![]() Amortization: Amortization is a method of spreading an intangible asset's cost over the course of its useful life. Here are 20 financial terms and definitions you should know. But first, you need to grasp the terminology. Understanding the financial implications of your decisions and clearly communicating those decisions to key stakeholders can help advance your career. Narayanan, who teaches the online course Financial Accounting: To learn more about why you should further your financial knowledge if you're in a non-finance role, watch the video below featuring Harvard Business School Professor V.G. Quite frankly, it’s what keeps your company afloat an organization can’t operate successfully if it’s not financially sound. It’s what helps you balance short-term expenses with long-term goals, and meaningfully measure your team’s performance. It’s what determines the number of employees you can hire, and dictates your annual budget. But developing your financial skills so that you have a financial fluency can help you excel professionally and make a greater impact on your company.įinance affects every business function. ![]() There are two ways for a company to raise capital: debt financing and equity financing.For non-finance professionals, the thought of talking data, forecasts, and valuations can seem daunting.The cash flow statement specifies where a company's sources of cash inflows are from.The income statement provides data on a company's revenues, expenses, losses or profits.The balance sheet gives information on what a company owns and owes to others at a specific point in time.The overall financial performance of a business can be analysed via the financial statements which include the balance sheet, the income statement, and the cash flow statement. The average rate of return (ARR) is a financial tool that helps a business compare different investment options, calculated by dividing the average annual profit by the cost of the initial investment.īreak-even is the point at which revenue equals total costs. ![]() Variable costs change as the number of goods or services a business produces changes.įixed costs remain the same regardless of how many units are sold. Total costs are all the costs spent on producing a company’s output, consisting of Revenue is the total sales of a business’s products or services, calculated by multiplying the price per unit by the number of units sold. The basic financial terms include revenue, costs, profits and loss, the average rate of return, and break-even. It is the deduction of liabilities from assets.Į q u i t y = L i a b i l i t i e s - A s s e t s For example, mortgages, bank loans, etc.Įquity represents ownership of a company. Long-term liabilities are debts that will be paid back over many years. For example, accounts payable, overdrafts, dividends, etc. Short-term (current) liabilities are debts that have to be paid back within a year. They can be divided into short-term and long-term liabilities: Liabilities are what a company owes to others. Some examples include cash, inventory, and accounts receivable. ![]() There are fixed assets and current assets:įixed assets are assets that will not be sold in the near future such as machinery, buildings, land, and equipment.Ĭurrent assets are assets used in production or covering business immediate expenses.
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