Key Financial Concepts Vocabulary

Net Income

..."Net" means revenues after costs. Example: you get $1,000 a month for renting a house you own to a friend. The costs of maintaining the houses every month equal $800. That means your "net income" from renting that house to your friend is $1,000-$800=$200 per month (before taxes)

Liability

...An obligation you have to pay someone else money. Also called a debt or a loan.

Liquid Assets

...Cash or securities that can be immediately turned into cash, which can then repay any loan amount outstanding. A company or individual "has liquidity" if they have lots of liquid assets

Notes payable

...Other types of debt (or money you owe someone else) other than a mortgage: Example: if you borrowed is a note payable to the person or company that sold you the boat.

Maturity

...The date a loan (or debt or liability) is due. Example: the maturity of your car loan is five years from the day you buy the car- five years from now that debt needs to be completel

Lien

...The right to take possession of collateral until a debt is repaid. Example: "The bank has a lien on my company's inventory. If we cant repay the bank loan, the bank has the right to take possession of our inventory and sell it to pay themselves the money we owe them."

Credit-Worthy

A person or a business with a strong credit score and the financial resources that make it likely they will be able to repay any loan.

Shareholder

An individual or company that owns shares in a company.

Securities

An investment worth money; a "financial instrument" indicating ownership.

Unencumbered

Assets that are not already pledged as a guarantee to repay another loan

Cash Instruments

Cash, publicly traded stocks, government binds or corporate bonds that can be quickly turned into cash. Cash instruments can be turned into cash at values that are predictable and available to all holders of the cash instrument .

Collateral

Equipment, inventory or other goods that are pledged to the bank in the case the company cant make a loan payment.

Dividedend

Money paid by a company to a person who owns stock in that company. Dividends are optional-many companies do not pay dividends . Dividends are typically paid every three months (which is called a "quarter", since three months

Commissions

Money you are paid when you sell something. Example: the real estate agent who sells you a house is paid a 2% commission on the value of the house sold.

Assets

Something of value. Anything you own is an asset. Assets can be something big (like a house) or something small (like a piece of jewelry). A security is a financial asset, meaning a piece of paper that represents ownership and is worth money.

Mortgage

The money a person borrows to buy real estate. Example: when you buy a house you go to the bank to get a mortgage.