119 Financial Terms | Finance and Analysis Words – BT School

Unlock the language of finance with our comprehensive guide to financial terms. From analysis to investments, here are all the finance & analysis words to know for B-school students and professionals.

Understanding financial terms is crucial in today’s complex financial landscape. So we’ve created a comprehensive guide on financial terms and analysis. From balance sheets and income statements to investment strategies and risk management, our list is designed to equip you in financial literacy.

Financial Statements and Reporting

These financial terms refer to the specialized vocabulary used in the world of finance to describe concepts, principles, and instruments related to money, investments, and financial transactions.

  1. Accounts Payable [uh-kounts pey-uh-buhl]: The amount a company owes to its creditors or suppliers for goods or services purchased on credit.
  2. Accounts Receivable [uh-kounts ri-see-vuh-buhl]: The amount of money owed to a company by its customers for goods or services provided on credit.
  3. Balance Sheet [bal-uhns sheet]: A financial statement that provides a snapshot of a company’s assets, liabilities, and shareholders’ equity at a specific point in time.
  4. Cash Flow Statement [kash floh steyt-muhnt]: A financial statement that shows the inflows and outflows of cash during a specific period, reflecting the company’s liquidity and cash management.
  5. Financial Ratios [fi-nan-shuhl rey-shee-ohs]: Quantitative indicators used to analyze and assess a company’s financial performance, profitability, liquidity, and solvency.
  6. Income Statement [in-kuhm steyt-muhnt]: A financial statement that summarizes a company’s revenues, expenses, gains, and losses over a specific period, resulting in net income or net loss.
  7. Profit Margin [prof-it mahr-jin]: A financial metric that measures the profitability of a company by expressing net profit as a percentage of revenue, indicating how efficiently the company generates profits from its sales.
  8. Return on Investment (ROI) [ri-turn on in-vest-muhnt]: A measure of the profitability or efficiency of an investment, calculated by dividing the net profit by the initial investment and expressed as a percentage.
  9. Statement of Cash Flows [steyt-muhnt of kash flohz]: A financial statement that provides information about the cash inflows and outflows from operating activities, investing activities, and financing activities during a specific period.

Financial Analysis and Valuation

  1. Asset Allocation [as-et al-uh-key-shuhn]: The distribution of a portfolio’s investments across different asset classes, such as stocks, bonds, and cash, aiming to balance risk and return based on an individual’s goals and risk tolerance.
  2. Beta [bey-tuh]: A measure of a stock’s volatility or sensitivity to market movements, used in determining the stock’s risk in relation to the overall market.
  3. Cost of Capital [kawst of kap-i-tl]: The required rate of return or the minimum return a company must earn on its investments to satisfy its investors and creditors, considering the cost of equity and the cost of debt.
  4. Discounted Cash Flow (DCF) [dis-koun-tid kash floh]: A valuation method that estimates the present value of future cash flows by discounting them back to their current value, considering the time value of money.
  5. Earnings Per Share (EPS) [ur-ningz pur sheyr]: A financial metric that measures the portion of a company’s profit allocated to each outstanding share of common stock, indicating the profitability on a per-share basis.
  6. Free Cash Flow [free kash floh]: The amount of cash generated by a business after deducting capital expenditures and necessary investments to maintain its current operations, indicating the cash available for distribution to investors or for further growth.
  7. Liquidity [li-kwid-i-tee]: The ability of a company to meet its short-term obligations and convert its assets into cash quickly without significant loss, reflecting the company’s financial stability and flexibility.
  8. Market Capitalization [mahr-kit kap-i-tuh-luh-zey-shuhn]: The total value of a company’s outstanding shares of stock, calculated by multiplying the current share price by the number of shares outstanding.
  9. Net Present Value (NPV) [net prez-uhnt val-yoo]: A financial evaluation method that calculates the present value of expected cash inflows and outflows from an investment, determining its profitability or value.
  10. Return on Assets (ROA) [ri-turn on as-ets]: A financial ratio that measures a company’s ability to generate profit from its assets, calculated by dividing net income by average total assets.
  11. Return on Equity (ROE) [ri-turn on ee-kwuh-tee]: A financial ratio that measures the return earned by a company’s shareholders on their investment, calculated by dividing net income by shareholders’ equity.

