Financial Statement Terms Flashcards
Income Statement (or Profit and Loss)
Revenue
Also referred to as “Top Line.” Called “Turnover” in the UK (they also call “z” “zed”!) The income generated from sale of goods or services, or any other use of capital or assets, associated with the main operations of an organization before any costs or expenses are deducted. Revenue is shown usually as the top item in an income statement from which all charges, costs, and expenses are subtracted to arrive at net income.
Income Statement (or Profit and Loss)
Cost of Goods Sold (COGS)
Cost of Goods Sold (COGS) The accumulated total of all costs used to create a product or service, which has been sold. These costs fall into the general sub-categories of direct labor, materials, and overhead. In a service business, the cost of goods sold is the labor, payroll taxes, and benefits of those people who generate billable hours.
Income Statement (or Profit and Loss)
Gross Profit
A company’s revenue minus its cost of goods sold. Gross profit is a company’s residual profit after selling a product or service and deducting the cost associated with the product’s production and sale.
Income Statement (or Profit and Loss)
Gross Margin (GM)
A company’s gross profit divided by its total revenue, expressed as a percentage. The gross margin represents the percent of total sales revenue that the company retains after incurring the direct costs associated with producing the goods and services sold by a company. The higher the percentage, the more the company retains on each dollar of sales to service its other costs and obligations. Gross margin can vary widely between verticals.
GM = (Revenue – COGS) / Revenue.
Income Statement (or Profit and Loss)
Sales, General, & Administrative Expense (SG&A)
Selling expenses - represent expenses needed to sell products (e.g. salaries of sales people, commissions and travel expenses, advertising, freight, shipping, depreciation of sales store buildings and equipment, etc.).
General and Administrative (G&A) expenses - represent expenses to manage the business (salaries of officers / executives, legal and professional fees, utilities, insurance, depreciation of office building and equipment, office rents, office supplies, etc.).
Income Statement (or Profit and Loss)
EBITDA
Earnings Before Interest, Taxes, Depreciation and Amortization. Net income with interest, taxes, depreciation, and amortization added back to it. Typically used to analyze and compare profitability between companies and industries because it eliminates the effects of financing and accounting decisions.
Income Statement (or Profit and Loss)
EBIT
Earnings Before Interest and Taxes. An indicator of a company’s profitability, calculated as revenue minus expenses, excluding tax and interest.
Income Statement (or Profit and Loss)
Net Income (or net profit in the UK)
Also call the “Bottom Line.” The amount of money remaining after all operating expenses, interest, taxes, depreciation and amortization have been deducted from a company’s total revenue.
Balance Sheet
Asset
Property owned by a person or company, regarded as having value and available to meet debts and commitments.
Balance Sheet
Liability
Legal debts or obligations that arise during the course of business operations. Liabilities are settled over time through the transfer of economic benefits including money, goods and services.
Balance Sheet
Equity
A stock or any other security representing an ownership interest. On a company’s balance sheet, the amount of the funds contributed by the owners (the stockholders) plus the retained earnings (or losses).
Balance Sheet
Retained Earnings
The portion of net earnings not paid out as dividends, but retained by the company to be reinvested in its core business or to pay debt. It is recorded under shareholders’ equity on the balance sheet. May be a negative amount.
Balance Sheet
Goodwill
The established reputation of a business regarded as a quantifiable asset, e.g., as represented by the excess of the price paid at a takeover for a company over its fair market value.
General
Capital Expenditure (Capex)
Expenditure creating a future benefit. A capital expenditure is incurred when a business spends money either to buy fixed assets or to add to the value of an existing fixed asset with a useful life extending beyond the taxable year. The capital expenditure costs are then amortized or depreciated over the life of the asset in question. Examples include: data center, server, copyright.
General
Depreciation & Amortization
Depreciation is the scheduled charging to expenses of a tangible asset (e.g. server, data center) over its useful life. Amortization is the scheduled charging to expenses of an intangible asset (e.g. software, goodwill, copyright, trademark) over its useful life.
