The reading level for this article is Novice
Below is a listing of financial vocabulary with easy to understand definitions. This list will include common accounting, investing, and business terms. Hopefully this glossary will be helpful for students, aspiring entrepreneurs, and those entering business who have never had a formal business education.
Financial Vocabulary Glossary
Revenue – what you earn
Expenses – what you spend
Net Profit – Total revenue minus total expenses
Net Income – same as net profit
COGS – the cost of goods sold. What you pay for what you sell.
Gross Income – Total revenue minus COGS
Gross Margin – same as gross income
Depreciation – reduction in value over time
Appreciation – increase in value over time
EBITDA – earnings before interest, taxes, depreciation, and amortization
Bond – debt instrument through with companies and governments can raise money
Accounts Payable – money you owe for products and services already received
Accounts Receivable – money owed to you for products/services already delivered
Cash Flow – the in and out of money to/from your business
Equity – ownership in a company
Vesting – earning equity over time instead of all at once
Option pool – a percentage ownership in your company set aside at founding for those who may come aboard later.
Venture Capital – investment money raised from firms that invest in high potential ventures in exchange for percentage ownership in a company
Angel Investor – a private high net worth individual who will invest money in medium or high potential ventures in exchange for percentage ownership in a company
Asset: something you own that has value
Liability: something you owe for
Owners’ Equity: The value of what the shareholders/owners have put into a company
Appreciating Asset: something you own that is going up in value
Depreciating Asset: something you own that is going down in value
Balance Sheet: a financial statement that keeps track of assets, liabilities, and owners’ equity.
Balance Sheet Formula – assets minus liabilities equal owners’ equity
Income Statement – a financial statement that keeps track of revenue, expenses, and profit.
Income Statement Formula – Revenue minus expenses equals net profit.
Cash Flow Statement – a financial statement that keeps track of all the money that goes in and out of your business.
IPO – initial public offering, selling part of your company on the stock market in exchange for investment capital in your business
In any area of life, if you do not understand the associated vocabulary you will not be able to succeed in it. If you plan to be a business owner or an investor, be sure you are very familiar with all of the above terms.