BUSINESS TERM DEFINITIONS
Communication across a company is hard enough, let alone when you feel lost from the terms used by your business-savvy colleagues.
With this glossary, you have a reference that will help you understand the basics of a company. Here are 20 key business terms relevant in any professional field. Whether you are already on the job, getting ready for an interview or coffee chat, you’ll want to know these terms like the back of your hand.
1) BALANCE SHEET
The balance sheet documents a company’s financial health at specific points in time, usually at the end of the quarter or fiscal year. The balance sheet includes assets, liabilities, and equity and follows the accounting equation:
Assets = liabilities + equity.
The left side leaves you with what you own, whereas the right side shows what you owe. Your asset values should equal those of your liabilities and equity.
Assets are resources that businesses control, in which the owner expects assets to generate future cash flow. Examples include inventory, equipment, and land.
Liabilities are debts, usually sums of money, that a business owes to another entity. Examples include expenses payable to suppliers, accounts payable, and business loans.
Shareholders’ equity (SE) tells you a company’s net value if liquidating assets paying off debts. To calculate shareholders’ equity, subtract total liabilities from assets:
Shareholders’ equity = total assets−total liabilities
5) INCOME STATEMENT
The income statement shows the business’s performance during a period, such as throughout the quarter or year. Focusing on revenue and expenses, the income statement depicts a company’s profit or loss.
Revenue refers to the income generated from a business’s operations and activities. One way to calculate revenue is by multiplying the price of an item by the quantity sold.
Expense refers to money spent on utilities, salaries, and raw materials, and other items that a company incurs operating the business.
Also known as “net income” or the “bottom line”, your profit shows the difference between what a business earns and spends. Calculate profit earned by subtracting total expenses from total revenue.
Profit = total revenue - total expenses
9) NET LOSS
Using the profit equation, you can calculate a business’s net loss, or when total expenses exceed total revenue and the difference is negative.
10) CASH FLOW STATEMENT
A cash flow statement measures the cash generated (inflow) or used (outflow) by a company in a given period. Classify cash flow under operating, investing, or financing activities.
11) PROFIT MARGIN
Three types of profit margins are gross profit, net profit, and operating profit margin. Calculate your profit margins by dividing profit by revenue. Profit margins show a company’s growth potential and answer how much of each dollar of sale generates into profit.
Profit margin = (profit / revenue) x 100%
Note: more revenue does not always translate to higher margins and more profit kept from sales.
12) RETURN ON INVESTMENT (ROI)
Return on Investment (ROI) is a ratio measuring performance efficiency relative to how much a company spent on investments. Calculate ROI by dividing net profit from the investment cost.
ROI = (net profit / investment cost) x 100%
13) VARIABLE COST
Variable costs change proportionally to production. For example, the cost of raw materials increases with the number of units purchased.
14) FIXED COST
Unlike variable costs, fixed costs stay the same regardless of changes in production. For example, a company pays the same amount in monthly rent.
15) CASH FLOW
Cash flow is a measure of the amount of cash generated (or lost) through a businesses's operations. It's different than net profit, as net profit includes non-cash expenses (such as depreciation), and excludes some uses of cash (such as capital expenditures for new equipment, or repayment of outstanding debt).
16) BUSINESS TO BUSINESS (B2B)
B2B transactions take place when a company sells goods or services to another company.
17) BUSINESS TO CONSUMER (B2C)
B2C transactions occur when a company sells goods or services to end-users.
18) BEST PRACTICE
Best practices are accepted as standard methods for executing a task for how they most effectively produce results.
This term is commonly used to describe a PowerPoint presentation. You could think of it as a “deck” of PowerPoint slides.
A deliverable is a final product given to the client at the end of a project. A deliverable can include decks, research, and financial models.
Whether a fresh-faced employee or an experienced member of the c-suite, all professionals should have these terms handy. Brush up on your study skills, and before you know it, you’ll be able to use these terms with ease and confidence!