have been billed to customers but not necessarily collected from them.

accrual.  The recognition of revenue when earned or expenses when incurred regardless of when cash is received or disbursed. Accrued revenue and accrued expenses are recorded in the period in which they are earned or incurred.

accrued assets.  Assets from revenues earned but not yet collected.

accrued expenses.  Expenses incurred during an accounting period for which payment is postponed.

adjustment report.  Typically generated out of the accounts receivable system in order to make the necessary general ledger adjustments to revenue; adjustments are necessary when a client is written-off as a bad debt or when it is learned that the original invoice was inaccurate.

agency commission.  A discount, historically 15 percent, on broadcast commercial rates provided to advertising agencies representing station clients. The agency bills the client the full amount, while retaining the difference generated by the discount.

aging of accounts.  The classification of accounts by the time elapsed (i.e., aging) after the date of billing or the due date. The longer a customer’s account remains uncollected or the longer inventory is held, the greater is its realization risk.

amortization.  A financial procedure that spreads the cost of an intangible asset over the expected useful life of the asset. Identical in definition to depreciation, except that the purchased items are considered intangible rather than tangible. Amortization is reflected in both the profit and loss account and the balance sheet of a business.

annualize.  The procedure of converting any financial activity into a yearly figure.

assets.  Items of value that a business owns or is due. Equipment, vehicles, buildings, creditors, money in the bank, and cash are all examples of the assets of a business. Typical breakdown includes fixed assets, current assets, and noncurrent assets. “Fixed” refers to equipment, buildings, plant, vehicles, and so on. “Current” refers to cash, money in the bank, debtors, and so forth. “Noncurrent” refers to any assets that do not easily fit into the previous categories.

Audience Deficiency Unit (ADU).  A unit of measure, typically a Nielsen audience rating point, that is owed an advertiser because a program did not achieve the anticipated (projected) ratings promised to the advertiser. This deficiency is alleviated by offering the client additional commercials (called “make-goods”) at no charge.

audit.  Typically a review of financial statements or performance activity to determine conformity or compliance with applicable laws, regulations, and/or standards.

bad debt (or bad debt expense).  An open account balance or loan receivable that has proved to be uncollectible and is written off. Bad debts can be deducted as expenses against tax liability.

balance sheet.  Statement of financial position that shows: Total Assets = Total Liabilities + Owners’ Equity. See assets; liabilities; owners’ equity.

barter (barter exchange).  A transaction in which two businesses exchange items of value with no cash money involved. In broadcasting, “barter” is a programming term referring to a station’s acquiring a program from a syndication company by offering commercial avails, rather than cash, to the syndicator. See trade (trade agreement).

best practices.  The operational characteristics of successful companies; that is, the recognized best ways to practice business.

billings.  Dollar value of advertising sold for a specific time period. When one wants to know how much advertising was sold in for the month of June, one would ask about “June billings.”

bottom line.  In accounting/finance terminology, net income after taxes. In general, it is an expression as to the end results of something (e.g., the net worth of a corporation on a balance sheet, sales generated from a marketing campaign, or the final decision on most any subject).

breakeven point.  The financial threshold at which revenues and costs are equal; a combination of sales and costs that will yield a no-profit/no-loss operation. Knowing the breakeven profit level is useful to decision makers because it provides insight as to the likely economic feasibility of a project.

broadcast cash flow (BCF) margin.  This margin is calculated by dividing an individual station’s or station group’s operating income by the same station’s or group’s gross or net revenue. This margin focuses totally on the operating performance at a station level, and ignores any corporate overhead, interest, amortization, depreciation, or taxes.

budget.  An itemized listing of the amount of all estimated revenue that a given business anticipates receiving, along with a listing of the amount of all estimated costs and expenses that will be incurred in obtaining the above-mentioned income during a given period of time. A budget is typically for one business cycle, such as a year, or for several cycles (for example, a five-year capital budget).

