Here is a list of 25 essential financial terms and their definitions:
Cash flow – The amount of cash and cash equivalents moving into and out of a business.
Return on Investment (ROI) – A measure of the profitability of an investment, calculated by dividing the return (or gain) by the amount invested.
Net present value (NPV) – A measure of the value of an investment today, calculated by discounting all future cash flows to their present value.
Inflation – A measure of the rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling.
Interest – The cost of borrowing money, usually expressed as a percentage of the amount borrowed.
Gross domestic product (GDP) – A measure of the value of all goods and services produced in a country in a given period of time.
Balance sheet – A financial statement that shows a company’s assets, liabilities, and equity at a given point in time.
Income statement – A financial statement that shows a company’s revenues, expenses, and profit over a given period of time.
Credit – An agreement in which a lender agrees to loan a certain amount of money to a borrower, to be repaid over time, along with interest.
Credit score – A numerical rating that represents a borrower’s creditworthiness, as determined by a credit bureau.
Equity – The value of an asset after subtracting any liabilities associated with it.
Derivative – A financial contract whose value is derived from the value of an underlying asset, such as a stock or commodity.
Bond – A debt security in which an investor loans money to an entity (typically corporate or governmental) which borrows the funds for a defined period of time at a variable or fixed interest rate.
Mutual Fund – An investment vehicle made up of a pool of funds collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments and similar assets.
Asset – Anything that has value, such as property, cash, and investments.
Liability – Anything that obligates an individual or organization to pay money or transfer assets, such as loans and credit card debt.
Budget – A financial plan that outlines projected income and expenses over a specified period of time.
Capital – The money or assets available for investment in a business or organization.
Compound interest – Interest that is calculated on the original principal and on all accumulated interest.
Currency – A medium of exchange, such as cash or coins, that is used to purchase goods and services.
Deflation – A decrease in the general level of prices of goods and services in an economy over a period of time.
Depreciation – The decrease in value of an asset over time, usually due to wear and tear, obsolescence, or other factors.
Equity financing – The process of raising capital by selling ownership stakes in a business, typically in the form of stocks or shares.
Hedge fund – A type of investment fund that uses high-risk strategies such as leverage, short-selling, and derivatives in order to generate high returns for its investors.
Liquidity – The ability of an asset or investment to be easily converted into cash.
