Essential
Finance Terms
for Students
1. Assets
Assets are things you own that have value, like money, real estate, equipment, or anything you can use to help your finances or business grow.
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Current Assets:
Can be turned into cash quickly, like money in the bank. -
Fixed Assets:
Long-term items, like buildings or equipment, that can’t be turned into cash easily.
2. Liabilities
Liabilities are the things you owe, like loans, bills, or wages you need to pay.
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Current Liabilities:
Debts due within a year. -
Long-Term Liabilities:
Debts you can pay over a longer period
3. Net Worth
Net worth is what you own (your assets) minus what you owe (your liabilities). It shows how financially healthy you are.
4. Liquidity
Liquidity is how easily you can turn your assets into cash. Money in your wallet is very liquid, but a house isn’t, because it takes time to sell.
5. Cash Flow
Cash flow is how much money is coming in and going out of a business or account over time.
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Operating Cash Flow: Cash from everyday activities.
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Investing Cash Flow: Cash from buying or selling assets.
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Financing Cash Flow: Cash from borrowing or repaying money.
6. Income Statement
This is a report that shows how much money a business made and spent over a certain time.
7. Balance Sheet
A balance sheet is a snapshot of a company’s finances, showing assets, liabilities, and equity
(money owned by the business’s owners).
8. Equity
Equity is what’s left over for the owners after subtracting liabilities from assets.
9. Return on Investment (ROI)
ROI measures how much profit you make compared to what you spent. It’s written as a percentage.
10. Profit Margin
Profit margin shows how much of the money a company earns is actually profit.
11. Capital Market
This is where people trade financial assets like stocks (ownership in a company) and bonds (a loan to a company or government).
12. Depreciation
Depreciation is how much an item, like a car or equipment, loses value over time.
13. Working Capital
This is the money a company has available for daily expenses, calculated by subtracting current liabilities from current assets.
14. Valuation
Valuation is figuring out how much a business, asset, or company is worth right now.
15. Capital Gain
A capital gain is when you sell something, like stocks or property, for more than what you paid for it.
16. Asset Allocation
This is how you divide your money into different types of investments, like:
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Stocks:
Owning part of a company. -
Bonds:
Lending money to a company or government. -
Cash:
Keeping your money in a form that’s easy to use.
17. EBITDA
This stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. It’s a measure of how much money a business makes before certain costs.
18. Cash Flow Statement
A detailed report that shows where all the cash in a business came from and where it went during a specific time.