BUSINESS 101

describes how quickly your assets can be converted into cash. Because of that, cash is the most liquid asset. The least liquid assets are items like real estate or land, because they can take weeks or months to sell.

• liquidity

• net worth

• profit margin

• valuation

refers to how you choose to spread your money across different investment types, also known as asset classes. These include:

·         Bonds: Bonds represent a form of borrowing. When you buy a bond, typically from the government or a corporation, you’re essentially lending them money. You receive periodic interest payments and get back the loaned amount at the time of the bond’s maturity—or the defined term at which the bond can be redeemed.

·         Stocks: A stock is a share of ownership in a public or private company. When you buy stock in a company, you become a shareholder and can receive dividends—the company’s profits—if and when they are distributed.

·         Cash and Cash Equivalents: This refers to any asset in the form of cash, or which can be converted to cash easily in the event it's necessary.

• balance sheet

• asset allocation

• amortization

• assets

represents the decrease in an asset’s value. It’s a term commonly used in accounting and shows how much of an asset’s value a business has used over a period of time.

• compound interest

• depreciation

• equity

• cash flow statement

You can calculate net worth by subtracting what you own, your assets, with what you owe, your liabilities. The remaining number can help you determine the overall state of your financial health.

• net worth

• profit margin

• liabilities

• income statement

items you own that can provide future benefit to your business, such as cash, inventory, real estate, office equipment, or accounts receivable, which are payments due to a company by its customers. There are different types of assets, including:

·         Current Assets: Which can be converted to cash within a year

·         Fixed Assets: Which can’t immediately be turned into cash, but are tangible items that a company owns and uses to generate long-term income

• amortization

• asset allocation

• assets

• balance sheet

an increase in the value of an asset or investment above the price you initially paid for it. If you sell the asset for less than the original purchase price, that would be considered a capital loss.

• balance sheet

• capital gain

• capital market

• asset allocation

this is the difference between a company’s current assets and current liabilities. Working capital—the money available for daily operations—can help determine an organization’s operational efficiency and short-term financial health.

• working capital

• valuation

• profit margin

• return on investment

This refers to “interest on interest.” Rather, when you’re investing or saving, compound interest is earned on the amount you deposited, plus any interest you’ve accumulated over time. While it can grow your savings, it can also increase your debt; compound interest is charged on the initial amount you were loaned, as well as the expenses added to your outstanding balance over time.

• cash flow

• EBITDA

• EQUITY

• compound interest

an important financial statement that communicates an organization’s worth, or “book value.” The balance sheet includes a tally of the organization’s assets, liabilities, and shareholders’ equity for a given reporting period.

·         The Balance Sheet Equation: Balance sheets are arranged according to the following equation: Assets = Liabilities + Owners’ Equity

• assets

• bonds

• capital gain

• balance sheet

The opposite of assets, liabilities are what you owe other parties, such as bank debt, wages, and money due to suppliers, also known as accounts payable. There are different types of liabilities, including:

·         Current Liabilities: Also known as short-term liabilities, these are what’s due in the next year

·         Long-Term Liabilities: These are financial obligations not due over a year that can be paid off over a longer period of time

• liabilities

• profit margin

• valuation

• working capital