Accounts Payable – the amount owed by an organization to others for goods or services received. Buying from suppliers on credit will generate accounts payable.
Accounts Receivable – the amount due to an organization for goods delivered or services rendered. Selling to customers on credit will generate accounts receivable for a business.
Amortization - the gradual reduction of a financial amount over time.
Assets – resources owned and employed by an organization that confers future economic benefits.
Average Balance – (Opening balance – Closing balance) / 2. This balance can be used to calculate efficiency/turnover ratios instead of using a closing balance.
Current Assets – all assets other than fixed assets. They are either cash or assets expected to be converted into cash or consumed by the business during the year. Current assets include items such as cash, accounts receivable, and inventory.
Current Liabilities – an organization’s liabilities due within one year. Current Liabilities include items such as short-term loans, any element of long-term loans due within one year, and accounts payable.
Debt – capital used to finance an organization that is subject to payment of interest over the life of the loan, at the end of which the loan is normally repaid.
Depreciation – depreciation of fixed assets is the process of allocating part of the cost of fixed assets to a particular accounting period.
Direct costs – those that are directly attributable to the product or service provided by the organization. They are included in the cost of goods sold.
Dividends – a share of a company’s net profits distributed by the company to a class of its stockholders.
EBIT – Earnings Before Interest and Taxes.
EBITDA – Earnings Before Interest, Taxation, Depreciation, and Amortization.
Equity – total assets less total liabilities. Also called shareholders’ equity, net worth, or book value.
Financial Analysis – is the systematic process of evaluating businesses, projects, budgets, and other finance-related entities to determine their performance, value, and suitability.
Financial Statements – statements, in financial terms, of the financial position of an entity at a given date, or of the results of its operations for a given period. The statements are normally prepared in one of a number of standard formats. Most commonly, when people refer to financial statements, they mean the income statement, the balance sheet, the cash flow statement, and the related notes to the accounts.
Fixed Assets – assets intended for use on a continuing basis in an organization’s activities (normally defined as assets an organization intends to keep for more than one year). There are three categories of fixed assets: intangible, tangible, and investments.
Forecast – the projection or estimate of future sales, revenue, earnings, or costs.
Inventory – normally refers to items held for resale and may include raw materials, work in progress, and finished goods.
Liabilities – money owed, or other financial obligations to other organizations and individuals.
Net Assets – total assets less current liabilities (excluding IBCL’s).
Net Income – the profits retained by an organization after all expenses including interest expenses, taxes, and dividends. The retained profits/earnings for a given year are reinvested in the business (hopefully making the organization grow, and increasing the value of its shares) and are added to retained earnings in the balance sheet (which represent all retained profits accumulated over an organization’s entire life to date which have been reinvested in the business).
Non-Current Assets – assets that are not expected to be converted into cash within 12 months of the balance sheet date.
Operating Assets – assets acquired for or used throughout the operations of the business (such as cash, inventory, prepaid expenses, equipment).
Retained Earnings – represent all retained profits accumulated over an organization’s entire life to date which have been reinvested in the business. As the retained earnings ultimately belong to shareholders, they are included as part of shareholders’ equity.
Revenue – includes both cash sales and credit sales of goods and services but does not include the sale of fixed assets.
Tax Expense – the tax liability that companies, and individuals, are required to pay by law.
The Balance Sheet – snapshot of a company’s financial situation which is comprised of assets, liabilities and shareholders’ equity.
The Cash Flow Statement – a form of report that shows company’s movement of money via cash flows. Cash Flow is a stream of money that is either coming into the company or outcoming from it.
The Income Statement – a form of report that shows company’s performance over time. It depicts profits and losses, breaks down main types of expenses and is structured vertically to go from top to bottom towards company’s net income.
Working Capital – normally defined as money tied up in the day-to-day operations of an organization. It is approximately equal to current assets less current liabilities. However, many analysts will define working capital more explicitly as inventory and accounts receivable less accounts payable (and exclude other current assets).