DSST Business Mathematics key terms

The amount added to a product's cost to arrive at its selling price, often expressed as a percent of cost. It covers operating expenses and the desired profit on each unit sold.

Profit expressed as a percent of selling price rather than cost. Because the base differs, a 25% markup on cost equals only a 20% margin on the resulting selling price.

A reduction off list price granted to a buyer in the distribution channel, quoted as a single percent or a chain such as 20/10. Chained discounts are applied in sequence, never added together.

The amount actually paid after all trade discounts are subtracted from list price. With a chain discount, each rate applies to the balance remaining after the prior discount.

A reduction offered for prompt payment, written in credit terms like 2/10, n/30. The buyer saves 2% by paying within 10 days; otherwise the full net amount is due in 30 days.

A reduction from the original selling price, used to clear slow inventory or meet competition. Markdown percent is computed on the original selling price, not on the reduced price.

The amount a customer is charged for a good or service. It equals cost plus markup, or equivalently cost divided by one minus the margin rate when margin is known.

The direct cost of merchandise a business sold during a period, equal to beginning inventory plus purchases minus ending inventory. It is subtracted from net sales to find gross profit.

Interest computed only on the original principal for the full term, using I = P x R x T. No interest is ever earned on previously accrued interest.

The original sum of money borrowed, invested, or owed, on which interest is calculated. It excludes any interest already accumulated or any fees added to the balance.

The total amount due or payable at the end of a loan or investment term, equal to principal plus accumulated interest. For simple interest it is P(1 + RT).

Ordinary interest uses a 360-day year; exact interest uses 365. Bankers commonly use ordinary interest with exact days, which slightly increases the interest charged compared with exact interest.

Interest calculated on principal plus previously earned interest, so the balance grows geometrically. The formula is A = P(1 + i)^n, where i is the rate per period and n the number of periods.

The interval at which interest is added to the balance, such as annually, quarterly, or monthly. The nominal annual rate is divided by the number of periods per year to get the periodic rate.

The stated annual interest rate before adjusting for how often interest compounds. It understates true growth whenever compounding occurs more than once a year.

The true yearly growth rate after compounding is accounted for, found as (1 + i)^m - 1 where m is periods per year. It lets you compare loans or investments with different compounding schedules.

A series of equal payments made at equal intervals, such as monthly loan payments or retirement withdrawals. The payment amount, interval, and interest rate must all be constant.

The lump sum today that equals a stream of future equal payments discounted at a given rate. Used to value lease obligations, lottery payouts, and retirement income streams.

The accumulated total of a series of equal deposits plus all interest earned on them by a future date. It answers how much a regular savings plan will grow to.

A planned series of equal periodic deposits, plus compound interest, set aside to accumulate a specific sum by a target date. Businesses use it to retire debt or replace assets.

The process of paying off a debt through regular equal payments that cover accrued interest first, with the remainder reducing principal. Early payments are mostly interest; later ones mostly principal.

Total earnings before any deductions, including wages, salary, overtime, commissions, and bonuses for the pay period. It is the starting figure on every pay statement.

Take-home pay: gross pay minus all required and voluntary deductions such as taxes, Social Security, insurance, and retirement contributions. Also called net earnings.

Federal Insurance Contributions Act payroll taxes funding Social Security and Medicare, split between employee and employer. Each has a wage base or rate structure that must be applied correctly.

Income tax an employer deducts from each paycheck and remits to the government on the employee's behalf. The amount depends on earnings, filing status, and withholding allowances claimed.

The extra half-time pay owed for hours beyond the standard workweek when the rate is time and a half. Gross pay equals regular rate times all hours plus half the rate times overtime hours.

An equal depreciation expense each year, computed as (cost minus salvage value) divided by useful life. It assumes the asset loses value at a constant rate over its life.

A method applying a fixed percentage to the asset's remaining book value each year, producing larger early expenses. Double-declining balance uses twice the straight-line rate and ignores salvage until the end.

An asset's original cost minus accumulated depreciation recorded to date. It is an accounting figure, not necessarily what the asset would fetch in a sale.

The estimated amount an asset will be worth at the end of its useful life, also called residual value. It is subtracted from cost before allocating depreciation under straight-line.

Total assets minus total liabilities at a point in time, showing the owner's equity in a business or household. Also called owner's equity or capital.

A financial statement listing assets, liabilities, and owner's equity as of a specific date. It must satisfy the accounting equation: assets equal liabilities plus equity.

Current assets divided by current liabilities, measuring a firm's ability to pay short-term obligations. A result near 2 is often considered comfortable, though norms vary by industry.

Cost of goods sold divided by average inventory, showing how many times stock is sold and replaced in a period. A low ratio suggests slow-moving or excess inventory.

Net sales divided by average total assets, indicating how efficiently a company uses its asset base to generate revenue. Higher values suggest more productive use of resources.

The nominal value printed on a share certificate or bond, used to record capital stock on the books. It bears little relation to the market price of common shares.

The residual ownership class whose holders vote on directors and receive dividends only after preferred claims. Common shareholders bear the greatest risk and the greatest upside.

A share class that usually pays a fixed dividend before common dividends and has priority in liquidation, but typically carries no voting rights. It behaves partly like a bond.

A distribution of corporate earnings to shareholders, declared by the board and usually paid in cash per share. Preferred dividends are fixed; common dividends vary with profits.

Net income divided by the number of outstanding common shares, showing profit attributable to each share. It is a key input to the price-to-earnings ratio.

Market price per share divided by earnings per share, indicating how many dollars investors pay for each dollar of annual profit. High ratios imply expected growth or higher risk.

Annual dividend per share divided by market price per share, expressed as a percent. It tells an investor the cash return on the current share price.

A comparison of two quantities by division, written as a fraction, with a colon, or as the word 'to'. Both terms must be in the same units to be meaningful.

A statement that two ratios are equal, solved by cross-multiplication. Business problems use it to scale prices, quantities, or costs when one pair of values is known.

The sum of a set of values divided by how many values there are. It is sensitive to extreme values, unlike the median.

A mean in which each value is multiplied by a weight reflecting its relative importance, then divided by the total weight. Used for grade point averages and average unit cost.

A ratio whose second term is 100, meaning 'per hundred'. To convert a decimal to a percent, move the decimal point two places right; reverse the step to go back.

The difference between a new and old value divided by the old value, expressed as a percent. The original value is always the denominator.

Replacing a number with a nearby value having fewer significant digits, based on the next digit. Money is usually rounded to the nearest cent, with half-up applied to the third decimal.

A chart plotting data points connected by lines, used to show trends over time. The vertical axis scale should start at zero or be clearly labeled to avoid distortion.

A circle divided into sectors whose angles are proportional to each category's share of the whole. All sectors must total 100%, making it ideal for showing distribution of ownership.

A graph using rectangular bars whose lengths represent category values, useful for comparing discrete items side by side. Bars may run vertically or horizontally.