Principles of Finance: Common Terms

Common Financial Terms

Asset: Valuable resources owned by individuals or companies; can include cash, real estate, and equipment.
Liability: Financial obligations that represent debts owed to outside parties, such as loans and accounts payable.
Equity: Represents ownership value in an asset after subtracting liabilities, indicating the net worth of an entity.
Investment: The strategic allocation of funds into various assets to generate financial returns over time.
Revenue: Total income earned from core business operations, critical for measuring a company's performance.
Expense: Costs incurred during business operations in the pursuit of generating revenue; includes salaries, rent, and materials.
Profit: Financial gain achieved when total revenue surpasses total expenses, indicating a successful operation.
Loss: Financial setback occurring when expenses exceed revenues; reflects operational inefficiency or adverse market conditions.
Cash Flow: Reflects the inflow and outflow of cash within a business, important for maintaining solvency and operational capacity.
Balance Sheet: A snapshot of a company's financial position, detailing assets, liabilities, and equity at a specific date.
Income Statement: A financial statement summarizing revenues and expenses over a period, used to assess profitability.
Budget: A planned financial outline detailing anticipated income and expenses within a specific timeframe, assisting in financial management.
Capital: Financial assets or resources earmarked for investment purposes to generate future returns.
Dividend: A share of a company's profits distributed to shareholders, typically reflecting a company’s profitability.
Interest: The cost incurred for borrowing funds, expressed as a percentage of the principal amount borrowed, often generated as a return on savings.
Stock: A unit of ownership in a company that represents a claim on its assets and earnings.
Bond: A fixed-income investment that serves as a loan from the investor to the borrower, typically pays periodic interest until maturity.
Mutual Fund: A collective investment vehicle that pools money from multiple investors to invest in a diversified portfolio of securities.
Portfolio: A mix of financial assets such as stocks, bonds, and cash holdings managed to balance risk versus return.
Risk: The potential for financial loss associated with an investment, considering the uncertainty of returns.
Return: Profit or loss generated from an investment; key measure for assessing the effectiveness of an investment strategy.
Liquidity: The degree to which an asset can be quickly converted into cash without significantly affecting its price.
Debt: Borrowed money that requires repayment, often with interest; includes loans, credit cards, and mortgages.
Credit: The capacity to borrow funds or receive goods before full payment, based on the borrower’s creditworthiness.
Market Capitalization: The total value of a company's outstanding shares, providing an indication of its size and market value.

Common Financial Terms

Asset: Valuable resources owned by individuals or companies; can include cash, real estate, and equipment.
Liability: Financial obligations that represent debts owed to outside parties, such as loans and accounts payable.
Equity: Represents ownership value in an asset after subtracting liabilities, indicating the net worth of an entity.
Investment: The strategic allocation of funds into various assets to generate financial returns over time.
Revenue: Total income earned from core business operations, critical for measuring a company's performance.
Expense: Costs incurred during business operations in the pursuit of generating revenue; includes salaries, rent, and materials.
Profit: Financial gain achieved when total revenue surpasses total expenses, indicating a successful operation.
Loss: Financial setback occurring when expenses exceed revenues; reflects operational inefficiency or adverse market conditions.
Cash Flow: Reflects the inflow and outflow of cash within a business, important for maintaining solvency and operational capacity.
Balance Sheet: A snapshot of a company's financial position, detailing assets, liabilities, and equity at a specific date.
Income Statement: A financial statement summarizing revenues and expenses over a period, used to assess profitability.
Budget: A planned financial outline detailing anticipated income and expenses within a specific timeframe, assisting in financial management.
Capital: Financial assets or resources earmarked for investment purposes to generate future returns.
Dividend: A share of a company's profits distributed to shareholders, typically reflecting a company’s profitability.
Interest: The cost incurred for borrowing funds, expressed as a percentage of the principal amount borrowed, often generated as a return on savings.
Stock: A unit of ownership in a company that represents a claim on its assets and earnings.
Bond: A fixed-income investment that serves as a loan from the investor to the borrower, typically pays periodic interest until maturity.
Mutual Fund: A collective investment vehicle that pools money from multiple investors to invest in a diversified portfolio of securities.
Portfolio: A mix of financial assets such as stocks, bonds, and cash holdings managed to balance risk versus return.
Risk: The potential for financial loss associated with an investment, considering the uncertainty of returns.
Return: Profit or loss generated from an investment; key measure for assessing the effectiveness of an investment strategy.
Liquidity: The degree to which an asset can be quickly converted into cash without significantly affecting its price.
Debt: Borrowed money that requires repayment, often with interest; includes loans, credit cards, and mortgages.
Credit: The capacity to borrow funds or receive goods before full payment, based on the borrower’s creditworthiness.
Market Capitalization: The total value of a company's outstanding shares, providing an indication of its size and market value.