Financial Glossary


Accrued Expenses

Wages, interest, property taxes, etc., which are expenses due at the end of the period but not paid.



The process of gradually paying off a liability over a period of time, i.e., a mortgage is amortized by periodically paying off part of the face amount of the mortgage.


Assets (Liquid)

The valuable resources or properties and property rights owned by an individual or business enterprise. Some of the most common liquid assets of a business include cash, marketable securities, accounts receivable, and inventory.


Assets (Capital)

Equipment which you use to manufacture a product, provide a service, or use to sell, store, deliver merchandise. Such equipment will not be sold in the normal course of business, but will be used and worn out. Land and buildings should be included here.


Break-Even Analysis

A method used to determine the point at which the business will neither make a profit nor incur a loss. That point is expressed in either the total dollars of revenue exactly offset by total expenses (fixed or variable); or in total units of production, the cost of which exactly equals the income derived by their sale.


Business Plan

An objective written review of your business to identify areas of weakness and strength, pinpoint needs, and begin planning how you can best achieve your business goals.


Cash Flow

The actual movement of cash within a business: cash inflow minus cash outflow. A term used to designate the reported net income of a corporation plus amounts charged off for depreciation, depletion, amortization, and extraordinary charges to reserves, which are bookkeeping deductions and not actually paid out in cash. Used to offer a better indication of the ability of a firm to meet its own obligations and to pay dividends than the conventional net income figure.


Cash Management

A service designed to help you get the most out of your business's cash resources. Beginning with a plan of your cash needs, it can help you manage collection, disbursement, control and investment of your cash.



An artificial legal entity created by government grant and endowed with certain powers; a voluntary organization of persons, either actual individuals or legal entities legally bound together to form a business enterprise.


Current Assets

Cash or other items that will normally be turned into cash within one year, and assets that will be used up in the operations of a firm within one year.


Current Liabilities

Amounts owed that will ordinarily be paid by a firm within one year. Such items include accounts payable, wages payable, taxes payable, the current portion of long-term debt, other short-term bank debt, and interest and dividends payable.


Current Ratio

A liquidity ratio that measures a company's ability to pay short-term obligations. (Current Ratio = Current Assets/Current Liabilities).


Debt Capital Financing

Money borrowed with the intention of paying it back plus interest. Banks provide only this type of financing.


Debt Service Coverage Ratio

Net Profit plus (+) Depreciation plus (+) Amortization plus (+) Interest Expense divided by (÷) Current Portion of Existing plus (+) Proposed Debt.


Debt to Worth Ratio

A ratio of your business's total liabilities to its net worth. This tells the creditor how much debt your firm has in relation to your equity in the business. The higher this number gets, the more of other people's money, i.e., debt, is in your business.


Deferred Prepaid Expenses

Include insurance premiums, interest expense, promotional material, office supplies, etc., which are paid in advance and expensed over a period of time. Debt Service Coverage Ratio is used in program descriptions.



A reduction in the value of fixed assets. The most important causes of depreciation are wear and tear, the effect of the elements, and gradual obsolescence which makes it unprofitable to continue using some assets until they have been exhausted. The purpose of the bookkeeping charge for depreciation is to write off the original cost of an asset (less expected salvage value) by equitably distributing charges against operations over its entire useful life.



A disbursement, usually in the form of cash, of profits to the owners of your business. This is an after-tax expense of the business.



An innovator of a business enterprise who recognizes opportunities to introduce a new product, a new production process, or an improved organization, and who raises the necessary money, assembles the factors of production, and organizes an operation to exploit the opportunity.



The monetary value of a property or business which exceeds the claims and/or liens against it by others.


Equity Capital Financing

Money given to your business, without the intention of paying it back, in return for part ownership of your business. Banks do not ordinarily provide this type of financing.



A written commitment by an individual or authorized legal entity to pay back a loan in the event the borrower is unable to do so. Guaranties can be unlimited (the full amount of the loan) or limited to a specific amount.



Occasionally the provider of collateral for a loan is someone other than the borrower. In order to give the creditor the same rights to this collateral as the owner has, he hypothecates it.



A way to finance equipment, fixtures or buildings. It is a type of financing for the full amount of the equipment, etc., and eliminates the need for a business to put a large sum of cash into the purchase. There is no standard way to lease. You can lease with or without maintenance, by the month, year, or several years, and with or without the option to purchase.



The relationship of other people's money (debt) in relation to your own investment (equity) in your business. This is measured by the debt-to-worth ratio.



A term used to describe the solvency of a business, and which has special reference to the degree of readiness in which assets can be converted into cash without a loss. Also called cash position. If a firm's current assets cannot be converted into cash to meet current liabilities, the firm is said to be illiquid.


Long-term Liabilities

These are liabilities (expenses) which will not mature within the next year.



The overall responsibility for planning your business's goals and objectives and assuring that these plans are carried out.



The number of people and their total spending (actual or potential) for your product line within the geographic limits of your distribution ability. The market share is the percentage of your sales compared to the sales of your competitors in total for a particular product line.


Net Worth

The owner's equity in a given business represented by the excess of the total assets over the total amounts owed to creditors (total liabilities) at a given moment of time. Also, the net worth of an individual as determined by deducting the amount of all of his personal liabilities from the total value of his personal assets.



A legal relationship created by the voluntary association of two or more persons to carry on as co-owners of a business for profit; a type of business organization in which two or more persons agree on the amount of their contributions (capital and effort) and on the distribution of profits, if any.


Pro Forma

A projection or estimate of what may result in the future from actions in the present. A pro forma financial statement is one that shows how the actual operations of the business will turn out if certain assumptions are realized.



The excess of the selling price over all costs and expenses incurred in making the sale. Also, the reward to the entrepreneur for the risks assumed by him in the establishment, operation, and management of a given enterprise or undertaking.



Short-term credit extended by your business to customers for goods or services purchased. When sales are on a cash basis only, obviously a business would not have receivables as an asset on its balance sheet. As a business asset, receivables usually rank second only to cash in liquid value. As such, banks may frequently request an Aging of Receivables, which is simply a list of accounts receivable according to the length of time they have been outstanding. This shows which accounts are being paid in a timely manner, and may reveal any difficulty in collecting long overdue receivables. It is an important indication of potential cash flow problems.


Sole Proprietorship or Proprietorship

A type of business organization in which one individual owns the business. Legally, the owner is the business and personal assets are typically exposed to liabilities of the business.

A corporation which has elected under Subchapter S (by unanimous consent of its shareholders) not to pay any corporate tax on its income and, instead, to have the shareholders pay taxes on it, even though it is not distributed. Shareholders of a tax option corporation are also entitled to deduct, on their individual returns, their shares of any net operating loss sustained by the corporation, subject to limitations in the tax code.



The acquisition of one company by another company.


Target Market

The specific individuals, distinguished by socioeconomic, demographic, and/or interest characteristics, who are the most likely potential customers for the goods and/or services of a business.


Trade Payable

Credit extended by a supplier to you for goods purchased. It is the most used form of short-term credit, especially among small businesses. Your suppliers give you terms (30-, 90-days, etc.) and if you pay within this specified period, you get the use of their money at no interest cost. And, if you pay early, you sometimes get a discount on the purchase price.


Working Capital, Net

The excess of current assets over current liabilities. These excess current assets are available for carrying on business operations.