burn rate.  The monthly rate at which a company spends its available money (cash reserves). Applying an expected burn rate, a company can predict when it will run out of disposable cash.

capital.  Owners’ equity in a business; total assets of a business. Sometimes used to mean capital assets (see below), cash or funds.

capital asset.  A long-term asset that is not purchased or sold in the normal course of business. Generally, it includes fixed assets such as land, buildings, furniture, equipment, fixtures, and furniture. See assets.

capital budget.  The estimated amount planned to be expended for capital items in a given fiscal period. Capital items are fixed assets such as facilities and equipment, the cost of which is normally written off over a number of fiscal periods. The capital budget, however, is limited to the expenditures that will be made within the fiscal period; comparable to the related operating budgets.

capitalization.  A statement of capital within the firm—either in the form of money, common stock, long-term debt, or some combination of all three.

cash accounting (cash basis of accounting).  A system of accounting in which revenues are recognized when cash is received and expenses are recognized as disbursements are made. No attempt is made to match revenues and expenses to determine income. Most media companies use a more sophisticated accrual accounting method that recognizes expected revenues and expenses. See accrual; expenses; matching principal; revenue.

cash flow.  In short, a report that shows the “flow” of money in and out of the business over a period of time. More specifically, cash flow reflects earnings before interest, taxes, depreciation, and amortization. See EBITA; EBITDA.

centralized/decentralized Finance Departments.  The type of departmental structure attributed to a Finance Department, wherein a centralized unit has most of its staff working at one master location, and a decentralized unit has staff positioned in various geographic locations throughout the company.

churn.  A measure of customer or subscriber attrition. In cable parlance, churn is calculated as the number of subscribers whose service is terminated voluntarily or involuntarily in a month divided by the average subscribers in that month. For example, a system with 100,000 subscribers that lost 2,500 subscribers in a given month would have a churn rate of 2.5 percent. Systems with high churn rates must attract large numbers of subscribers just to maintain their subscriber level. The system in the example would have to add 2,500 subscribers just to maintain the 100,000-subscriber level.

consistency.  An accounting principle asserting that the same accounting policies and procedures have been followed from period to period by an organization in the preparation and presentation of its financial statements.

conservatism.  A GAAP principal which avoids overstating profit and the value of assets, or understating losses and liabilities. See GAAP.

contra account (contra revenue).  An account created to offset another account. An example would be an account called Sales Discounts, which reduces the original value of an advertising schedule placed on a station.

controller (or comptroller).  The top managerial and financial accountant in an organization. Supervises the Accounting Department and assists management at all levels in interpreting and using managerial-accounting information.

credit policy.  The agreed procedures within a company for awarding credit to customers. In broadcasting and cable, this would entail providing credit to advertisers buying commercial time on stations or networks. In cable operations this policy will also cover credit offered to cable subscribers.

cost approach.  A valuation methodology based upon the cost to replace an asset with one of similar function or utility.

current assets.  Assets that are easily convertible to cash and are expected to be collected or consumed within a 12-month period; they include such items as cash, accounts receivable, and prepaid expenses or inventory.

current-cost accounting.  The valuing of assets, stock, raw materials, and so on at current market value as opposed to its historical cost.

current liabilities.  These include bank overdrafts, short-term loans (less than a year), and what the business owes its suppliers. They are termed “current” for the same reasons outlined under current assets.

cyclicality.  Typically refers to a business whose revenues or profits can fluctuate substantially based upon economic variations or other factors. In the television industry, in particular, stations generally enjoy a boost in growth in election and Olympic years, followed by slower growth or even a decline in the “off” years.

days sales outstanding (DSO).  A measure of how long on average it takes a company to collect the money owed to it. The DSO ratio is calculated by dividing a company’s total accounts receivable by the average net sales per day. This gives management the average number of days of sales remaining unpaid from advertisers or subscribers.

debt-service coverage.  The borrower’s annual net operating income before debt service and taxes divided by the annual debt service. A measure of how safe the loan is to the lender.

