Finance Glossary
Welcome to our comprehensive Finance Glossary, designed specifically for small and medium-sized business owners and executives. Understanding financial terminology is essential for making informed decisions and ensuring the financial health of your company.
Our Finance Glossary serves as your go-to resource, providing clear and concise explanations of key financial terms and concepts. Whether you're navigating profit margins, assessing liquidity, or planning for growth, our glossary is here to demystify the world of finance. Explore definitions, ratios, and concepts that matter most to SMBs, helping you manage your finances with confidence. From profitability metrics to solvency ratios and everything in between, our glossary is your trusted companion on your financial journey.
Start exploring now and begin to equip yourself with the financial expertise needed to drive your business forward.
Browse By Section
Accounting
Money owed by a business to its suppliers or creditors for goods and services received
Money owed to a business by its customers for goods or services delivered but not yet paid for
Accounting method that records revenues and expenses when they are incurred, regardless of when cash is exchanged
The process of spreading out a loan into a series of fixed payments over time
An official inspection of an individual's or organization's accounts, typically by an independent body
A financial statement that shows the assets, liabilities, and equity of a business at a particular point in time
The recording of financial transactions and is part of the process of accounting in business
A calculation to determine the point at which revenue received equals the costs associated with receiving the revenue
Funds used by a company to acquire or upgrade physical assets like property, industrial buildings, or equipment
An accounting method where revenues and expenses are recorded when they are actually received or paid
The total amount of money being transferred in and out of a business, especially affecting liquidity
An account used in the general ledger to reduce the value of a related account
The direct costs attributable to the production of the goods sold in a company
An entry recording an amount received, traditionally on the right-hand side in accounting
An entry recording an amount owed, traditionally on the left-hand side in accounting
Expenses that have been incurred but not yet paid
Money received for goods or services which have not yet been delivered or provided
The process of allocating the cost of a tangible asset over its useful life
A system of bookkeeping where every entry to an account requires a corresponding and opposite entry to a different account
The residual interest in the assets of a business after deducting liabilities It represents ownership interest
An estimate of the market value of a property, asset, or liability
Government policy that attempts to influence the direction of the economy through changes in government spending or taxes
A one-year period that companies and governments use for financial reporting and budgeting
Long-term tangible property that a firm owns and uses in its operations and is not expected to be consumed or converted into cash in a short period
Business expenses that remain the same regardless of the number of goods or services produced
The master set of accounts that summarize all transactions occurring within a business
An intangible asset that arises when a buyer acquires an existing business
The difference between revenue and the cost of goods sold (COGS), divided by revenue
A financial statement that shows a company's revenue and expenses over a specific period
The inability of a person or company to pay their debts as they fall due
A non-physical asset owned by a business
The raw materials, work-in-process products, and finished goods considered to be part of a business's assets
A ratio showing how many times a company has sold and replaced inventory during a given period
The first place where transactions are recorded using the double-entry or single-entry method of bookkeeping
A record of a business transaction in the accounting books
The use of borrowed funds to increase the return on investment
A company's legal financial debts or obligations that arise during the course of business operations
The ability of a business to meet its short-term obligations and debts
A measure of a company's ability to pay its short-term debts
The cost of producing one additional unit of a product
The total value of a company's outstanding shares of stock
The process by which the central bank or monetary authority of a country controls the supply of money, often targeting an inflation rate or interest rate to ensure price stability and general trust in the currency
The total profit of a company after all expenses and taxes have been deducted from revenue
The cost of foregoing the next best alternative when making a decision
The total of all compensation a business must pay to its employees for a set period or on a given date
The current value of a future sum of money or stream of cash flows, given a specified rate of return
A measure used to evaluate the efficiency or profitability of an investment
The portion of net income that is retained by the corporation rather than distributed to its owners as dividends
A bookkeeping worksheet in which the balances of all ledgers are compiled into debit and credit account column totals that are equal
Costs that vary in direct proportion to changes in the level of production or sales
The difference between a company’s current assets and current liabilities
Budgeting and Forecasting
A method of costing that includes all manufacturing costs - both direct costs and overhead costs - in the cost of a product
A budgeting approach based on activities that incur costs in every functional area
A budgeting process where the budget is prepared by individual departments and then consolidated
A detailed financial plan that outlines expected revenues and expenditures over a specific period
Modifications made to a budget in response to changes in the financial or operational environment
The procedure through which a budget is reviewed and authorized
A group of individuals responsible for overseeing the creation and implementation of a budget
A representation, often in spreadsheet form, that consolidates all the various budgets of an organization into one
A document comparing budgeted figures to actual figures, explaining the reasons for any variances
Comparing actual financial results with the budgeted amounts and taking corrective action as needed
The process of planning and managing a company's long-term investments
Funds used by a company to acquire or upgrade physical assets
The process of selecting the best projects to invest in when funding is limited
Estimation of the cash inflows and outflows for a business over a specific period
Estimating the flow of cash in and out of the business
The selling price per unit minus the variable cost per unit