Financial Markets and Instruments

  1. Bond [bond]: A debt instrument in which an investor loans money to an entity, typically a government or corporation, for a fixed period at a predetermined interest rate.
  2. Commodities [kuh-mod-i-tees]: Raw materials or primary agricultural products that can be bought and sold, such as oil, gold, wheat, or coffee, often traded on exchanges.
  3. Derivatives [di-riv-uh-tivs]: Financial contracts whose value is derived from an underlying asset, such as stocks, bonds, commodities, or currencies, used for hedging, speculation, or arbitrage.
  4. Exchange-Traded Fund (ETF) [ex-cheynj trey-did fund]: An investment fund traded on stock exchanges that holds a basket of assets, such as stocks, bonds, or commodities, offering diversification and liquidity to investors.
  5. Futures [fyoo-cherz]: Contracts that obligate buyers and sellers to transact a specific asset at a predetermined price and future date, commonly used for hedging or speculation purposes.
  6. Hedge Fund [hej fuhnd]: An investment fund that pools capital from accredited individuals or institutional investors and employs a range of investment strategies to generate high returns, often with higher risk.
  7. Initial Public Offering (IPO) [ih-nish-uhl pub-lik oh-fer-ing]: The process by which a private company offers its shares to the public for the first time, allowing it to raise capital and become publicly traded.
  8. Mutual Fund [myoo-choo-uhl fund]: An investment vehicle that pools money from multiple investors to invest in a diversified portfolio of stocks, bonds, or other securities, managed by professional fund managers.
  9. Options [op-shuhnz]: Financial contracts that give the buyer the right, but not the obligation, to buy (call option) or sell (put option) an underlying asset at a specified price within a specific time frame.
  10. Stock Exchange [stok ik-steynj]: A regulated marketplace where securities, such as stocks and bonds, are bought and sold, facilitating efficient trading and providing transparency and liquidity to investors.

Financial Terms for Risk Management and Compliance

  1. Compliance [kuhm-plahy-uhns]: The adherence to laws, regulations, and internal policies by individuals and organizations to ensure ethical and legal conduct and mitigate the risk of penalties or reputational damage.
  2. Counterparty Risk [koun-ter-par-tee risk]: The risk that a party in a financial transaction may default on its obligations or fail to fulfill its contractual commitments, potentially causing financial losses.
  3. Liquidity Risk [li-kwid-i-tee risk]: The risk that an entity may encounter difficulties in meeting its short-term obligations or accessing sufficient cash to fund its operations, potentially resulting in financial instability.
  4. Market Risk [mahr-kit risk]: The risk of losses arising from adverse movements or fluctuations in financial markets, including changes in interest rates, exchange rates, commodity prices, or market volatility.
  5. Operational Risk [op-uh-rey-shuh-nuhl risk]: The risk of losses resulting from inadequate or failed internal processes, systems, or human errors, encompassing risks related to technology, fraud, legal compliance, or business continuity.
  6. Risk Management [risk man-ij-muhnt]: The process of identifying, assessing, and prioritizing risks, and implementing strategies and controls to mitigate, monitor, and manage risks to an acceptable level.
  7. Systemic Risk [si-stem-ik risk]: The risk that disruptions or failures in the financial system, such as a major market downturn, banking crisis, or economic recession, can have widespread negative effects on the overall economy.
  8. Volatility [vol-uh-til-i-tee]: The degree of variation or fluctuation in the price or value of a financial instrument, reflecting the level of risk or uncertainty associated with the investment.

