Finance Dictionary

Here are some of the most common financial terms you should know!


Accounting equation: Assets = Liabilities + Stockholders’ Equity

Accounts payable — accounts payable is an accounting entry that represents the amount a company owes to suppliers that is to be paid in the short-term future. It can be found in the balance sheet under the current liabilities. Check out our blog post on everything you need to know about accounts payable.

Accounts receivable — accounts receivable is also an accounting entry that can be found in the balance sheet under current assets. It represents the amount a company still has to receive from customers for goods or services provided.

Annual Percentage Rate (APR) — refers to the percentage of interest that a borrower must pay on the loan; the cost of borrowing money.

Annual Recurring Revenue (ARR) — a metric used to determine the revenue that a company expects to generate from customers per year from goods and services.

Assets — assets are the economic resources that the accounting entity owns.

Balance Sheet — the balance sheet is one of the four basic financial statements. It reports the financial position of an accounting entity at a specific point in time. In other words, it reports the amount of assets, liabilities, and stockholders’ equity that the entity has at that moment.

Bootstrapping — occurs when a company is launched solely relying on personal savings and sales.

Churn rate — is the rate at which customers leave within a specific time period. Whether it be that they stop purchasing the product or using the service.

CLV to Customer Acquisition Cost (CAC) Ratio — This ratio measures the relation between the customer lifetime value and the cost of acquiring that customer. Healthy businesses should have CLV > CAC.

Collateral — an asset that is pledged as security for the repayment of a loan.

Compound Annual Growth Rate (CAGR) — is the average rate of return of an investment over a period of time.

Customer Lifetime Value (CLV) — it measures how valuable a customer is by calculating how much money they will bring in to the business throughout their lifetime as a customer.

Days payable outstanding (DPO) — a financial metric that assesses how many days it takes for a company to pay their bills to suppliers. The equation is: DPO = (Average accounts payable / Cost of goods sold) x number of days in the accounting period.

Debtor — or borrower, is an entity that owes money to another party (a lender).

Expenses — expenses account for the amount of resources the business used to earn revenue during the accounting period.

FICO Score — a three digit number that assesses a borrower’s credit risk. It takes into consideration repayment history, type of loan, and length of credit to help lenders determine the probability that an entity will repay a loan.

FinTech — short for Financial Technology, it refers to the use of technology through softwares to carry out financial services.

Income Statement — the income statement is also one of the four basic financial statements. It reports the net income during the accounting period by subtracting the total expenses from total revenues.

Invoice financing (receivables financing) — a form of short-term borrowing based on issued invoices / accounts receivables. Zetl offers invoice financing that is fast, confidential, digital, and that doesn’t require personal guarantee.

Letter of credit — a financial instrument between the seller’s bank and the buyer’s bank that guarantees that the buyer’s bank will pay the seller’s bank.

Liabilities — liabilities represent the amount of financing that is provided to the entity by creditors.

Loan to Value (LTV) Ratio — is used to determine how much risk a lender is taking on. It compares the loan amount to the market value of the asset securing the loan. The formula is: LTV = Current amount owed / value of the asset.

Monthly Recurring Revenue (MRR) — like AAR, it is a prediction of the revenue stream that a company expects to receive from its customer on a monthly basis.

Net Income = Revenues — Expenses. It is also referred to as net earnings or “the bottom line”. Losses occur when expenses exceed revenues and profits are made when revenues are greater than expenses.

Net Interest Income (NII) = interest earned — interest paid.

Net Worth = assets — liabilities. It evaluates the financial health of an entity by calculating the difference between assets and liabilities.

Operating Income — the amount of profit calculated by subtracting operating expenses from total revenues.

Payroll financing — provides businesses with immediate capital to fulfill their monthly staff expenditure. It is typically done by pledging the accounts receivables to a financing company. Discover more about payroll financing and how it can help with your business growth on our blog.

Personal guarantee — an individual’s responsibility to repay a loan or credit issued to a business if the entity is unable to repay the debt.

Revenues — revenues are the amounts that the business expects to receive from goods and services that have been sold to a customer, regardless of whether the customer has already paid for them or not.

Statement of Cash Flow — or Cash Flow Statement, divides the inflows and outflows of cash during the accounting period in three categories: operating, investing, and financing.

  • Cash flows from operating activities are related to earning income.
  • Cash flows from investing activities relate to the purchase and sale of the business’s investments.
  • Cash flows from financing activities have to do with the financing of the enterprise.

Stockholders’ Equity — stockholders’ equity is the amount of financing provided to the company by shareholders, donated capital, and reinvested earnings, less distributions to stockholders.

Trade finance — trade finance is an umbrella term that deals with financial products and services. To know more about trade finance check out our blog.

Working capital — working capital is a key financial metric that measures how much cash a business has to run its day-to-day activities for the next 12 months. Here you can find our blog post on how to manage working capital.