Business

15 Terms Everyone in the Financial Industry Should Know

When you’re ready to start your career in the financial industry, it’s important to be fully aware of terms and concepts that are commonly used.

In this article, we’ll discuss 15 terms that you should know, starting with an introduction to what they are and how they can help you succeed in your career.

Accounts payable

When it comes to business finances, there are a number of terms that can be confusing. One such term is accounts payable. To understand what this term means, it’s important to first understand the basics of business accounting.

A business’s accounts are a record of all the money that has been earned and spent by the company. This information is crucial for making decisions about how to run the business and plan for future growth. Each account on an accounting ledger contains information about a specific category of spending or income.

Accounts receivable

When it comes to running a successful business, having an accurate and up-to-date accounting system is essential. Accounts receivable is one of the most important financial indicators of a business’s health.

For businesses with healthy accounts receivable balances, this means that they have the money they need to fund their operations and pay their bills. However, if accounts receivable becomes too high, it can indicate that there are issues with your cash flow or your creditworthiness.

Appraisal

Appraisal is the process of assessing the worth of a thing, often involving an examination of its intrinsic value and its potential uses. When working in business, it can be important to know the terms used in appraising assets.

It is a professional evaluation of the value of a property. This can help you determine how much money you should expect to get for it. It can also help you understand what needs to be fixed or updated in order to bring the property up to scratch.

Assets

Asset is a term that can be used in business to describe anything of value that a company has. Assets can be physical items, such as property or equipment, or intangible items, such as intellectual property. Businesses use assets to generate revenue and profits.

Some common types of assets include cash and investments in stocks, bonds, and real estate. An important part of finance is understanding the different types of assets a company has and how they’re used to generate revenue and profits.

Balance Sheet

A company’s balance sheet is a financial statement that shows the assets, liabilities, and net worth of a business. Assets are things that a business owns, such as money in the bank or equipment on the property.

Liabilities are debts that companies owe to others, like loans they’ve taken out or dues they owe to suppliers. Net worth is the total value of all assets minus all liabilities. A company with a positive net worth is doing better than one with a negative net worth; it has more money invested in its assets than it owes in debts.

Bankruptcy

Bankruptcy is a term that pertains to the process of seeking to protect assets and money from lenders based on the financial situation of the company. There are a number of types of bankruptcy claims that can be made, but this is no guarantee that a business will succeed with not paying lenders.

It serves a level of protection for both parties based on the contracts made and the particulars of the case. This term is usually a last resort for any failing business.

Bookkeeping

If you’re running your own business, keeping track of your finances can be a challenge. That’s where bookkeeping comes in handy. Bookkeeping is the process of tracking and accounting for financial transactions, so you can understand what’s going on and make sure you’re meeting your financial goals.

There are a few different types of bookkeeping, but the most common is cash basis accounting. This method records all income and expenses as they occur, rather than when the money is deposited into or withdrawn from an account.

Capital

Capital is the key to any business. It is what allows a business to expand and create jobs. Capital also allows a business to make investments that can increase productivity and growth.

When it comes to financing a business, capital is important both for short-term needs, such as acquiring new equipment or launching a new product line, and for long-term investment, such as developing new products or expanding into new markets.

Loan officers and bankers use different terms to describe capital: working capital, primary capital, total capital, and net worth.

Depreciation

Depreciation is a business finance term that refers to the reduction in the value of an asset over time. Depreciation is used to calculate the net present value (NPV) of an investment, and is also used as a tool for financial planning. Depreciation can be calculated as the decrease in the value of an asset over a specific period of time.

There are two main types of depreciation: straight-line depreciation and declining balance depreciation. Straight-line depreciation is simple and easy to calculate, and it assumes that the asset will retain its original value over the life of the loan. Declining balance depreciation, on the other hand, takes into account the fact that an asset may not retain its original value over time, and it’s more complex to calculate.

Gross Profit

In business, a gross profit is the total revenue minus the cost of goods sold. It’s an important figure in calculating a company’s profits and can be used to compare different businesses or products. Gross profit is also a key factor in determining whether or not a company is able to stay afloat financially.

One way to calculate gross profit is to subtract the cost of goods sold from the sales revenue. This includes both pure costs, like materials and labor, as well as variable costs, like shipping and handling. Fixed costs, such as rent or advertising expenses, are not included in this calculation.

Income Statement

Income statements are a fundamental part of business finance. They provide a snapshot of a company’s financial position at any given time. The most common type of income statement is the net income statement, which shows how much money the company made in total (after subtracting all expenses). Other types of income statements include the cash flow statement and the balance sheet.

Net income is one of the most important indicators of a company’s health. A company with high net income typically has strong profits and healthy cash flow, which allows it to invest in new products or services and grow its business. Conversely, a company with low net income may be struggling financially and may have difficulty paying its bills.

Liability

When starting or running a business, it’s important to understand the various legal liabilities that can befall you. These can include lawsuits, government investigations, and even financial ruin. Here are some key business finance terms that are essential to understanding liability:

Liability refers to the legal responsibility of a party for damages caused by their actions. This can be either contractual (when one party agrees to be legally bound by a certain set of obligations), statutory ( imposed by law), or common law ( based on custom or precedent ).

Liquidity

Liquidity is a key factor in the success of any business. Without enough liquidity, a business can’t afford to pay its bills on time, and may even go out of business.

There are a number of ways to increase liquidity in a business. One way is to raise capital through debt or equity financing. This allows the company to borrow money and use it to pay its bills and cover other expenses.

Statement of Cash Flow

A statement of cash flow is an important financial document that analysts and investors use to understand a company’s liquidity and solvency. The statement shows how much cash a company has available and also how much it has spent in the past period. This information is helpful for deciding whether or not to invest in a company.

The statement of cash flow can be divided into three sections: operating activities, investing activities, and financing activities. The operating activities section shows how much money a company has made from its normal business operations.

Working Capital

Working capital is one of the most important aspects of a business. It refers to the funds that a company has available to cover its short-term liabilities and expenses. Working capital can be divided into two categories: current assets and current liabilities.

Current assets are items that a company can use immediately to meet its obligations. These include cash and investments, as well as accounts receivable and inventory. Current liabilities are items that must be paid within one year, such as accounts payable and accrued expenses.

Final Thoughts

These are only a few of a wide range of terms that any given business may use from day to day. These are some of the most common terms you might hear, regardless of if you are working in a business.

Such terms often make news headlines as companies sell or send home workers for some financial reason, including restructuring and so forth. We are sure you will find these terms helpful.