General Financial Terms
What are Variable Costs?
This is sometimes used as a synonym for Cost of Goods to describe the costs required to produce a good or to deliver a service.
What is Net Profit or Net Income?
The total amount of profit or loss your business sees over a specified accounting period.
What is Debt?
Money borrowed by a company to be paid back at a future date with interest.
What are Fixed Assets?
Fixed assets are long-term assets that a company has purchased and is using for the production of its goods and services. Fixed assets are noncurrent assets, meaning the assets have a useful life of more than one year. Fixed assets include property, plant, and equipment (PP&E) and are recorded on the balance sheet.
What is Gross Profit?
The profit a company makes after deducting the costs associated with making and selling its products or the costs associated with providing its services.
What are KPIs?
Key Performance Indicators - Targets that help you measure progress toward your goals.
What are Fixed Expenses?
Expenses that do not fluctuate as a result of revenue. These are expenses you incur even if you have no revenue, such as rent, equipment leases and insurance.
What is a Balance Sheet?
A balance sheet is a summary of all of your business assets (what the business owns) and liabilities (what the business owes). At any particular moment, it shows you how much money you would have left over if you sold all your assets and paid off all your debts (i.e. it also shows 'owner's equity')
What are Current Assets?
Current assets are a balance sheet item that represents the value of all assets that could reasonably be expected to be converted into cash within one year. Examples are: cash, cash equivalents, accounts receivable, stock inventory, marketable securities, pre-paid liabilities, and other liquid assets.
What is Accrual Based Accounting?
Accrual accounting is an accounting method where revenue or expenses are recorded when a transaction occurs rather than when payment is received or made.
What is Cash Basis Accounting?
Cash basis refers to the accounting method that recognizes revenues and expenses at the time cash is received or paid out.
What are COGs or COSs?
Cost of goods sold (COGS) refers to the direct costs of producing the goods or services sold by a company. This amount includes the cost of the materials and labor directly used to create the goods or deliver the service.
What are Accounts Receivable?
Money owed to a company by its customers in the short-term (vs. a long-term financing arrangement).
What are Current Liabilities?
The current liabilities section of a balance sheet shows the debts a company owes that must be paid within one year. These include accounts payable, short-term debt (credit cards), and accrued expenses.
What is a Statement of Cash Flows?
A cash flow statement tells you how much cash is entering and leaving your business in a given period.
What is Break Even Point?
The point at which total revenue equals total costs and expenses. There is no profit or loss. The net is $0.
What is Accumulated Depreciation OR a Depreciation Expense?
Depreciation expense is the amount that a company's assets are depreciated for a single period (e.g, quarter or the year). Accumulated depreciation, on the other hand, is the total amount that a company has depreciated its assets to date.
What are Accounts Payable?
Money due to vendors or suppliers for goods or services received that have not yet been paid for.
What are Long-Term Liabilities?
Long-term liabilities are financial obligations of a company that are due more than one year in the future.
What is Amortization?
Amortization refers to capitalizing the value of an intangible asset over time. It's similar to depreciation, but that term is meant more for tangible assets. Amortization occurs when the value of an asset, usually an intangible asset, like research and development (R&D) or a trademark, is reduced over a specific time period, which is usually the asset's estimated useful life.
What is Gross Profit Margin?
Gross profit margin shows what % of revenue a company makes after paying expenses affiliated with producing its goods or services. The higher the margin, the more effective the company's management is in generating revenue for each dollar of cost.
What is Operating Income?
It is the company's profit after you subtract cost of goods sold (COGS) and fixed expenses but BEFORE you subtract taxes , minus fixed or operating expenses. It does not include taxes or interest expenses.
What is Equity?
The difference between Liabilities and Assets on a company's Balance Sheet.
What is ROI?
Return on investment (ROI) is a metric used to understand the profitability of an investment or an expense within your business, such as a marketing campaign or equipment purchase. ROI compares how much you paid to how much you earned from that purchase.
What is EBITDA?
Your profit before interest, taxes, depreciation and amortization (EBITDA) are factored in.
EBITDA = Net Profit + Interested + Taxes + Depreciation + Amortization