A list of some key financial terms
Editor's note: This is a sidebar to Karine Benzacar's article "Financial literacy 101" published in the June 2, 2008, issue of Canadian HR Reporter.
Assets: An item which is owned by the organization and has some value.
Liability: Debt.
Equity: What is left over from an organization’s assets after all debts have been paid. This can also be referred to as “owner’s equity” or “shareholder’s equity.”
P&L (profit and loss statement): A report which illustrates revenues and expenses for the period, and shows how much profit or loss the area incurred.
Balance sheet: A report which illustrates the financial position of the organization (shows assets, liabilities and net worth).
Net income: Profit after all taxes have been paid.
ROI (return on investment): Net income divided by the amount of investment.
ROE (return on equity): The net income of the organization divided by the equity of the organization.
EPS (earnings per share): The net income of the organization divided by the number of shares outstanding. This represents the net income per share.
EBIT (earnings before interest and tax): Profit before interest expenses and taxes. Since individual executives cannot influence interest or taxes, their performance is often evaluated on this measure.
Depreciation: Represents the loss in value of an asset which is owned by the company.
EBITDA (Earnings before interest, tax, depreciation, and amortization): Some organizations will evaluate executive performance on EBITDA (as opposed to EBIT) since the executives have very little influence over depreciation or amortization charges.
COGS (Cost of goods sold): The direct cost of the items being sold to customers. This includes raw materials, packaging costs, labour costs, and overhead costs (such as utilities or maintenance).
G/L (general ledger): The financial records of the company. (This is often called the
“books”.)
A/P (accounts payable): What is owed to vendors.
A/R (accounts receivable): What customers owe to the organization.
GAAP (generally accepted accounting principles): A set of principles or rules which govern how various business transactions should be recorded in the company’s financial records.
IFRS (International Financial Reporting Standards): These are new accounting standards which will be adopted in Canada by publicly accountable enterprises by Jan. 1, 2011. For these organizations, they will replace GAAP.
NIAT (net income after tax): Overall profit for the company.
Accruals: Revenues or expenses for which the business transaction has occurred but the invoice hasn’t been processed yet. These transactions need to be recorded in the financial records when they occur, not when the invoice is processed.
Assets: An item which is owned by the organization and has some value.
Liability: Debt.
Equity: What is left over from an organization’s assets after all debts have been paid. This can also be referred to as “owner’s equity” or “shareholder’s equity.”
P&L (profit and loss statement): A report which illustrates revenues and expenses for the period, and shows how much profit or loss the area incurred.
Balance sheet: A report which illustrates the financial position of the organization (shows assets, liabilities and net worth).
Net income: Profit after all taxes have been paid.
ROI (return on investment): Net income divided by the amount of investment.
ROE (return on equity): The net income of the organization divided by the equity of the organization.
EPS (earnings per share): The net income of the organization divided by the number of shares outstanding. This represents the net income per share.
EBIT (earnings before interest and tax): Profit before interest expenses and taxes. Since individual executives cannot influence interest or taxes, their performance is often evaluated on this measure.
Depreciation: Represents the loss in value of an asset which is owned by the company.
EBITDA (Earnings before interest, tax, depreciation, and amortization): Some organizations will evaluate executive performance on EBITDA (as opposed to EBIT) since the executives have very little influence over depreciation or amortization charges.
COGS (Cost of goods sold): The direct cost of the items being sold to customers. This includes raw materials, packaging costs, labour costs, and overhead costs (such as utilities or maintenance).
G/L (general ledger): The financial records of the company. (This is often called the
“books”.)
A/P (accounts payable): What is owed to vendors.
A/R (accounts receivable): What customers owe to the organization.
GAAP (generally accepted accounting principles): A set of principles or rules which govern how various business transactions should be recorded in the company’s financial records.
IFRS (International Financial Reporting Standards): These are new accounting standards which will be adopted in Canada by publicly accountable enterprises by Jan. 1, 2011. For these organizations, they will replace GAAP.
NIAT (net income after tax): Overall profit for the company.
Accruals: Revenues or expenses for which the business transaction has occurred but the invoice hasn’t been processed yet. These transactions need to be recorded in the financial records when they occur, not when the invoice is processed.
