Basic Financial Concepts
House, car, savings, things that have value
What is an asset?
Paying bills, buying groceries, holds money for daily use and transactions.
What is a checking account?
Allows companies to raise money by selling shares to investors
What is the stock market?
A financial plan that estimates income and expenses
What is a Budget?
List assets, liabilities, and equity at a specific point in time
What is a balance sheet?
Focuses on companies that are rapidly expanding. high risk, high potential returns
What is growth Investing?
Mortgage, credit card debt, owe to other people
What is an liability?
Saving for a vacation, earns interest while holding money
What is a savings account?
Enables governments and companies to borrow money by issuing bonds to complete projects
What is the bond market?
Money received from employment, investments, or other sources
What is income?
Reports revenues/Income and expenses over a period to determine profit or loss
What is an Income or Profit and Loss statement?
Involves buying stock that are undervalued by the market. Moderate risk, steady returns
What is value investing?
If you own a house worth $300,000 and you have a mortgage of $200,000, you have 100,000 equity
What is your net worth?
Making online purchases and borrowing money with interest rates
What is a credit card?
Provide services like saving, lending, and money management. example you open a savings account to earn interest
What is a bank?
Money spent on goods and services, such as rent, groceries, transportation
What is an expense?
Shows how much cash moves in and out of a business through operations, investing, and financing activities
What is a cash flow statement?
Aims to generate regular income through dividends or interest. low risk. lower returns.
What is income investing?
Setting aside $500.00 for groceries each month
What is a budget?
Borrow large sums of money with fixed payments for a car or home
What is a loan?
Cooperative financial institutions owned by it members
What is a credit union?
Money set aside for future use, such as emergency fund, college fund, a car
What is savings?
Measures the companies ability to meet short-term obligations (pay your bills) like the current ratio (current assets / current liabilites)
What is a Liquidity Ratio?
Tracks a market index such as the S&P 500. Low to moderate risk, consistent returns.
What is Index investing
Earning $5 interest on a $1000 savings account
What is interest?
Protects against financial loss for a home or car
What is Insurance?
Manage money on behalf of individuals and instructions, such as retirement funds.
What is an Investment Firm?
An expense that remains the same every month such as Rent, and Utilities
What is a fixed expense?
Evaluate the company's ability to meet long-term debts, such a debt to equity ratio: (total debt/Equity)
What is a solvency Ratio?
Spreading investments across various assets to reduce risk.
What is diversification?
If you own a car worth $35,000 and have a credit card balance of $5,000, your net worth is
What is $30,000 net worth
I have a car accident and it cost $5,000 to get my car fixed. The insurance will only pay $4,000
What is my insurance deductible?
Allows you to make a higher return on your money than a traditional financial institution
What is the stock market?
Set financial goals and strategies about money
What is Financial Planning?
Assess the company's ability to generate profit, such as the net profit margin, (net profit/revenue).
What is profitability ratio?
an investors seeks to generate regular income with minimal risk
What is Income Investing?