Business Definitions 1
What is the definition of Net Worth?
This business finance term and definition is an expression of your business’s total value, as determined by your total current assets less the total liabilities currently owed by the business
Balance sheet
This key financial document provides a snapshot of business assets, liabilities and owner’s equity.
Return on investment
Your Return on Investment, or ROI, shows how much you gained or lost on a business investment relative to how much you spent on it. Calculate ROI by dividing net profit by the cost of the investment.
Annual equivalent rate (AER)
A quote of what interest paid on savings and investments would be. It is calculated by adding each interest payment to the original deposit, then working out the next interest payment, compounding the interest.
Creditor
A person or firm that has lent your business money or to whom you owe money.
Accounting
This concept should be in every entrepreneur’s arsenal of basic business terms. Accounting involves the systematic recording and reporting of business financial transactions. Accounting is often complicated. You may want to hire a professional to handle this.
Net profit
Also known as your “bottom line.” Net profit represents total revenues less total expenses. This figure is especially important at tax time. This is because you pay self-employment taxes as a percentage of net profit.
Accounts receivable
Money owed to your company by customers.
Annual percentage rate (APR)
This is the rate of interest you agree to pay on money borrowed. The higher the amount, the more you will pay.
Debtor
A person or firm that owes money to you or your business.
Assets
“Assets” refers to your business’ cumulative financial holdings. These are usually classified as current or fixed. Current, or short-term, assets include cash or inventory. Fixed, or long-term assets, include equipment or land.
Net loss
If your total expenses exceed your overall revenues, you have a net loss. The risk of a net loss is one of many strong reasons to keep company costs under control.
Acquisition
The purchase of one company or resources by another.
Arbitrage
The process by which a person or business takes advantage of the difference in price of a share or a currency.
Diversification
When new products, services, customers or markets are added to your company’s portfolio. Diversification usually occurs as a risk reduction strategy.
Revenue
Revenue refers to the income you get from a business activity in a given time. You can calculate earnings by multiplying the per-unit cost of goods or services by the number of units sold.
Profit margin
This essential business term measures how much profit you keep relative to total sales. There are three types of profit margins: gross, operating and net. Calculate these by dividing the profit (revenue minus costs) by the revenue.
Actuary
An actuary is a person employed by pension providers and insurance companies. Their role is to calculate accident rates, life expectancy and the relevant payouts.
Capital
Money invested into a company or project by its owners.
Economic growth
This is the term used to describe an increase in the amount of goods and services produced by the county, known as gross domestic product (GDP).
Owner’s equity
Usually represented as a percentage, Owner’s Equity refers to the owner’s part of business assets.
Cash flow
Cash flow is the movement of money in and out of your business. You want there to be a higher flow of income into the business than there is an outflow of expenses from the business. This is called positive cash flow.
Affiliate marketing
A retailer or service provider advertising its goods or services via a third party in return for a commission on any sales.
Commodity
This is any item which can be freely bought and sold. Examples include gold, food products and coffee beans.
Economies of scale
The cost advantages obtained by a business when buying an item in bulk. The price of an item usually decreases as the amount bought increases.