The process of tracking, recording, and analyzing costs associated with the products or activities of an organization
Managing and monitoring expenses to keep them within the limits of the budget
The cost of funds used for financing a business
Analyzing business decisions to understand their benefits versus costs
A measurement of the cash flow available to pay current debt obligations
Costs directly attributable to the production of specific goods or services
A company's approach to distributing profits back to its shareholders
Projecting Earnings Before Interest, Taxes, Depreciation, and Amortization
An estimate of future costs incurred by a business
A variance where actual revenues are higher than planned or actual expenses are lower
Creating a spreadsheet summary of a company's expenses and earnings to calculate the impact of future events
A set of activities that support a company's financial health, including budgeting, forecasting, and analysis
A budget that remains constant, regardless of changes in business activity levels
A budget that adjusts with changes in volume or activity
The degree to which a forecast predicts the actual outcomes
The difference between actual results and forecasted figures
The process of making predictions about future financial outcomes based on historical data and analysis
Analyzing the difference between sales and the cost of goods sold
Using historical costs as the base for projecting future costs
A budgeting method where the previous period's budget is used as a base with incremental amounts added
Costs not directly accountable to a cost object
Quantifiable measures used to gauge a company's overall long-term performance
Estimating the ability of a business to meet its short-term obligations
A comprehensive financial planning document that includes all smaller, individual budgets within a company
Estimating the future net income by deducting projected expenses from projected revenues
A detailed projection of all anticipated income and expenses based on forecasted sales revenue
The cost of an alternative that must be forgone to pursue a certain action
An estimate of future revenue over a specific period
The accounting principle defining the specific conditions under which revenue is recognized
A budget that is continuously updated by adding a new budget period as the last period is completed
Continuously updated data throughout the year to reflect changes
The process of estimating future sales
Preparing different scenarios in forecasting to anticipate various future conditions
Determining how different values of an independent variable impact a dependent variable under given assumptions
The process of defining a company's direction and making decisions on allocating resources to pursue this strategy
A cost that has already been incurred and cannot be recovered
A budgeting process where the budget is imposed by upper management
A method of financial analysis that involves looking at historical data over a period of time to identify patterns or trends
A variance where actual revenues are lower than planned or actual expenses are higher
The difference between planned and actual figures in a budget
Investigating the difference between actual financial outcomes and budgeted amounts
The process of documenting and explaining variances between budgeted and actual figures
Costs that vary directly with the level of production or sales
The management of a company's short-term assets and liabilities to ensure its financial stability
A budgeting approach where all expenses must be justified for each new period
Financial Ratios and Analysis
A measure of a company's ability to meet its short-term obligations with its most liquid assets
Indicates how efficiently a company uses its assets to generate sales
Represents the equity available to common shareholders divided by the number of outstanding shares
Indicates the amount of assets needed to generate a dollar of sales
Indicates a company's financial structure or solvency by dividing long-term debt by the sum of long-term debt and shareholders' equity
Measures how long a firm takes to convert resource inputs into cash flows
Indicates the percentage of each sales dollar that results in cash flow
Measures the ability of a company to cover its debts with its operating cash flows
The amount of cash and cash equivalents a company has per share of its stock
Measures a company's ability to pay its short-term liabilities with its cash and cash equivalents
A liquidity ratio that measures a company's ability to pay short-term obligations
Indicates what proportion of a company's assets are financed through debt
Compares a company's total liabilities to its shareholder equity
Measures how many times a company can cover its dividend payment with its net profit
Indicates the percentage of earnings distributed to shareholders in the form of dividends
Shows how much a company pays out in dividends each year relative to its stock price
A framework for analyzing fundamental performance developed by the DuPont Corporation
A measure of a firm's profit that includes all expenses except interest and income tax expenses
An indicator of a company's financial performance
Indicates how much money a company makes for each share of its stock
Calculates the value created beyond the required return of the company’s investors
Measures how well a company uses its assets and liabilities internally
A measure of a company's financial leverage calculated by dividing a firm's total assets by its total equity
Measures how effectively a firm uses its fixed assets to generate sales
Represents the cash a company generates after cash outflows to support operations and maintain its capital assets
The cash flow available to the company’s common stockholders after all expenses, reinvestment, and debt repayments
Represents the cash flow available to all the company’s security holders, including equity and debt holders
A measure of a company's financial leverage
Measures the proportion of money left over from revenues after accounting for the cost of goods sold
Shows the percentage of revenue that exceeds the cost of goods sold (COGS)
Measures how easily a company can pay interest expenses on outstanding debt
The average number of days it takes for a company to turn over its inventory
The average number of days a company takes to sell its inventory
Shows how many times a company's inventory is sold and replaced over a period
Indicates the level of a company's debt related to its equity capital
The difference between the market value of a company and the capital contributed by investors
Measures how much net income is generated as a percentage of revenues
Shows how much of each dollar in revenues is translated into profits
Measures how well current liabilities are covered by the cash flow generated from a company's operations
Indicates what percentage of a property's gross income is being spent on operating expenses
Indicates the percentage of each dollar of revenue that remains after all operating expenses are paid
The average number of days it takes for a business to pay its invoices from suppliers
