Companies that provide the goods you know and love have certain qualities that investors should familiarize themselves with before considering an investment. Consumer brands companies have their own lingo, just as other companies in other industries do. Below, we've laid out 14 of the most important terms and definitions to know.

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By Bob Fredeen (TMF Bobdog)

Accounts Payable
Accounts payable represents the financing a company receives from its suppliers. We like to see this account increasing faster than sales, since it represents materials received but not paid for. The longer the cash stays in the company's coffers, the better. Generally speaking, stronger companies are able to get better terms from their suppliers, and they are able to delay paying for supplies longer.

Accounts Receivable
Accounts receivable represents the financing a company extends to its customers. Most consumer brands ship products to retailers, and then collect payment later. The strength of the consumer brand usually plays a role in how long the company allows retailers to delay paying. We like to see accounts receivable growth slower than sales, meaning that the company is getting paid more quickly by its retailers and distributors.

Distribution Channel
For most consumer brand companies, distribution is key. There are two major reasons for this. First, strong distribution channels are critical to get the products out to as many stores as possible. People have to be able to find the goods to buy them. Second, getting the products in as many stores as possible is a subtle form of branding. If consumers see the items every time they go to the grocery store or the corner market, they may be more inclined to purchase them once the connection between the product and marketing is made.

Footprint
This is a somewhat nebulous term that describes to what extent a company has covered a given market. Stores with large footprints usually have a market well-covered. For instance, Proctor & Gamble (NYSE: PG) has a large U.S. footprint, meaning that its products are accessible to most consumers in the U.S. Generally speaking, companies with large footprints have less room to grow sales by opening new stores, while companies with small footprints can often grow sales quickly by expanding their store base.

Gross Margins (components of)
Gross margins equal net revenues minus costs of sales. So, what are the costs of sales (COS)? Essentially, the COS equal all the expenses a company incurs to make its products. For most consumer brand companies, this means costs like raw materials, shipping for those materials, labor costs, overhead for factories, manufacturing equipment costs, and depreciation on manufacturing equipment. With so many factors affecting this item, it's difficult to say that any one component is critical. Investors should have some idea of what costs affect gross margins so they can estimate how various economic events will help or hurt different companies.

Inflation
In the U.S., inflation is usually measured by the Consumer Price Index (CPI), which measures how prices for a basket of common consumer goods change over a given time. Inflation levels affect a retailer's ability to set its prices, as low inflation levels will make any price increases seem larger relative to other goods and could cause people to shop elsewhere. High inflation levels often lead to higher interest rates, which can be considered bad for consumer brands.

Interest Rates
Higher interest rates have two major impacts on consumer brands. First, higher interest rates mean that floating interest rate debt and future debt will be more expensive for the company. Many consumer brand companies fund their expansion by issuing debt; so higher interest rates could slow expansion and investments. Second, analysts assume that higher interest rates mean that consumers have less money available to spend on goods, so consumer product sales could drop.

Inventory
Inventory is the value of the raw materials, "in-process" products, and finished products a company has on hand. Generally speaking, we like to see companies with lower inventory levels, to help fend off inventory risk. Most products sold by consumer brand companies spoil, either literally or by going out of style, so the longer a product sits in a warehouse, the less likely the company is to get full price for it. Inventory management is important in terms of cash flow as well, since companies have to pay for the inventory before it can be used.

Marketing
Marketing is critical to the success of a consumer brand. This is the primary method a company uses to communicate its brand to a wide audience. For most established companies, marketing and advertising expenses are fairly steady as a percentage of revenue. We expect this measure to remain steady, showing that the company is supporting its brands. Smaller companies may have to spend relatively more as they build brand awareness.

Markdowns
Markdowns are merely "analyst speak" for sales. For consumers, huge sales are great because they can buy things they need at lower prices. However, for companies, huge, unplanned sales are bad for revenue growth and profit margins. A certain amount of markdowns are expected in the life of a product, and companies manage accordingly. The problems arise when inventory doesn't sell as quickly as planned, meaning that prices need to be cut sharply to move merchandise.

Mindshare
When people talk about a brand's mindshare, they are talking about how well-known and accepted the brand is. High mindshare is a product of steady and/or intense brand building. For example, most of the world knows about Coca-Cola (NYSE:KO) largely because the company has been steadily building its brand for decades. In the same vein, much of the U.S. knows about America Online (NYSE: AOL) courtesy of its computer diskette mailing campaigns in the 1990s. Both of these companies enjoy a very high mindshare as a result of their brand-building efforts.

Sales General & Administrative Costs (components of)
As the name implies, this line item includes much of the corporate and "overhead" costs. Pretty much whatever expenses are left after manufacturing appear on this line. Major components are marketing costs, overhead, corporate salaries, and research and development. Marketing and R&D costs are often important indicators of how the company will fare in the future, so these lines should be watched carefully. Beyond this, strong management should be able to rein in other overhead and corporate costs to prevent them from becoming a drag on profits.

Same-Store Sales/Comps
This term only applies to consumer brands that own their own stores. Same-store sales (also known as comps or comparable-store sales) reflect sales growth at store locations that have been open for at least a full year. For instance, if you are looking at comps for August 2000, that figure represents sales growth for stores that were open for all of August 1999. When looking at quarterly figures, stores need to have been open for the entire quarter the year before. Newer store locations can have artificially high "grand opening" sales volumes, or can take time to grow normal sales volume as community awareness builds. That's why they're excluded from same-store sales -- they can skew sales figures and mask trends.

Seasonality
Most consumer brands are cyclical. This means that certain times of the year are bigger selling times than others. For instance, footwear companies see revenues surge in the spring and summer of each year as they ship footwear ahead of the "Back to School" season, which is roughly July through September. For different companies, different quarters will be stronger than others.