Corporate Finance and Capital Markets

  1. Capital Budgeting [kap-i-tl buhj-it-ing]: The process of evaluating and selecting long-term investment projects or capital expenditures that align with a company’s strategic goals and generate positive returns.
  2. Corporate Governance [kor-puh-rit gov-ern-uhns]: The system of rules, practices, and processes through which a company is directed and controlled, involving the balance of power between management, shareholders, and other stakeholders.
  3. Debt Financing [debt fahy-nans-ing]: The raising of capital by issuing debt securities, such as bonds or loans, which must be repaid with interest over a specified period.
  4. Equity Financing [ek-wi-tee fahy-nans-ing]: The raising of capital by issuing shares of ownership in a company, enabling investors to become shareholders and participate in the company’s profits and losses.
  5. Initial Coin Offering (ICO) [ih-nish-uhl koin oh-fer-ing]: A fundraising method used by cryptocurrency startups, in which digital tokens or coins are sold to investors in exchange for capital, typically using blockchain technology.
  6. Mergers and Acquisitions (M&A) [mur-jerz and ak-wuh-zish-uhns]: The consolidation of two or more companies through various transactions, such as mergers, acquisitions, or takeovers, aiming to achieve synergies, growth, or market consolidation.
  7. Private Equity [pry-vit ek-wi-tee]: Equity investments made in private companies, often by institutional investors or private equity firms, providing capital and expertise to support growth, restructuring, or buyout strategies.
  8. Venture Capital [ven-cher kap-i-tl]: Capital invested in high-growth startups or early-stage companies with high growth potential, typically in exchange for equity, aiming to support their development and expansion.

Investment and Portfolio Management

  1. Asset Management [as-et man-ij-muhnt]: The professional management of investments and assets on behalf of individuals, institutions, or funds, aiming to achieve optimal returns while managing risk.
  2. Capital Gains [kap-i-tl gaynz]: The profits or gains realized from the sale of a capital asset, such as stocks, bonds, or real estate, exceeding the original purchase price.
  3. Diversification [dih-vur-suh-fi-key-shuhn]: A risk management strategy that involves spreading investments across different assets, sectors, or geographical regions to reduce exposure to any single investment and minimize risk.
  4. Investment Portfolio [in-vest-muhnt pohrt-foh-lee-oh]: The collection of investments, including stocks, bonds, real estate, and other securities, held by an individual, institution, or fund to achieve investment objectives.
  5. Portfolio Management [pohrt-foh-lee-oh man-ij-muhnt]: The professional management of an investment portfolio, including asset allocation, investment selection, risk assessment, and ongoing monitoring and rebalancing.
  6. Risk-Adjusted Return [risk-uh-jus-tid ri-turn]: The return on an investment adjusted for the level of risk taken, considering factors such as volatility, market conditions, and the investor’s risk tolerance.
  7. Stock Market [stok mahr-kit]: A marketplace where buyers and sellers trade stocks and other securities, providing companies with a platform to raise capital and investors with opportunities to buy and sell ownership shares.

Financial Planning and Personal Finance

  1. Budgeting [buhj-it-ing]: The process of creating a financial plan, setting financial goals, and allocating resources to meet those goals, including tracking income, expenses, and savings.
  2. Emergency Fund [ih-mur-juhn-see fund]: A savings account or pool of money set aside to cover unexpected expenses, such as medical emergencies, job loss, or car repairs, providing financial security and peace of mind.
  3. Estate Planning [ih-steyt plan-ing]: The process of arranging for the distribution of one’s assets and the management of affairs after death, including wills, trusts, power of attorney, and beneficiary designations.
  4. Financial Advisor [fi-nan-shuhl ad-vahy-zer]: A professional who provides financial guidance, advice, and recommendations on various aspects of personal finance, including investments, retirement planning, and risk management.
  5. Retirement Planning [ri-tahyuh-muhnt plan-ing]: The process of determining retirement goals and creating a financial strategy to accumulate the necessary funds for a comfortable retirement, including savings, investments, and pension plans.
  6. Tax Planning [taks plan-ing]: The process of organizing financial affairs and transactions in a way that minimizes tax liability and maximizes available tax deductions, credits, and exemptions within the legal framework.

International Finance and Trade

These financial terms serve as a common language for professionals in the finance industry globally, enabling effective communication and understanding across different sectors and countries.

