Financial glossary
Find definitions of key terms in corporate finance, financial management and cash management.
Accrual accounting
Recording revenue and expenses when they are earned or incurred, not when cash is paid. Standard under GAAP/IFRS.
Amortization
Allocation of the cost of an intangible asset (patent, goodwill) over its useful life.
Audit
Examination of accounts and processes by an independent auditor to express an opinion on fairness and compliance.
Balance sheet
Financial statement showing the company's assets and liabilities at a given date.
Break-even
Level of activity (revenue or volume) at which profit is zero. Above it, the company is profitable.
Budget
Quantified forecast of revenue and expenses for a given period, used as a management framework.
Burn rate
Rate at which the company consumes its cash (usually monthly). Used to manage runway.
CFO (Chief Financial Officer)
Head of the finance function: accounting, treasury, management control, banking and financial strategy.
CapEx (Capital expenditure)
Spending on acquiring or creating long-lived assets (equipment, software, buildings).
Cash basis accounting
Recording revenue and expenses when cash is received or paid. Used e.g. by some small businesses.
Cash conversion
Ability to turn accounting profit into cash flow (impact of working capital, depreciation, etc.).
Cash flow
Inflows and outflows of cash over a period. Cash flow measures the company's ability to generate liquidity.
Cash management
Managing collections, payments and short-term investments to optimize liquidity and cost.
Consolidation
Aggregation of accounts of several entities in a group to produce consolidated financial statements.
Corporate tax
Direct tax on company profit. Rates and rules vary by country and regime.
Credit line
Bank commitment to lend up to a limit. The company draws as needed.
DPO (Days payable outstanding)
Average number of days to pay suppliers. The payables component of working capital.
DSO (Days sales outstanding)
Average number of days revenue remains uncollected. Indicator of collection performance.
Debt
Borrowings and financial debt (banks, bondholders) to be repaid according to a schedule.
Depreciation
Allocation of an asset's cost over its useful life. Reduces profit without cash outflow.
Due diligence
Thorough review (legal, financial, tax) of a target before an acquisition or investment.
EBITDA
Earnings before interest, taxes, depreciation and amortization. A measure of operating performance before financing and tax structure.
Equity
Stable resources from shareholders or generated by the business (reserves, retained earnings).
Forecast
Financial projection (cash flow, P&L) updated regularly to anticipate results.
GAAP
Generally accepted accounting principles (e.g. US GAAP). Local or national accounting framework.
Gross margin
Revenue minus direct costs (cost of goods sold). Expressed as a percentage of revenue.
Gross profit
Revenue minus cost of goods sold. First margin before operating expenses.
IFRS
International Financial Reporting Standards (IASB). Used for consolidated accounts of many groups worldwide.
IPO (Initial Public Offering)
First listing of a company's shares on a regulated market. Enables fundraising and opening the capital.
Income statement
Statement summarizing revenue and expenses over a period and showing net income.
Internal control
Set of processes and procedures to manage risks (operational, financial, compliance).
Inventory
Goods, raw materials and finished or work-in-progress products held by the company.
KPI
Key performance indicator. A metric used to evaluate progress toward objectives (sales, margin, lead times, etc.).
Liquidity
Ability to meet payment obligations with cash and readily realizable assets.
Management controller
Drives budgeting, forecasting and reporting. Analyzes variances and supports performance management.
Mergers and acquisitions (M&A)
Deals involving merger, acquisition or divestiture. Core to external growth strategy.
Net income
Profit or loss after deducting all expenses, taxes and employee profit-sharing.
Net margin
Net income as a percentage of revenue. Reflects profitability after all costs and taxes.
OpEx (Operating expenses)
Day-to-day costs of running the business: wages, rent, supplies, outsourcing, etc.
Operating margin
Operating profit (EBIT) as a percentage of revenue. Measures profitability of operations.
Payables
Amounts owed to suppliers for purchases or services received but not yet paid.
Payroll
Calculation and payment of wages, social contributions and related statutory filings.
ROCE (Return on capital employed)
Operating profit after tax / capital employed. Measures how efficiently capital is used.
ROI (Return on investment)
Profitability of an investment: gain or savings generated relative to amount invested, often expressed as %.
Receivables
Amounts owed by customers for goods or services already delivered. Current asset.
Revenue
Amount of sales of goods or services over a period, excluding sales taxes.
Runway
Length of time the company can continue operating with current cash without new funding.
Solvency
Ability to meet long-term debt obligations. Often measured by equity-to-total-assets ratio.
Treasurer
Manages cash flows, funding, banking relationships and interest rate and FX risk.
Treasury
Cash and short-term investments. Management of cash flows and funding.
VAT
Value added tax. Indirect tax ultimately borne by the consumer, collected by businesses.
Valuation
Estimate of the value of a company or asset (DCF, comparables, net asset value, etc.).
Working capital
Stable resources in excess of fixed asset funding. It finances part of the working capital requirement (WCR).
Working capital requirement (WCR)
Funding needed for the operating cycle: inventory + receivables − payables.
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