5 More Financial Terms You Should Know

5 More Financial Terms You Should Know

Last week we shared with you financial terms that everyone should know. The post had a lot of positive feedback, so this week we’re sharing five more. The definitions come courtesy of Lauren Landry from Harvard Business School Online. If there are other terms you’d like to have explained, reach out to us and one of VersaTel Solutions’ experts will have an answer for you. Our employees have backgrounds in bookkeeping, HR, and administration. We know a lot of financial jargon.

Assets: Assets are items you own that can provide future benefit to your business, such as cash, inventory, real estate, office equipment, or accounts receivable, which are payments due to a company by its customers. There are different types of assets, including:

  • Current Assets: Which can be converted to cash within a year.
  • Fixed Assets: Which can’t immediately be turned into cash, but are tangible items that a company owns and uses to generate long-term income.

Capital Gain: A capital gain is an increase in the value of an asset or investment above the price you initially paid for it. If you sell the asset for less than the original purchase price, that would be considered a capital loss.

Compound Interest: This refers to “interest on interest.” Rather, when you’re investing or saving, compound interest is earned on the amount you deposited, plus any interest you’ve accumulated over time. While it can grow your savings, it can also increase your debt; compound interest is charged on the initial amount you were loaned, as well as the expenses added to your outstanding balance over time.

EBITDA: An acronym standing for Earnings Before Interest, Taxes, Depreciation, and Amortization, EBITDA is a commonly used measure of a company’s ability to generate cash flow. To get EBITDA, you would add net profit, interest, taxes, depreciation, and amortization together.

Profit Margin: Profit margin is a measure of profitability that’s calculated by dividing the net income by revenue or the net profit by sales. Companies often analyze two types of profit margins:

  • Gross Profit Margin: Which typically applies to a specific product or line item rather than an entire business.
  • Net Profit Margin: Which typically represents the profitability of an entire company.

Here’s a term not included in the HBSO list: outsource. It’s what you can do to make running your small business easier. Outsource all of your HR, Admin, or bookkeeping tasks to us. Our experts at VersaTel Solutions can take over some of the day-to-day burdens of running your business, so you have more time to focus on growing your company. Contact us to find out how we can help you.

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