Business and Financial Glossary

Amortization: A method of scheduling repayments of a loan most commonly used for mortgages. Each of the payments is of equal value and includes both the loan principal and the interest owed. A greater amount of each payment is interest at the beginning of the schedule; as the total principal amount is paid down over time, each payment contains a greater amount of principal and less interest. Amortization calculator …

ARR (Accounting rate of return): Is a quick method of calculating the potential profitability of a project. Calculated: (”average profit” / “average investment” = the return as a percentage rate). ARR does take into account cash flows or the time value of capital, and therefore is only used as a rough estimating tool. More …

Assets: Anything that is possessed or controlled by a company that may provide future economic benefit. Assets can include cash and cash equivlents, short-term investments, property, equipment, goods and materials in inventory, outstanding receivables, brand trademarks, and pre-paid expenses. More …

Balance sheet: A summarized snapshot on a specific date of all the assets, liabilities and ownership equity for a company, organization, or individual. It is a financial statement, and the only kind that provides a measurement for a specific date rather than showing a period of time (for example, a monthly or year-end financial statement). Sample balance sheet …

Basis points: A basis point is one hundrdth of a percentage point (0.01%). Basis points are used to describe small values and value changes such as in interest rates and margins. For example, 25 basis points equals one quarter percent (0.25%). An interest rate increase from 3% to 3.5% equals an increase of 50 basis points. Examples …

Bond: One form of debt security. A bond holder lends money to the bond issuer. Usually bonds are issued by large entities such as governments of corporations. More …

Capital: There are different forms of capital; financial capital refers to wealth such as cash or securities, while capital goods are finished goods that a company has produced or purchased. Other forms of capital include assets such as equipment and buildings or structures. Land and labor are also seen as forms of capital according to some economic theories. More …

Cash flow: The amount of cash received and dispensed by a business over a set period (such as monthly). Monitoring cash flow is often used to gauge the sustainability of a business; positive cash flow means more cash is being received than being dispensed, while negative cash flow means more cash is going out than coming in. Negative cash flow for too long a period will result in declining capital and the risk of insolvency without outside investment or a reversal to positive cash flow. Cash flow calculator …