Finance & Accounting Glossary

Amounts owed to suppliers for purchases already booked. Sits in current liabilities; longer payment terms reduce working capital needs.

Amounts owed by customers for sales already booked. Sits in current assets; longer collection periods consume more working capital.

Present value of legally required future spending to retire a tangible asset and restore the site. Recorded as a liability with the offsetting cost capitalized into the related asset.

A snapshot of a company’s assets, liabilities, and equity at a point in time. Shows what the company owns and how it is financed.

Tracks cash inflows and outflows split into operating, investing, and financing activities. Reveals the gap between accounting profit and actual cash.

Direct cost of producing the goods or services that were actually sold during the period. Gross profit = Revenue − COGS.

The premium paid in an acquisition over the target’s net asset fair value. Represents intangibles like brand, customer base, and synergies. IFRS: no amortization (annual impairment test). J-GAAP: amortized ≤20 years.

Final profit after deducting income taxes. The profit attributable to shareholders — used to compute ROE and EPS.

Revenue and expenses from activities outside the core business — interest income, dividends received, interest expense, foreign-exchange gains/losses.

Income items not flowing through net income — FX translation, AFS revaluation, pension remeasurements. Comprehensive income = Net income + OCI.

Gross profit minus SG&A expenses. The profit generated from a company’s core business operations — the key indicator of core earning power.

Reports revenues, expenses, and profit for a period. Walks from sales down to net income via COGS, operating expenses, and taxes.

Costs of researching and developing new products or technologies. Expensed under J-GAAP; IFRS allows capitalization once development criteria are met.

Income earned from providing goods or services in the core business. Appears at the top of the income statement.

Asset recognized by a lessee under IFRS 16 (and Japan’s new lease standard) representing the right to use the leased asset. Paired with a lease liability on the balance sheet.

Operating expenses outside of COGS — selling, marketing, corporate overhead. Operating income = Gross profit − SG&A.

Capital that does not need to be repaid. Equals total net assets minus non-controlling interests and stock acquisition rights. Capital stock + capital surplus + retained earnings − treasury stock.

The gap between net income and operating cash flow. Represents the portion of profit not yet converted to cash. Higher accruals = lower earnings quality.

The value of an asset as recorded on the balance sheet (historical cost minus accumulated depreciation). Often differs from market value. PBR < 1 means the stock trades below book value.

Equity ÷ shares outstanding. The denominator of PBR. Changes with dividends, buybacks, and losses.

(End ÷ Start)^(1/years) − 1. The constant annual rate that links start to end value over a period.

DIO + DSO − DPO. Number of days cash is tied up between paying suppliers and collecting from customers. Shorter is better.

Interest-bearing debt divided by equity. Core financial-leverage metric; the appropriate level varies by industry.

The periodic allocation of a fixed asset’s cost over its useful life. A non-cash expense — cash was spent at purchase but expense is recognized gradually. CF statements add it back.

Average days inventory sits before being sold: inventory ÷ COGS × 365. Rising DIO signals slow-moving or obsolete stock.

Annual dividends ÷ equity. Unlike payout ratio it is insensitive to earnings volatility, so it is used as a target for stable-dividend policies.

Average days to pay suppliers: AP ÷ COGS × 365. Longer preserves working capital but must be balanced against supplier relationships.

Annual dividends ÷ shares outstanding. Payout ratio = DPS ÷ EPS gauges shareholder return appetite.

Average days to collect cash after a sale: AR ÷ revenue × 365. Rising DSO signals slow collection or credit deterioration.

Roughly equivalent to operating income. Used to compare core profitability across companies with different capital structures.

Operating income plus D&A. Used as a rough proxy for operating cash flow, and as the denominator of the EV/EBITDA valuation multiple.

Net income divided by shares outstanding. Affected by buybacks and stock splits, so check the driver when EPS moves.

Operating cash flow minus capex. The cash available for dividends, buybacks, debt repayment, or M&A.

Cash available to equity holders after debt service. Used in DDM and equity DCF models.

Cash available to all capital providers (debt + equity). Discounted at WACC in enterprise DCF.

Debt that requires interest payments — short-term loans, long-term loans, bonds. Excludes accounts payable and accrued expenses. Numerator of the D/E ratio.

Core metrics tracked to gauge progress against strategic goals — financial (revenue, margin) and non-financial (users, MAU).

EBIT × (1 − effective tax rate). Pre-financing after-tax operating profit; the numerator of ROIC.

Share price ÷ BPS. A PBR under 1.0× means the market values the company below book; the TSE has urged listed firms to address this.

Share price ÷ EPS. The number of years of earnings required to recoup the price. Compared against peers to judge relative valuation.

Net income (or operating income) ÷ total assets. Gauges asset efficiency independent of how the assets are financed.

Net income ÷ shareholders’ equity. Measures how efficiently equity capital generates profit. An 8% threshold is a common Japanese policy target.

NOPAT ÷ invested capital. ROIC above WACC creates value; below WACC destroys it.

