Finance

Liquidity

The ability to meet current obligations with cash or other assets that can be quickly converted to cash, to pay the bills as they come due.

Leverage

The ability to put more money into a business than has been invested by its owners and thus earn more than its invested capital could earn alone.

Depreciation

The amount of expense that a company charges against earning to write off the cost of a capital asset over the time it will benefit the company. An expense.

Capital stock

The amount paid into the company by the investors to purchase stock.

Stockholder's equity

The calculated amount of the total assets of a company that would theoretically remain if all the assets were sold off and all the liabilities paid off. It is composed of the total amount invested in the company by its owners plus the accumulated profits of the business since inception.

Insolvency

The opposite of liquidity, not having enough money to pay bills as they become due.

General ledger

The principal accounting record into which all transactions of the company are recorded an summarized

Amortization

The process of spreading the cost of an intangible asset, such as research and development expenditures, over its expected useful life.

Price/Earnings Ratio

The relationship between a stock's price and its earnings per share. Price per share/Earnings per share. Tells investors if a stock is over priced.

Cash cycle

The time between cash disbursement and cash collection.

Fixed costs

Those costs that essentially remain unchanged even though the business increases its volume of sales.

Variable costs

Those costs that increase in direct relationship to sales volume.

Semi-fixed costs

Those costs that increase in relation to sales but at a slower pace.

Current liabilities

Those debts of the company that are expected to be paid within the next 12 months.

Notes payable

Loans that represent borrowed money.

Net profit margin

Net profit as a percentage of gross revenue

Inventory

Production materials or products purchased or products manufactured and then held for sale. This is an asset.

Cost of goods sold

Represents all the costs of manufacturing or buying the products sold - includes raw materials, manufacturing labor, and related overhead costs.

Current assets

Assets that are cast or are expected to become cash within the next 12 months.

Gross profit margin

Gross profit (net sales minus the cost of good sold) as a percentage of sales or revenue.

EBITDA

Earnings before interest, taxes, depreciation and amortization. A financial measure for evaluating a company often used as an approximation of operating cash flow.

Prepaid expenses.

Expenses paid in advance. An insurance payment is a prepaid expense. This is an asset.

Interest coverage

A measurement of a company's ability to pay the interest on its interest-bearing debt through its cash flow.

Inventory turnover

A measurement of how quickly inventory is leaving the plant and being replaced by new inventory.

Day sales outstanding

A measurement of the relationship between accounts receivable and sale.

Quick ratio

A measurement similar to current ratio except that the current assets calculation excludes inventory.

Debt to equity ratio

A measurement that compares assets provided by the owners, through capital investment, and assets provided by creditors, through money lent to the company. Divide total debt by total equity.

Accrual basis accounting

A method of accounting in which financial transactions are recorded when they actually happen, even if the payment is made later.

Cash basis accounting

A method of accounting in which transactions are recorded only when cash is involved. Similar to keeping a check book.

Statement of cash flow

A report that shows the effect of all transactions that involved or influenced cash, but didn't appear on the income statement.

Generally accepted accounting principles

A set of rules, conventions, standards, and procedures established by the Financial Accounting Standards Board for reporting financial information.

Chart of accounts

A systematic listing of all ledger account names and associated numbers used by a company, arranged in the order in which they normally appear in financial statements.

Accounts payable

All the bills yet unpaid from all the suppliers and service providers.

Fixed assets

Also known as "property, plant and equipment." These are the physical assets used to do business.

Accrued payroll

Amount earned by employees but not yet paid to them. This is a liability.

Prepaid expenses

Amount that are paid in advance to vendor or creditor for goods and services.This is a current asset.

Accounts receivable

Amounts due from customers. This is an asset.

Income statement

An accounting of revenue, expenses, and profit for a given accounting period, usually a month, quarter, or a year.

Balance sheet

An itemized statement that summarizes the assets and the liabilities of a business as of a given date.

Current ratio

Comparison of current assets and current liabilities, a common used measure of short-run solvency - the immediate ability to pay debt.