Glossary of terms useful for the director

The following glossary is intended to provide the director of a State-Owned Enterprise with clear and concise definitions of terms that are used frequently at board meetings, between directors, with management and in correspondence. The definitions are linked so that the user can follow all references easily to obtain a broader understanding of the term. References are provided to specific laws and statutes. There are also links to internet-based resources so that the user can obtain additional information about the term and any institutional applications.

Where appropriate, “guidance notes” are included to assist directors to understand areas which might carry special risks and where additional investigation might be warranted.


Glossary Index


Accounting Authority



Affirmative Action Measures

American Depositary Receipt



Asset Cover




Auditors Opinion



Bad Debt

Balance Sheet

Balanced Score Card

Basis Point


Best Practice

Black Economic Empowerment

Board of Directors


Book Value



Capital Employed

Capital Gain

Cash Flow



Chinese Wall

Commercial Paper

Conflict of Interest


Corporate Treasury

Cost of Capital

Critical Success Factor

Current Ratio



Debt/Equity Ratio



Directors Report

Dividend Cover

Due Diligence





Economic Value Added

Employment Equity Act

Employment Equity Plan


Executive Authority

Extraordinary Item



Financial Statements

Financial Year

Forward Cover




Gender Equity





Historical Cost

Human Capital

Hurdle Rate




Income Statement

Independent Director



Interest Coverage Ratio

Intangible Asset

Internal Audit

Internal Controls




King Code






Long-Term Debt Ratio



Management Letter




Non-executive Director



Off Balance Sheet






Prime Rate

Profit Margin

Protocol on Corporate Governance



Racial Equity



Return on Assets

Return on Equity

Ring Fence

Risk-Free Rate of Return

Risk Management

Risk Premium




Shareholder Compact

Sinking Fund



Special Purpose Vehicle





Total Asset Turnover

Trading Ratio






Accounting Authority
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A body or person mentioned in section 49 of the PFMA which states that every public entity must have an ‘accounting authority.” For most state-owned enterprises, the authority will be the board of directors. (Section 49 [2]) (See “ Board of Directors”)

Treasury Definition: Activities that result in quantifiable and measurable outcomes: the ‘building blocks' of strategy.

A statistician who specialises in calculating insurance risks and premiums. Actuaries are usually retained by insurers and pension fund managers to assess the adequacy of investments and returns on those investments to meet future financial obligations.

Affirmative Action Measures
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Measures designed to ensure that suitably qualified people from designated groups have equal employment opportunities and are equitably represented in all occupational categories and levels in the workforce of a designated employer. ( Employment Equity Act, Section 15 [1])

American Depositary Receipt
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Commonly referred to as the “ADR”, it is a certificate issued in the US in lieu of a foreign security. Many foreign entities are listed this way because of US legal restrictions; Telkom is an example. The Bank of New York ( ) is one of the leading institutions operating in this market.

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The gradual reducing of a future financial obligation with a series of payments over a pre-determined period. Amortization also refers to the depreciation of intangible assets over their anticipated useful lives.

An investment yielding a fixed return for a specific period of time. Originally a simple concept, there are now many forms of annuity, e.g., variable annuity, deferred annuity and perpetual annuity. An annuity is commonly sold as an insurance product.

The number of times a company's assets covers its liabilities. Expressed as a ratio.

A type of insurance taken out against an event that is certain to occur, but where the timing of the event is uncertain.

A periodic review performed by independent auditors of the financial statements of a company or other body to determine whether the financial statements present fairly the financial position of the company, the results of operations and the change in financial position. The auditors must render an opinion in writing to the Board of Directors.

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PFMA Definition : A person registered in terms of section 15 of the Public Accountant and Auditors' Act, 1991 (Act No. 80 of 1991), as an accountant or auditor, and engaged in practice as such. The Auditor-General is also an auditor for the purpose of auditing SOEs. (PFMA Section 58) The regulatory body for auditors is the South African Institute of Chartered Accountants ( SAICA )

Auditors Opinion
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A letter from the auditor to the chairman of the board of directors, and which accompanies the annual audit report. The opinion will state whether the accounts fairly represent the financial condition of the company (a “clean” opinion), or whether such problems were incurred during the audit process that the auditor was compelled to issue a “qualified” opinion. A qualified opinion is of serious concern, as it can have an adverse effect on the company's existing covenants and future ability to borrow and enter into certain contracts.

A loan or account that has not been paid within a reasonable amount of time. Each company must decide at what point a debt must be written off and this must be clearly stated in the accounting policies and followed by management. Even after being written off, the debt may still be recovered.

Balance Sheet
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That part of a company's financial statements which presents assets, liabilities and owners equity. It is a snapshot at a point in time of a company's solvency and value. (See “ book value ” and “ Off Balance Sheet ”)

Balanced Scorecard
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An analytical methodology based on the premise that several analytical measures should be evaluated concurrently to provide a broader assessment of business performance.

Basis Point
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One one-hundredth of a percentage point. For example, if an interest rate moves from 8.0% to 8.25%, it is said to have increased by 25 basis points.

A standard against which certain performance is measured. A company may be “benchmarked” against the industry average of a certain measure. Benchmarks are used to measure relative performance against a company's peers. However, such comparisons must be evaluated against other criteria to ensure that they are assessed correctly. (See also “ best practice ”)

An assessment of methodology to accomplish certain measurable objectives, which is deemed to produce the best results from a given set of inputs.

Commonly referred to as “BEE,” this is an evolving framework for ensuring that previously disadvantaged persons , groups and businesses are integrated into the business and economic process. For the SOE company, this will involve affirmative action in employment practices, ensuring that procurement practices involve black-owned or empowered companies, and adhering to provisions of any related charter(s).

The Board of Directors is the principal governing body of a state-owned enterprise or company. Boards constitute a fundamental base of corporate governance, and comprise both executive and non-executive directors. (Refer to the Protocol on Corporate Governance and to the Institute of Directors ( ) for in-depth discussion on boards and their relationship to corporate governance)

An interest-bearing instrument issued by governments and companies. Bonds carry a specified rate of interest (which can be variable) and are sold to investors. These investors may sell the bonds in a secondary market. In South Africa , there is a formal bond exchange where bonds are traded.

The cost of an asset less accumulated depreciation. It is the value of an asset carried in the “books” (financial statements) of the company. See also “ depreciation ”. Net book value is also a method of describing a company's valuation (total assets minus total liabilities).

Capital Employed
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The capital in use in a business. Typically includes net assets plus bank loans and overdrafts.

Capital Gain
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The profit from the sale of an asset. The capital gain is said to be “unrealised” if the gain is based on a valuation and an actual sale of the asset has not taken place.

The amount of money flowing through a company in a given period. See EBITDA.

In the context of black economic empowerment, refers to a document setting out goals for empowering previously disadvantaged individuals (PDI), using a scorecard approach including such items as equity ownership, management participation, and procurement.





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