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Pre Reading To Basic Financial

This document defines key financial terms used in accounting and finance. It provides definitions for assets, balance sheets, cash flow, cost of goods sold, depreciation and amortization, DuPont analysis, EBITDA, equity, expenses, financial statements, gross margin, income, income statements, leverage, liabilities, net income, operating expenses, profit and loss statements, return on equity, turnover, and working capital. The definitions are adapted from various authoritative sources for educational purposes.

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15 views2 pages

Pre Reading To Basic Financial

This document defines key financial terms used in accounting and finance. It provides definitions for assets, balance sheets, cash flow, cost of goods sold, depreciation and amortization, DuPont analysis, EBITDA, equity, expenses, financial statements, gross margin, income, income statements, leverage, liabilities, net income, operating expenses, profit and loss statements, return on equity, turnover, and working capital. The definitions are adapted from various authoritative sources for educational purposes.

Uploaded by

yerio.dwiyanto
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Financial Terms & Definitions

Asset
An asset is a resource controlled by the entity as a result of past events and from which future
economic benefits are expected to flow to the entity.
Balance Sheet – A financial statement that summarizes a company's assets, liabilities, and
shareholders' equity at a specific point in time. These three balance sheet segments give investors an
idea as to what the company owns and owes, as well as the amount invested by shareholders. The
balance sheet adheres to the following formula: Assets = Liabilities + Shareholders' Equity
Cash Flow- The net amount of cash and cash-equivalents moving into and out of a business. Positive
cash flow indicates that a company's liquid assets are increasing, enabling it to settle debts, reinvest in
its business, return money to shareholders, pay expenses, and provide a buffer against future financial
challenges. Negative cash flow indicates that a company's liquid assets are decreasing.
COGS-Cost of Goods Sold. These are the direct costs associated with the production of goods sold by
a company.
Depreciation & amortization - Both depreciation and amortization (as well as depletion) are
methods used to prorate the cost of a specific type of asset to the asset's life. It is important to mention
that these methods are calculated by subtracting the asset's salvage value from its original cost. It is
important to mention that these methods are calculated by subtracting the asset's salvage value from
its original cost. Amortization is for intangible assets and depreciation for tangible assets
DuPont Analysis – This analysis offers insight into a- three key components of a company’s strategy
by breaking down the ROE (Return on Equity) into the following:

EBITDA- Earnings before interest, taxes and amortization. EBITDA allows for comparison
between companies and industries since it eliminates the effects of financing and accounting
decisions.
Equity - Equity is the residual interest in the assets of the entity after deducting all its
liabilities.
Expense - Expenses are decreases in economic benefits during the accounting period in the
form of outflows or depletions of assets or incurrences of liabilities that result in decreases
in equity, other than those relating to distributions to equity participants

Glossary adapted from IFRS, IESE Business School, CFI, and various sources for education purpose only
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Financial Statement - A complete set of financial statements includes: [International


Accounting Standard: IAS 1.10]
a statement of financial position (balance sheet) at the end of the period a statement of
profit or loss and other comprehensive income for the period (presented as a single
statement, or by presenting the profit or loss section in a separate statement of profit or loss,
immediately followed by a statement presenting comprehensive income beginning with profit
or loss) a statement of changes in equity for the period a statement of cash flows for the
period notes, comprising a summary of significant accounting policies and other explanatory
notes comparative information prescribed by the standard.
Gross Margin- Sales revenue minus COGS divided by sales revenue. This represents the percent of
total sales revenue that a company retains after incurring the costs related to producing the product or
services.
Income - Income is increases in economic benefits during the accounting period in the form of
inflows or enhancements of assets or decreases of liabilities that result in increases in equity, other
than those relating to contributions from equity participants.
Income Statement – Also known as profit & loss statement, it is a financial report that measures a
company’s performance over a specific period of time. It summarizes revenues and expenses through
both operating and non-operating activities.
Leverage – How much leverage a company uses indicates to what extent it is using debt to finance its
activities. The leverage ratio would be the ratio of third-party liabilities to equity
Liability - A liability is a present obligation of the entity arising from past events, the settlement of
which is expected to result in an outflow from the entity of resources embodying economic benefits.
Net Income – Often referred to as “the bottom line,” net income is revenues minus the cost of doing
business
OPEX – Operating expenses
P&L – Profit and Loss Statement, also known as income statement.
ROE- Return on Equity. The amount of net income returned as a percentage of shareholder equity.
Turnover – The number of times an asset is replaced during an accounting period. In terms of
inventory, the shorter time the inventory is sitting on the shelves, the better.
WC – Working Capital (Current Assets – Current Liabilities)

Add more here along with our discussion:

Glossary adapted from IFRS, IESE Business School, CFI, and various sources for education purpose only

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