debt-to-equity ratio.  Total liabilities divided by total equities. Sometimes denominator is simply shareholders’ equity and sometimes the ratio is calculated by restricting the numerator to noncurrent debt. This ratio provides a measure of the cushion available to creditors should the firm be forced to liquidate.

depreciation.  An accounting procedure that spreads the cost of a tangible asset over the expected useful life of the asset. Depreciation is reflected in both the profit and loss account and the balance sheet of a business. See accelerated depreciation; straight-line depreciation.

discounting.  A common method for expressing in today’s dollars the value of money to be received in the future. The process of discounting is often viewed as the inverse of compounding. For example, the value of $100 invested at 10 percent today would compound to $110 in one year. Similarly, $110 to be received one year from now, discounted at a 10 percent rate, has a present value of only $100. The present value of money decreases with the length of time required to receive it. Typically, an investor will employ a higher discount rate to the cash flows forecast for a risky investment than for a safe one.

dividends.  Payments to the shareholders of a limited company.

due diligence.  The thorough investigation of a potential acquisition candidate, such as a radio or TV station. Often used to refer to the investigation of a company for an initial public offering.

earned income.  Wages, salaries, professional fees, and other amounts received as compensation for services rendered. Revenue acquired from loans or investments is not included.

EBIT.  Earnings before interest and taxes (profit before any interest or taxes have been deducted). See cash flow.

EBITA.  Often defined as cash flow. Earnings before interest, taxes, and amortization (profit before any interest, taxes, or amortization has been deducted). See cash flow.

EBITDA.  Often defined as cash flow. Earnings before interest, taxes, depreciation, and amortization (profit before any interest, taxes, depreciation, or amortization has been deducted). See cash flow.

enterprise reporting, business intelligence.  The regular provision of information to decision makers within an organization. These reports can take the form of graphs, text, and tables, and typically are disseminated through an intranet as a set of regularly updated web pages (or “enterprise portal”). Alternatively, they may be emailed directly to users or simply printed out and distributed.

equity.  The value of the business to its owners or primary investors. The difference between the business’s assets and liabilities. See accounting equation; balance sheet.

expenses.  The outflow of assets (or increases in liabilities) used in generating revenues. Expenses that do not change as activity level changes are called fixed expenses, whereas those that change as activity levels change are called variable expenses. (Variable expenses are zero when there is no activity.)

fair market value.  A common measure of value typically defined as the amount in cash or cash equivalents between a willing buyer and a willing seller, both being fully informed and neither being under compulsion.

fair value.  According to Statement of Financial Accounting Standards No. 157, “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.” Prior to the implementation of FAS 157, the prevailing definition of fair value, as stated in FAS 142, was the “amount at which an asset (or liability) could be bought (or incurred) or sold (or settled) in a current transaction between willing parties, that is, other than in a forced or liquidation sale.”

financial statements.  Information about a company’s economic resources and obligations at a point in time, the results of its activities during a particular period, and its sources and uses of cash during that period. Most financial statements are prepared using a set of common ground rules, which have been developed over a period of many years, and are called Generally Accepted Accounting Principles (GAAP).

fiscal year (FY).  A 12-month period during which income is earned and received, obligations are incurred, encumbrances are made, appropriations are expended, and for which other fiscal transactions are recorded. A fiscal year typically is not the same as the conventional calendar year.

fixed assets.  Long-term tangible assets held for business use and not expected to be converted to cash in the current or upcoming fiscal year. These assets usually consist of major items such as land, buildings, equipment, and vehicles, but can include smaller items such as tools.

flight.  The schedule of commercials purchased by an advertiser. Major advertisers will introduce several flights during the course of a year.

free cash flow.  The cash a business yields to an investor after all expenses have been paid, including capital expenditures, working capital, income taxes, and other cash outlays. This is loosely analogous to the earnings of a publicly traded stock.

general ledger.  The name for the formal ledger in which entries posted from the individual recording journals of transactions are reorganized into specific financial statement accounts. See account; journal(s).

