Amortization
A breakdown of periodic loan payments into two components; a principle portion and an interest portion.

Annual Percentage Rate (APR)
The nominal rate of interest for a specified period (usually one year).

Annuity
Investment that produces a level stream of cash flows for a number of periods.

Assets
Things of value owned by the business.

Balance Sheet
Financial statement that lists a company’s (organization’s) assets, liabilities and stockholder’s equity (fund balance).

Bond
A promise to pay a certain sum of money by a future date (maturity date) with interest payable periodically at a specified rate. Bonds are registered and regulated by State and Federal Securities Laws.

Bonds (Long-Term Debt)
The entity (hospital) borrows funds from the public. The hospital guarantees to pay a fixed return to holders of the bonds for a fixed period of time and then to return the original amount borrowed.

Capital Budgeting
Listing of planned investment projects, usually reviewed annually.

Capital Expenditure
A purchase made to acquire the ownership of property, plant and/or equipment. Typically, these types of expenditures do not take place until after a lengthy capital budgeting review and approval process has occurred.

Capital Expenditure Funds
Funds that have been appropriated, through the capital budgeting process, to purchase property, plant and/or equipment.

Cash Flow
The tracing of cash balances as a result of historical or expected organizational activity.

Cost of Capital
(Hurdle rate, Opportunity Cost of Capital) Expected return that is foregone by investing in a project rather than in comparable financial securities.

Depreciation
Means for a business to recover the cost of a purchased asset, over time, through periodic deductions or offsets to income. Used in both a financial reporting and tax context. Considered a tax benefit because the depreciation deductions cause a reduction in taxable income, and the business may therefore experience a lower tax liability.

Discount Rate
An interest rate used to calculate the present value of future cash flows.

Equity
Common stock and preferred stock.

Estimated Useful Life
This is the period during which an asset is expected to be useful in a trade or business.

Financial Accounting Standards Board (FASB)
The rule-making body that establishes financial reporting guidelines.

GAAP
Generally accepted accounting principles.

Hurdle Rate
Minimum acceptable rate of return on a project.

Income Statement
Financial statement showing revenues and expenses of an organization over a specified period of time.

Internal Rate of Return
Discount rate at which a project’s net present value equals zero.

Leveraged
Indebted.

Liabilities
Debts or obligations that usually possess a known or determinable amount and maturity date.

Maintenance Contract
An agreement to maintain and/or repair the property during a specified term.

 Net Present Value
A project’s net contribution to wealth-present value of future cash flows minus initial investment.

Payback
A measurement of the time period required to recover the project’s initial investment.

Present Value
The discounted value of future cash flows.

Profitability Index
Ratio of a project’s present value to the initial investment.

Public Bond Issue
When a not-for-profit seeks bond financing through the public markets (i.e., Merrill Lynch, Bear Stearns, Goldman Sachs, etc) which are resold to mutual funds, private individuals, insurance companies, pension funds, etc. Often these bonds carry a credit enhancement such as a Letter of Credit or Bond Insurance.

Rate of Return
Earnings of an investment.

Retained Earnings
Earnings not paid out as dividends.

Return on Investment (ROI)
Generally, book income as proportion of the book value of equity.

Sensitivity Analysis
Analysis of the effect on project profitability of possible changes in sales, costs and so on.

Solvency
Ability to pay debts as they become due.

Tax-Exempt
Not subject to taxation.

TV
Termination value.

Useful Life
The period of time during which an asset will have economic value and be usable. The useful life of an asset is sometimes called the economic life of the asset.

Working Capital
Current assets minus current liabilities.