1-1 Glossary Quiz

Profit

the financial gain earned when the revenue generated from a business exceeds all the expenses associated with achieving that revenue, over a certain time period.

Revenue

total sales for a company over a certain period of time, also called the "top line", measured by the total items sold multiplied by the amount the items sold for.

Gross Profit

calculated as revenue minus cost of goods sold.

Earnings Before Interest and Taxes (EBIT)

operating Income minus non-operating income and non-operating expenses; also calculated as net income plus interest and taxes.

Non-Operating Expenses

other expenses not directly tied to operating a business.

Cost of Goods Sold (COGS)

the cost a company pays for the goods it sells; it includes the cost of the raw materials along with the direct labor and manufacturing costs used to produce the goods.

Operating Expenses

the expenses directly associated with operating a business.

Net Income

gross profit minus all expenses, also called net profit, and often referred to as a company's "bottom line".

Balance Sheet

is a financial statement that marks a company's financial situation at a moment in time, showing all assets, liabilities and owners' equity.

Interest Expense

money spent to pay for borrowed money - interest payable on loans, bonds, lines of credit; it is calculated as the interest rate times the outstanding principal amount of the debt.

Income

all money received from doing business, including sales revenue and other income.

Inventory

any products that have been purchased or produced, with the intent to sell to customers, but haven't yet been sold.

Limited Liability Company

a company legal structure that combines the 1) "limited liability" aspect of a corporation, whereby the owners are not personally liable for the company's debts or liabilities, with the 2) pass-through taxation of a partnership or sole proprietorship.

Profit and Loss (P&L) Statement (Income Statement)

a statement that reports revenues, expenses and income (or loss) for a time period in the past.

Proforma

an estimate/projection of future revenues, expenses, net income, and capital needed to fund the company's operations.

Capital

money used to make an investment, produce a product, fund operations, and generate income.

Profit Motive

the incentive in a private enterprise system for people to risk capital to start a business in order to earn a profit in return.

Operating Income

gross profit minus operating expenses.