The course of business, banking, and investment are stuffed with zillions of hard-to-understand finance terms. Though not all are really worth knowing, there are some basic finance terms you should know if you are into business. Whether you are running a small business, your understanding of the basic finance terms will help you be in the know about your day-to-day financial going on.
In order to help you get acquainted with the key finance terminology and grow your familiarity with the basic business vocab, we have brought a list of 10 finance terms you should know. The banking and investment terms set out below will not only help you go well with the course of your business but also feed your financial acumen to grow well with your household finance.
Without further ado, let’s get to the 10 key finance terms you should know.
Table of Contents
The first and foremost term in the list of the important finance terms you should know is revenue. Though the modern finance terminology has vividly grown to be wide and complex, there are certain terms in the business glossary which will remain the same. Revenue is one of them. Revenue is defined as the amount earned from customers and clients by selling products and services in a financial year. It also includes the expenses and the other finances made to operate the business and execute the services and sale of goods.
Anything associated with your business that you hold the right of ownership for is said to be your asset. This is a key basic finance term you should know, specifically when you are operating a business. It can be anything from movable to immovable holdings, supplies, equipment, and your cash reserve. The term relates more to your business than banking or your household finance. If you are into business, make sure that you are aware of it.
3. Net Income
Unarguably, net income is another key term in the business and finance glossary. This is a finance term you should know if you in any way are engaged with the business. Net income is said to be the real earnings that your business accounted for in a financial year. The more the net income is, the more the profit margin will be. Figure out what your net income is and how your business is going in terms of profit margin.
4. Gross Profit
Why business experts believe this is a pivotal finance term you should know has its reasons behind it. The cost of goods sold (COGS) in a financial year deducted from the net revenue generated by a business in the same year will give you the exact figure of gross profit. This is a basic business term to be aware of when it comes to keeping track of your gains. High gross profit implies that you have more in the bucket to invest back into the business.
5. Gross Profit Margin
The next on the list of the finance terms you should know is “Gross Profit Margin.” You might have heard the term earlier; however, you may not have the right sense of it, what exactly it is about. This basic business term is important as it shows how much capital you are retained with on each dollar of sales at the end of the financial year.
6. Balance Sheet
How much you have spent in a financial year and how much you have gained – the balance sheet is the written statement of everything that anyhow relates to your business. Whether these are your assets or liabilities, your gains or losses, the balance sheet gives you a clear picture of everything. If you have any business idea in mind, get acquainted with the balance sheet beforehand, this is one of the significant finance terms you should know. It defines the bottom line of your business, how it went well and how it will probably go in the next financial year.
7. Cash flow
Cash flow is a crucial finance term everyone should know, particularly for those who are looking forward to stepping into a business. The term cash flow defines incoming and outgoing finance in a business. Positive cash flow shows that more cash is flowing to your business, i.e., you are adding up more to your revenue. Negative cash flow on the other hand shows that your money is going into business, i.e., you are adding more to your expenses’ bucket.
The term liabilities in business are what it actually means in the language, i.e., the debts your business owes. Have you been aware of the finance terms before? Actually, most of those who are into business know what liabilities exactly are. This is one of the most important finance terms you should know as your disregard for the term might leave you in heavy debt. Adding more sense to it, these are day-to-day things needed to keep your business running such as office rent, electricity and phone bills, transportation costs etc.
This is simply another financial term you should know when dealing with a business. The term is defined as the current asset and shows the goods and services available for sale. When an item from the inventory is sold, the carrying cost of the sold item is transferred to the cost of goods sold (COGS) category in the financial statement.
Return on investment is the last but not the least in the list of basic finance terms you should know. The term is defined as the financial reward you get from the sale of products and services in a financial year. It is actually calculated as the percentage of net profit earned over total investments made to your business.
Now you have a better understanding of the term cash flow and of course of your finance when you step into a business. Whether stepping into a business or still brainstorming on a business idea, the finance glossary is worth knowing for everyone.