Business Financial Terminology

A balance sheet is a statement of a business’s assets, liabilities and equity at a specified reporting date.

Capital expenditure is spending on acquiring or improving assets expected to provide benefit beyond the immediate accounting period, subject to the applicable accounting rules.

Cash flow is the movement of cash into and out of a business over a period.

Depreciation is the accounting allocation of the depreciable amount of a tangible asset over its estimated useful life.

Gross profit is revenue less the cost of sales for a reporting period, before the other expenses included in net profit.

Insolvency is a legal and financial condition in which a company cannot meet the relevant tests for paying its debts or the relationship between assets and liabilities.

Liquidity is the ability of a business to meet obligations as they fall due using cash or assets that can be converted into cash in time.

Net profit is the profit remaining after the expenses included in the stated accounting measure have been deducted from income.

Operating expenditure is spending recognised as an expense of running a business rather than as the cost of a qualifying capital asset.

A profit and loss account reports income, expenses and resulting profit or loss over a reporting period.

Return on investment compares a defined financial return with the cost of an investment, usually expressed as a percentage.

Turnover generally means a business’s revenue from its ordinary trading activities over a specified period, rather than its profit.

The working capital cycle is the time between committing cash to trading inputs and recovering cash from the related customer receipts.