Financial Definitions

Below is a listing of financial vocabulary with easy to understand definitions. This list will include common accounting, investing, and business terms. 

Revenue – what you earn
Expenses – what you spend
Net Profit – Total revenue minus total expenses
Net Income – same as net profit
COGS – the cost of goods sold. What you pay for what you sell.
Gross Income – Total revenue minus COGS
Gross Margin – same as gross income
Depreciation – reduction in value over time
Appreciation – increase in value over time
EBITDA – earnings before interest, taxes, depreciation, and amortization
Bond – debt instrument through with companies and governments can raise money
Equity – ownership in a company
Vesting – earning equity over time instead of all at once
Option pool – a percentage ownership in your company set aside at founding for those who may come aboard later.
Venture Capital – investment money raised from firms that invest in high potential ventures in exchange for percentage ownership in a company
Angel Investor – a private high net worth individual who will invest money in medium or high potential ventures in exchange for percentage ownership in a company
Owners’ Equity: The value of what the shareholders/owners have put into a company
Appreciating Asset: something you own that is going up in value
Depreciating Asset: something you own that is going down in value
Balance Sheet: a financial statement that keeps track of assets, liabilities, and owners’ equity.
Balance Sheet Formula – assets minus liabilities equal owners’ equity
Income Statement – a financial statement that keeps track of revenue, expenses, and profit.
Income Statement Formula – Revenue minus expenses equals net profit.
Cash Flow Statement – a financial statement that keeps track of all the money that goes in and out of your business.
IPO – initial public offering, selling part of your company on the stock market in exchange for investment capital in your business