In the fast-paced world of entrepreneurship, familiarity with investment terms is indispensable. As an entrepreneur, your ability to grasp and utilize these terms can make all the difference in securing funding, negotiating deals, and driving your business forward. From “angel investors” to “liquidity events” and “dividends” to “valuation,” we’ll cover the essentials without unnecessary fluff.
Gaining an understanding of these investment terms can help you to increase your credibility with stakeholders, negotiate the complex world of corporate finance, and eventually achieve greater success in your entrepreneurial pursuits. Now, let’s get going.
A
Accounting Period
Refers to the designated timeframe within the accounting cycle that encompasses the preparation and presentation of financial statements. This duration is flexible, ranging from weeks to months, quarters, or even entire fiscal or calendar years, depending on the specific needs and operations of the business.
Accounts Payable
A representation of the money owed to suppliers or creditors after purchasing products or services. This includes unpaid debts and obligations that have not been paid within the allotted period.
Accounts Receivable
Money owed to a company by its customers for goods or services delivered on credit.
Accrual Basis Accounting
An accounting method where revenues and expenses are recognized when earned or incurred, regardless of when cash is exchanged.
Annual Percentage Rate (APR)
The annual rate charged for borrowing or earned through an investment is expressed as a percentage.
Assets
Resources owned by a business that has monetary value and can be used to generate future economic benefits.
B
Balance Sheet
A financial statement that provides a snapshot of a company’s financial position, listing assets, liabilities, and shareholders’ equity at a specific point in time.
Bookkeeping
The process of recording financial transactions and maintaining financial records of a business.
Bootstrapping
Funding a business using personal finances or operating revenue instead of external investment.
Burn Rate
The rate at which a company spends its capital over a specific period is often used to assess runway and financial health.
C
Capital Gain
Profit earned from the sale of an investment or asset at a higher price than its purchase price.
Capital Loss
Loss incurred from the sale of an investment or asset at a lower price than its purchase price.
Cash Flow
The movement of money into or out of a business is typically measured over a specific period.
Cash Flow Statement
A financial statement that shows how changes in balance sheet accounts and income affect cash and cash equivalents.
Certificate of Deposit
A time deposit with a bank is when the depositor agrees to keep funds on deposit for a specified period in exchange for a fixed interest rate.
Compound Interest
Interest is calculated based on the initial principal and the accumulated interest from previous periods.
Cost of Goods Sold (COGS)
The direct costs attributable to the production of goods sold by a company.
Credit
An accounting entry that represents an increase in assets or decrease in liabilities or equity.
D
Debit
An accounting entry that represents a decrease in assets or an increase in liabilities or equity.
Demand
The desire and ability of consumers to purchase goods and services at a given price and time.
Depreciation
The systematic allocation of the cost of a tangible asset over its useful life.
Dividend
A distribution of a portion of a company’s earnings to its shareholders.
E
Equity
The ownership interest in a company represents shareholders’ residual claim on assets after liabilities are deducted.
Expenses
Costs incurred in the process of generating revenue, such as salaries, rent, and utilities.
F
Financial Statements
Reports that summarize a company’s financial performance and position, including the income statement, balance sheet, and cash flow statement.
Fixed Assets
Long-term tangible assets used in the production or operation of a business, such as property, plant, and equipment.
G
General Ledger
A record of all business financial transactions organized by accounts.
Gross Margin
The difference between revenue and the cost of goods sold is expressed as a percentage of revenue.
Gross Profit
The revenue remaining after deducting the cost of goods sold.
I
Income
The earnings acquired by a business through its core operations.
Income Statement
A financial report detailing a company’s revenues, expenses, and net income within a specific timeframe.
Intangible Assets
Assets lacking physical form yet possessing potential future economic value, such as patents and trademarks.
Interest
The fee paid for borrowing money, or the return on invested capital is expressed as a percentage of the principal.
Interest Rate
The percentage charged or earned on a loan or investment over a specified period.
L
Liability
Financial obligations or debts owed by a business to external entities.
Liquidity
The capability of a company to meet its short-term financial commitments with its accessible assets.
Loan
Funds borrowed from a lender are expected to be repaid with interest.
M
Maturity Date
The designated date when a loan or financial instrument is due for repayment or redemption.
N
Net Income
The total earnings minus all expenses are also referred to as profit or net profit.
Net Margin
Net income is expressed as a percentage of revenue.
Net Profit
The residual amount after subtracting all expenses from revenue.
Non-Current Liabilities
Long-term financial obligations that are not due within the next twelve months.
Non-Operating Assets
Assets not directly tied to a company’s primary business operations, such as investments in other companies.
O
Operating Expenses
Costs involved in operating a business, including rent, salaries, and utilities.
P
Price-to-Earnings Ratio
A valuation metric is comparing a company’s current share price to its earnings per share.
R
Return on Investment (ROI)
A measure of investment profitability is calculated as the ratio of net profit to the initial investment.
Revenue
This is an investment term that represents the total income generated by a business from its primary activities and is typically derived from sales of goods or services.
S
Shareholder
An individual or entity owning shares in a corporation is entitled to ownership rights and dividend distributions.
T
Physical assets with a determinable monetary value, such as equipment, vehicles, and inventory.
Y
Yield
The income return on an investment is usually expressed as a percentage of the investment’s cost or current market value.
Investment Terms for Entrepreneurs
For entrepreneurs who want to succeed, knowing the specifics of banking and investing terms is not only helpful but also necessary. We’ve covered a wide range of essential investment terms in this guide, from gross profit to shareholder equity, giving you a strong basis for negotiating the corporate financial world.
Entrepreneurs may steer their businesses towards sustainable growth, interact with stakeholders effectively, and make well-informed decisions by understanding these ideas. Being proficient in financial jargon enables you to confidently and precisely negotiate the difficulties of entrepreneurship, whether you’re assessing investment prospects, looking for finance, or reviewing financial data.
Recall that achieving financial literacy is a process rather than a goal. Maintaining current knowledge of industry trends, investment terms, and laws, together with ongoing education, will help you become even more financially savvy and set yourself up for long-term success.
