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The world of business is as fast-paced as it gets. Tough decisions need to be made, meetings here and there and a couple of costings/accountings you need to do, too. To prepare yourself for the tough world of entrepreneurship, here are some of the financial terms you would need to know:
1.) Return On Investment – this is the earnings or money from the sale of the investment of interest. You compute for this through the net profit divided by total asset. The result of this computation comes out as a percentage.
2.) Assets and liabilities – assets are things owned by the company such as buildings, land/lot, vehicles and machineries which can provide monetary values that are economically beneficial for future needs of the company. Liabilities on the other hand are the company’s commitments or responsibilities. These can either be services or money the company has not yet paid.
3.) Revenues and Expenses – Revenue is the earnings or the income of the company’s services provided or goods supplied, while “expenses” (as diverse as it is) are the costs brought by the operation of the business.
4.) Shareholders’ Equity – one of the commonly used financial metrics to diagnose the financial status of a company. This is equivalent to the total assets minus the total liabilities.
5.) Balance Sheet – a detailed list of the business’ capital, together with its assets and liabilities plus its shareholders’ equity. This is given at a periodic timeframe to serve as an information to investors regarding the amounts invested by the shareholders as well as what is owned by the company and what it owes.
6.) Total Net Assets – this is determined through deducting what your company owes from its total worth. In a business owned by one person only (“sole proprietorship”), it is called “owner’s equity”, however in a corporation, it’s called “stockholders’ equity”.
7.) Cashflow – this refers to the movement of money within the business (whether it’s a transfer into or out of the business). This is also used to compare the money available at the beginning of a certain accounting period to that of the money at the end of that period.
8.) Cashflow Statement – this is broken down into 3 categories which are financing activities, investing and operating and is an analysis of how cash equivalents and cash is affected by the changes in income and balance sheet accounts.
9.) FOB (Free on Board) – also called “freight on board” and is a term used in contracting the seller to deliver the goods at his cost to a specific destination chosen by the buyer.
10.) Letters of Credit – a letter from a bank to another bank, serving as a proof of a payment made to a person. This letter bears specific terms need to be met in order for the funds to go through. This serves as a guarantee to the buyer that the seller will only receive the payment after all terms have been successfully achieved.
11.) Net Profit – this is basically profit the business made after a sale just after taxes and all costs have been deducted from gross receipts.
12.) CIF (Cost, Insurance and Freight) – a term used for the seller’s arrangement for the transportation of goods supplied from sea to the port of destination preferred by the buyer. This also includes the documents needed for the buyer to claim the goods from the specific transport service/carrier used.