Financial terms

CashFlow — is a financial statement that provides aggregate data regarding all cash inflows a company receives from its ongoing operations and external investment sources. It also includes all cash outflows that pay for business activities and investments during a given period.

P&L — profit and loss statement refers to a financial statement that summarizes the revenues, costs, and expenses incurred during a specified period, usually a quarter or fiscal year. These records provide information about a company’s ability or inability to generate profit by increasing revenue, reducing costs, or both.

ROI — return of investment is a financial metric for measuring the probability of gaining a return from an investment. It is a ratio that compares the gain or loss from an investment relative to its cost.

EBITDA — Earnings before Interest, Taxes, Depreciation and Amortization is a measure of a company’s overall financial performance. There are two formulas used to calculate EBITDA, one that uses operating income and the other net income.

1) EBITDA = Net Income + Taxes + Interest Expense + Depreciation & Amortization
2) EBITDA = Operating Income + Depreciation & Amortization

Financial accounting — a specific branch of accounting involving a process of recording, summarizing, and reporting the myriad of transactions resulting from business operations. These transactions are summarized in the preparation of financial statements.

Shares – units of equity ownership in a corporation. Exist as a financial asset providing for an equal distribution of any residual profits, if any are declared, in the form of dividends.

Joint-stock company – is a business owned by its investors, with each investor owning a share based on the amount of stock purchased.

Assets — all the assets of a company that are expected to be sold or used as a result of standard business operations over the next year.

Depreciation – represents how much of an asset’s value has been used. Helps company earn revenue from an asset while expensing a portion of its cost each year the asset is in use.

Balance sheet – lists a company’s assets, liabilities, and shareholders’ equity at a point in time, typically at the end of a period, such as the end of a quarter or year.

Gross profit – assesses a company’s efficiency at using its labor and supplies in producing goods or services.

Promissory note – a debt instrument that contains a written promise by one party to pay another party a sum of money at a specified future date.

Accounts receivable (AR) – the balance of money due to a firm for goods or services delivered or used but not yet paid for by customers.

Double entry – concept underlying present-day bookkeeping and accounting, states that every financial transaction has equal and opposite effects in at least two different accounts.Dividend – the distribution of some of a company’s earnings to a class of its shareholders

Income – money that a business receives in return for working, providing a product or service, or investing capital.

Inventory – raw materials used in production as well as the goods produced that are available for sale.

Capital – anything that confers value or benefit to its owner, such as a factory and its machinery, intellectual property like patents, or the financial assets of a business or an individual.

Cash basis – accounting method that recognizes revenues and expenses at the time cash is received or paid out. When transactions are recorded on a cash basis, they affect a company’s books upon exchange of consideration; therefore, cash basis accounting is less accurate than accrual accounting in the short term.

Cash gap — a situation when a company temporarily does not have enough money to pay its invoices. As a rule, this money is lying in accounts receivable and is about to arrive.

Counterparty – the other party that participates in a financial transaction.

Accounts payable (AP) – refers to an account within the general ledger that represents a company’s obligation to pay off a short-term debt to its creditors or suppliers.

Liquidity – refers to the efficiency or ease with which an asset or security can be converted into ready cash without affecting its market price. The most liquid asset of all is cash itself.

Margin – the difference between a product or service’s selling price and the cost of production, or the ratio of profit to revenue.

Accrued expense – an expense that is recognized on the books before it has been paid.

Intangible asset – an asset that is not physical in nature. Goodwill, brand recognition and intellectual property, such as patents, trademarks, and copyrights, are all intangible assets.

Bond – a loan to a company or government. It pays investors a fixed rate of return.

Liability – something a company owes, usually a sum of money. Recorded on the right side of the balance sheet, liabilities include loans, accounts payable, mortgages, deferred revenues, bonds, warranties, and accrued expenses.

Profit – describes the financial benefit realized when revenue generated from a business activity exceeds the expenses, costs, and taxes involved in sustaining the activity in question.

Profitability ratios – assess a company’s ability to earn profits from its sales or operations, balance sheet assets, or shareholders’ equity. Indicate how efficiently a company generates profit and value for shareholders.

Production costs – all of the direct and indirect costs businesses face from manufacturing a product or providing a service. Production costs can include a variety of expenses, such as labor, raw materials, consumable manufacturing supplies, and general overhead.