Essential Business and Financial Terminology Explained

Market Sentiment

• Bullish: Share prices are rising, and confidence is high.
• Bearish: Share prices are dropping, and confidence is low.

Financial Metrics and Accounting

• COGS vs. Operating Expenses: COGS (Cost of Goods Sold) is the carrying value of goods sold during a period. Operating expenses are ongoing costs for running a product or service.
• EBIT vs. Net Income: EBIT measures profit including all income and expenses except interest and taxes. Net income is a company's total income minus the cost of goods sold.
• Retained Earnings: The accumulated net income of a company retained at a specific point in time.
• Shareholder's Equity: Represents the net value of a company (Total Assets minus Total Liabilities). It is a key metric for determining financial health.

Liabilities and Debt

• Creditors: Entities to whom the business owes money.
• Debtors: Entities that owe money to the business.
• Current Liabilities (PC): Debts or obligations due within one year, such as accounts payable and short-term debt.
• Long-term Liabilities (PNC): Liabilities not due within the current fiscal year.
• Overdraft vs. Mortgage: A mortgage is a bank loan secured by property. An overdraft is a deficit in a bank account caused by withdrawing more money than available.
• Go Bust: When a company becomes insolvent or bankrupt.

Assets and Operations

• Machinery vs. Patents: A patent is intellectual property protecting an invention. Machinery is a fixed asset purchased for long-term use.
• Overheads: Expenses not directly linked to the production process.
• Purchasing Materials & Raw Materials: Materials required to produce goods for sale.

Human Resources and Ownership

• Salary vs. Wage: A salary is a fixed amount per pay period, whereas a wage is paid by the hour.
• Shareholders: Individuals who own the business through investment.
• Dividends: Money paid to shareholders from company earnings.
• Share Capital: Represents equity.
• Stakeholders: Parties, such as bondholders, who have an interest in the company meeting its obligations.