The length of time required to recover the cost of an investment
Compares a company's P/E ratio to its expected earnings growth rate
Compares a firm's market capitalization to its book value
Valuation ratio of a company's current share price compared to its per-share earnings
A valuation ratio that compares a company’s stock price to its revenues
Indicates the percentage of revenue that exceeds the costs of goods sold
Measures a company's ability to meet its short-term obligations with its most liquid assets
Measures the average number of days that a company takes to collect payment after a sale has been made
Indicates how efficiently a firm uses its assets
Indicates how profitable a company is relative to its total assets
Measures the return that an investment generates for capital contributors
Measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested
A performance measure used to evaluate the efficiency or profitability of an investment
Measures how efficiently a company utilizes its assets to generate earnings
A measure of how efficiently a company turns sales into profits
Evaluates the return of an investment by measuring how much risk is involved in producing that return
Measures how well a company can meet its interest obligations
Indicates the efficiency of a company in using its assets to generate revenue
Measures the proportion of debt used in a company’s capital structure
The difference between a company’s current assets and current liabilities
Indicates whether a firm has enough short-term assets to cover its short-term debt
A ratio indicating the efficiency of a company's use of its working capital
Taxes
A separate tax calculation that eliminates certain deductions and credits to ensure high-income individuals and businesses pay a minimum level of tax
A tax on the profit from the sale of assets such as stocks, real estate, or business assets
An individual, such as a child or spouse, who qualifies for certain tax benefits, including exemptions and credits, based on their relationship to the taxpayer
The gradual allocation of the cost of an asset over its useful life for tax purposes, reducing taxable income
A concept in state sales tax laws where a business may be required to collect and remit sales tax based on its economic activity in a state, regardless of physical presence
Quarterly payments made by small business owners to the IRS to cover income and self-employment tax obligations
Fiscal year is a 12-month accounting period used by some businesses that doesn't necessarily align with the calendar year (January to December)
A credit available to businesses for taxes paid to foreign governments to avoid double taxation on international income
A series of tax forms used to report various types of income other than wages, such as contractor payments, dividends, and interest
A tax form provided to employees by their employer, summarizing their earnings and withholding for the year
A tax imposed on the transfer of money or property to others, typically paid by the donor rather than the recipient
A tax levied on a business's profits or the personal income of business owners, depending on the business structure
A tax on the value of property or assets received by heirs or beneficiaries of a deceased person's estate
When a business's allowable tax deductions exceed its taxable income, resulting in a negative taxable income, which can be carried forward or backward to offset future or past tax liabilities
Taxes paid by employers to fund Social Security, Medicare, and unemployment insurance
A tax levied on the value of real property, such as land and buildings, owned by a business
The process of determining the value of real property for tax purposes, which influences the amount of property tax owed
The practice of filing tax returns and making estimated tax payments on a quarterly basis, common for self-employed individuals and small businesses
A tax imposed on the sale of goods and services, often collected by the business from customers and remitted to the government
A tax paid by self-employed individuals that covers Social Security and Medicare contributions
Taxes levied by individual US states on residents' and businesses' income, rates and regulations varying by state
A review of a business's financial records and tax returns by the IRS or state tax authority to ensure compliance with tax laws
A record-keeping system that tracks financial transactions and provides documentation to support tax filings in case of an audit
A range of income levels at which specific tax rates apply, affecting how much tax a business or individual owes
The act of following all applicable tax laws and regulations, including filing accurate and timely tax returns
A direct reduction in the amount of taxes owed, typically offered as an incentive for specific activities or investments
An expense that a small or medium-sized business can subtract from its income before calculating the amount of tax owed
The illegal act of deliberately underreporting income or inflating deductions to reduce tax liability
A status that grants a business or organization immunity from certain taxes, often applied to nonprofit organizations
A category that defines an individual's or business's eligibility for certain tax deductions and credits, such as single, married filing jointly, or head of household
A government policy or program designed to encourage specific economic activities or investments by offering tax advantages
The total amount of taxes a business or individual owes to the government
A legal claim by a government entity against a business's property or assets to secure payment of unpaid taxes
The legal seizure of a business's property or assets to satisfy unpaid tax debt
An investment strategy to offset capital gains by selling investments at a loss to reduce overall tax liability
A financial penalty imposed by tax authorities for violations of tax laws, such as late filing or underpayment of taxes
Strategic financial planning to minimize tax liability by utilizing deductions, credits, and legal tax strategies
Changes to tax laws and regulations made by the government to promote economic growth or address fiscal concerns
A document filed with the tax authorities that reports a business's income, expenses, and other financial information for the purpose of calculating taxes owed
A legal strategy or investment used to reduce taxable income or gain
A specialized court or administrative body where taxpayers can appeal tax-related decisions and disputes
Agreements between countries that specify how taxes on income, dividends, and other financial transactions will be treated for residents of each country
The process of deducting a portion of an employee's salary to cover their income tax liability, typically done by employers and remitted to tax authorities
The specific calendar or fiscal year for which a business or individual calculates and reports their income and taxes
A consumption tax added to the price of goods and services at each stage of production or distribution