Generally Accepted Accounting Principles (GAAP).  The common set of accounting principles, standards. and procedures that companies use to compile their financial statements. GAAP are imposed on companies so that investors have a minimum level of consistency in the financial statements they use when analyzing companies for investment.

goodwill.  The excess of the cost of an acquired firm or operating unit over the current fair market value of the separately identifiable net assets of the acquired unit. Informally the term is used to indicate the value of the company’s reputation in the marketplace and the number of regular customers. In broadcasting and cable businesses, goodwill can be attributed to the entity’s long-term success in attracting audiences and advertisers.

human resource management software (HRMS).  A computerized system enabling employers to input and retain much data on their workforce, including supervisors, training history, promotion and position history, performance reviews, skill and experience levels, technical certifications, and property assigned.

impairment.  When the fair value of an asset falls below the value reported on a balance sheet.

income.  Excess of revenue and gains over expenses and losses for an accounting period. See revenue; expenses.

income approach.  A valuation methodology based upon the value of the income that an asset is forecasted to generate for its owner.

intangible assets.  Assets of a nonphysical or financial nature, such as a loan, an endowment policy, or an FCC license. See amortization; tangible assets.

invoice.  A term describing an original document either issued by a business for the sale of goods on credit (a sales invoice) or received by the business for goods bought (a purchase invoice).

journal(s).  The place or places where transactions are first recorded.

journal entries.  A term used to describe the transactions recorded in a journal.

ledger.  See general ledger.

liabilities.  A probable future sacrifice of economic benefits arising out of present obligations. Examples include loans taken out for the business, and money owed by the business to its suppliers. Liabilities are included on the right-hand side of the balance sheet, and normally consist of accounts that have a credit balance. See balance sheet.

liquidity (liquidity ratio).  A measurement of a company’s capacity to handle its short-term obligations as they mature. The most common is the current ratio, which is calculated by dividing current assets by current liabilities. Liquidity is also referred to as a company’s ability to quickly convert assets into cash.

market approach.  A valuation methodology based upon the values indicated by actual transactions involving comparable assets.

matching principle.  A method of recording, or “matching,” expenses with the revenues associated with these expenses in the period in which the revenues are recognized. This is important to determining net profit for the period. See net profit; cash accounting.

materiality.  The magnitude of an omission or misstatement of accounting data that misleads financial statement readers. Materiality is judged both by relative dollar amount involved and by the nature of the item. If an item is material, it should be disclosed in the body of the financial statements or in footnotes.

net future value/future value.  Value at a specified date of a sum invested at a specified interest rate.

net loss.  The value of expenses less sales, assuming that the expenses are greater (i.e., if the profit and loss account shows a debit balance). See net profit.

net present value.  Discounted or present value of all cash inflows and outflows of a project or investment at a given discount rate.

net profit.  The value of sales less expenses, assuming that the sales are greater (i.e., if the profit and loss account shows a credit balance). See net loss.

Network Affiliate Finance (NAF) Department.  A department found within most cable program networks that is responsible for maintaining contracts with local cable systems and monitoring per-subscriber monthly fees paid by these systems in exchange for network carriage.

network revenue (network compensation).  In broadcasting, a prescribed compensation fee paid to a network affiliate station by its parent network.

net worth.  See equity.

nontraditional revenue (NTR).  Identification of revenue coming to a broadcast station that has not been obtained through conventional spot commercial advertising. For example, a station may sell booths for a health fair or sponsor a concert in which participating stations receive a percentage of the gate.

operating cash flow.  Typically defined as revenues minus expenses not including nonoperating items such as interest, depreciation, amortization, income taxes, and allocated corporate expenses. A related measure, broadcast cash flow (BCF), is cash available after corporate expenses. An additional measure, free cash flow, is the actual cash that is available as a return to the owners, after capital expenditures, taxes, interest, corporate overhead, and all other expenses.