Current assets minus current liabilities. Represents short-term capital tied up in operations. A narrower view uses AR + Inventory − AP.

Comparison to the same period in the prior year, removing seasonality.

Cost of equity = risk-free rate + β × equity risk premium. The standard model used inside WACC calculations.

Values a business by discounting projected free cash flows back to present value using WACC.

Market cap + interest-bearing debt − cash. The implied price to acquire the entire business.

The discount rate at which NPV equals zero. The annualized return on a project. Above WACC is typically a "go" signal.

Sum of discounted future cash flows minus the initial investment. NPV > 0 means the project creates value.

Allocating the M&A purchase price to identifiable acquired assets and liabilities at fair value, with the residual recorded as goodwill.

Blended after-tax cost of debt and equity weighted by their capital-structure mix. The discount rate in enterprise DCF.

The private-sector body that sets Japanese GAAP, operating under the Financial Accounting Standards Foundation (FASF).

The US private-sector body that sets US-GAAP.

The accounting rules of a jurisdiction. The Japanese set is J-GAAP, the US set is US-GAAP.

Predecessor standards issued by the IASC until 2001. Still in force today as part of IFRS under the "IAS No. X" numbering.

The London-based independent body that sets IFRS, under the IFRS Foundation.

The global accounting standards set by the IASB. Voluntary adoption has been permitted in Japan since 2010, and is widespread among large multinationals.

The accounting standards set by the ASBJ for use in Japan; the default basis for most EDINET-filing domestic companies.

Estimated selling price of inventory less costs to sell. Inventory is carried at the lower of cost and NRV.

Framework established by the Financial Stability Board recommending disclosure of climate impacts across four pillars: governance, strategy, risk management, and metrics & targets.

The accounting standards set by FASB for SEC registrants. A handful of Japanese ADR issuers (e.g. Sony, Toyota) also voluntarily apply it.

XML-based standard for tagging financial data so it is machine-readable. EDINET (Japan) and SEC filings (US) are submitted in XBRL.

The FSA-operated platform for filing and viewing securities disclosures (annual reports, semi-annual reports, large-shareholding reports, TOB documents) in XBRL. Quarterly reports were abolished by the April 2024 FIEA amendment.

Japan’s securities law. The April 2024 amendment abolished the quarterly report and extended the semi-annual report to listed companies. Mandates filings such as the annual securities report, semi-annual report, large-shareholding report, and internal-control report (J-SOX).

Japan’s top financial regulator. Oversees securities disclosure law, runs EDINET, and supervises listed-company reporting.

Mandates listed Japanese companies to assess and report on the effectiveness of internal controls over financial reporting. Modeled on the US SOX Act.

The qualitative section of the annual report where management explains drivers of results, risks, and outlook.

The board that sets Japan’s sustainability-disclosure standards, building on the ISSB framework while issuing a Japan-specific version.

A public tender offer made outside the exchange. Triggered, among others, by acquisitions of more than 5% of a listed company’s shares.

Japan’s primary stock exchange, organized into the Prime, Standard, and Growth segments.

Pre-deal investigation of a target across financial, tax, legal, commercial, and IT areas. Findings flow into SPA reps & warranties and price adjustments.

A private company listing its shares on a public exchange for the first time. In Japan, the TSE Growth market is the most common venue.

A company jointly owned by two or more partners. Japanese GAAP uses equity method; IFRS 11 classifies as Joint Venture or Joint Operation with different accounting.

An acquisition financed primarily by debt secured against the target’s assets and cash flows. Standard PE-fund playbook.

Umbrella term for combining businesses via mergers, share acquisitions, or asset deals. Accounted for under business-combinations standards (IFRS 3 / ASBJ 21).

A contract to keep shared information confidential. Standard first step in M&A or partnership discussions.

The post-closing integration of organizations, processes, and systems. The phase where deal synergies are actually realized — or lost.

The contract between buyer and seller in a share deal, covering price, reps & warranties, indemnities, and closing conditions.

The revenue or volume at which profit equals zero. Revenue-based BEP = Fixed cost ÷ (1 − variable cost ratio).

Framework relating fixed costs, variable costs, volume, and profit. Used to compute the break-even point (BEP).

Inventory valuation method that assumes the oldest stock is sold first. In rising-price environments, ending inventory is higher and COGS is lower.

Unfinished goods currently being manufactured. Carried in inventory and allocated between finished goods and ending WIP at period end.

The smallest group of assets that generates cash inflows independent of other assets. The unit at which impairment tests are performed under IFRS / J-GAAP.

A licensed auditor; in Japan, regulated under the Certified Public Accountants Act. Only CPAs may sign statutory financial-statement audits.

Self-regulatory body of Japanese CPAs. Issues practice guidance, runs quality reviews and CPE.

Items the auditor judged most significant and discloses in the audit report. Mandated in Japan from fiscal year ending March 2021.

Currency markets and exchange rates. FX moves flow through transaction gains/losses, foreign-subsidiary translation, and hedge accounting.

Annual shareholder meeting that approves financial statements, elects directors/auditors, and resolves on dividends.