Money Terms You Should Know

You should make sure that you understand the financial terms that you come across on a regular basis. Knowing and understanding these terms will help you to navigate the financial world. Here are some terms that you should make sure that you are familiar with.

An audit is a professional exam of a company’s accounting documents. This is to make sure that the company is complying with General Accepted Accounting Principles.

A balance sheet is a financial report. It shows the status of a company’s liabilities, assets, and the owner’s equity.
A formal written evaluation of a company’s or individual’s credit history is a credit report. This report is generated by a credit reporting agency.

The process undertaken by venture capitalists, investment bankers, or others to fully investigate any company before financing it is called due diligence. This is required by law before securities are offered for sale.
Equity is shares of stock in a company. This is the ownership interest in the company.

A written account of the financial condition of your company is called a financial statement. This includes a balance sheet and income statement.

A guarantee loan is a promise to take responsibility for payment of part or all of a debt if the person borrowing the money fails to repay the loan they took out. For younger or newer entrepreneurs a loan is usually guaranteed by family members or parents.

The income-and-expense ratio is the ratio of operating expenses to gross income. This is also known as just expense ratio.

A lien is a charge against property; making is security for the payment of an obligation. A debt mortgage, unpaid taxes or debt is an example of a lien.

Operating expenses are the day to day expenses of running any given business. This includes marketing, payroll, rent, and supplies.

When a company offers shares to the general public it is known as a public offering. This does require registration with the SEC.

Return on equity is an amount earned on a common stock investment in a given period. This is expressed as percentages and is tracked over time to show how stock holders’ money is being used.

A secured credit card is a credit card that you obtain from the bank that you have a savings account at. It has a limit that is generally lower than what you have in your savings account.

A venture capitalist is an individual or firm who invests money into a new company.
Cash that is available to the company for the on-going operations of the business is called working capital.

There are many money terms that you encounter on a regular basis that you should understand. Understanding the terms you encounter is a great way to navigate the financial world. If you do not understand the terms that you encounter then you could have a real problem down the road.

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