outsourcing.  The management decision to have certain business functions done by outside contractors rather than by in-house staff. Usually outsourcing is considered a cost-saving measuring, implying that outside vendors can accomplish tasks more economically.

owners’ equity.  Assets minus liabilities; paid-in capital plus retained earnings of a corporation; partners’ capital accounts in a partnership; owners’ capital account in a sole proprietorship. See assets; liabilities; retained earnings.

payback analysis.  An operation which determines the time frame required to recover the investment in the project. It is similar to breakeven analysis because it focuses on recovery of one’s investment. See breakeven point.

posting.  The copying of entries from the journals to the ledgers. See general ledger; journal(s).

power ratio.  A means to determine how efficiently a station converts ratings into revenue. More specifically, this ratio measures the station’s share of audience compared to its share of advertising revenue spent in the market.

pricing systems.  Protocols for establishing pricing, such as the pricing of commercials by a station. Static pricing systems focus on a predetermined price based on historical performance, whereas dynamic pricing systems respond to current market conditions.

profit and loss account.  An account which combines revenues and expenses to reveal the current profit or loss of a business; that is, whether a business has earned more than it has spent in the current year.

profit margin.  The percentage difference between the cost of a product and the price for which it can be sold.

pro forma accounts (pro forma financial statements).  A set of hypothetical statements; that is, statements as they would appear if some event occurred. These may also be unaudited statements prepared in a format for a specific audience such as shareholders or the press.

public files.  A set of files detailing a broadcast station’s promises versus performance in the areas of programming and public service. These files can be examined, by appointment, by any member of the viewing public. They typically become very popular when the FCC license term is expiring and the company owning the license is applying for renewal.

realized income.  The return or profit that is actually earned or collected over a given time period. An example would be realized income on a sale of common stock. Unrealized income would be the market appreciation of a given stock that has not been sold.

reconciling.  The process of checking one financial account against another for accuracy (e.g., checking a bank statement against your own records).

rep firm.  A company that represents local radio and television stations to national advertisers. Essentially, these companies broker commercial time and take a prescribed commission for their efforts.

residual value.  At any time the estimated or actual net realizable value (proceeds less costs) of an asset.

retained earnings.  The amount of money held in a business after its owners have taken their share of the profits.

return on assets (ROA).  Net income derived from assets. Investors often look at this measurement to help determine the companies in which they want to invest.

revenue.  The sales and any other taxable income of a business.

Securities and Exchange Commission (SEC).  Agency authorized by the United States Congress to regulate the financial reporting practices of most public corporations.

shareholders.  The owners of a limited company or corporation.

straight-line depreciation.  A method of calculating depreciation in which the identical (i.e., fixed) amount is written off in each period. See depreciation; accelerated depreciation.

supply chain.  The flow of materials, information, and finances as they move in a process from supplier to manufacturer to wholesaler to retailer to consumer. Many organizations are looking to supply chain optimization as a means of gaining competitive advantages.

tangible assets.  Assets of a physical nature. Examples include buildings, motor vehicles, plant and equipment, and fixtures and fittings. See intangible assets.

time value of money.  The concept that money invested will increase in value over time. See net present value; net future value.

trade (trade agreement).  A transaction in which two businesses exchange items of value with no cash money involved. In broadcasting, stations often will acquire automobiles, furniture, restaurant meals, hotels, and contest prizes in exchange for commercial time to suppliers.

Traffic Department.  A department within a broadcast facility, cable network or cable system that is responsible for placing and monitoring commercials purchased by advertisers in various programs and day parts. The Traffic Department works closely with the Sales Department, which provides the advertising orders, and the Business Office, which handles billing after the commercials have aired.

triple play.  Phrase that characterizes the suite of three services offered by cable systems: video, telephony, and Internet. Some analysts have extended this nomenclature to a “quadruple play,” which includes both fixed-line and wireless telephony services, in addition to video and high speed Internet.