  1. Balance of Trade [bal-uhns of treyd]: The difference between the value of a country’s exports and the value of its imports over a specific period, reflecting the trade surplus or deficit.
  2. Currency Exchange [kur-uhn-see ik-steynj]: The conversion of one currency into another at an agreed-upon exchange rate, facilitating international trade, travel, and investment.
  3. Foreign Exchange Market [for-in eks-change mahr-kit]: The decentralized market where currencies are bought and sold, providing liquidity and enabling the conversion of one currency into another.
  4. International Trade [in-ter-nash-uh-nuhl treyd]: The exchange of goods, services, and capital between countries, fostering economic growth, specialization, and cooperation in a global marketplace.
  5. Tariffs [tar-ifs]: Taxes or duties imposed on imported goods by governments to protect domestic industries, regulate trade, or generate revenue.

Financial Regulation and Compliance

  1. Basel III [bah-zuhl three]: A global regulatory framework for banks, introduced by the Basel Committee on Banking Supervision, aiming to strengthen bank capital requirements, risk management, and liquidity standards.
  2. Dodd-Frank Act [dod-frank akt]: A comprehensive financial reform legislation enacted in the United States, following the 2008 financial crisis, to regulate financial institutions, protect consumers, and enhance transparency.
  3. Financial Conduct Authority (FCA) [fi-nan-shuhl kuhn-duhkt uh-thaw-ri-tee]: A regulatory body in the United Kingdom responsible for overseeing financial markets, ensuring consumer protection, and promoting competition and integrity.
  4. Know Your Customer (KYC) [noh yohr kuhst-uh-mer]: The process of verifying the identity and assessing the suitability of customers or clients to prevent money laundering, fraud, and terrorist financing.
  5. Securities and Exchange Commission (SEC) [si-kyoor-i-tees and ik-steynj kuhm-mish-uhn]: The regulatory agency in the United States that administers federal securities laws, protects investors, and maintains fair and orderly markets.

Financial Technology (Fintech)

  1. Blockchain [blok-cheyn]: A decentralized, distributed ledger technology that enables secure and transparent recording of transactions across multiple computers or nodes, offering potential applications in finance, supply chain, and more.
  2. Cryptocurrency [krip-toh-kur-uhn-see]: A digital or virtual currency that uses cryptography for security and operates independently of a central bank, such as Bitcoin, Ethereum, or Litecoin.
  3. Mobile Banking [moh-buhl bang-king]: The use of mobile devices, such as smartphones or tablets, to perform banking transactions, access account information, and manage finances remotely.
  4. Peer-to-Peer Lending (P2P) [peer to peer len-ding]: An online platform that connects borrowers directly with lenders, bypassing traditional financial intermediaries, enabling individuals to lend and borrow money from one another.
  5. Robo-Advisor [roh-boh ad-vy-zer]: An automated digital platform that provides algorithm-based investment advice and portfolio management services to clients, using data-driven analysis and machine learning.
  6. Virtual Currency [vur-choo-uhl kur-uhn-see]: A type of digital currency used for online transactions, often with no physical counterpart, such as in-game currencies or reward points.

Economics and Macroeconomics

  1. Gross Domestic Product (GDP) [grohs duh-mes-tik prod-uhkt]: The monetary value of all final goods and services produced within a country’s borders over a specific period, serving as a measure of economic output.
  2. Inflation [in-fley-shuhn]: The sustained increase in the general price level of goods and services in an economy over time, eroding the purchasing power of money.
  3. Monetary Policy [mon-i-ter-ee pol-uh-see]: The actions and decisions of a central bank or monetary authority to manage the money supply, interest rates, and credit conditions to achieve economic stability and growth.
  4. Supply and Demand [suh-plahy and dih-mand]: The fundamental economic principle that describes the relationship between the quantity of a good or service supplied by producers and the quantity demanded by consumers at different price levels.
  5. Unemployment Rate [uhn-em-ploi-ment reyt]: The percentage of the labor force that is unemployed and actively seeking employment, serving as an indicator of economic health and labor market conditions.

Business Valuation and Financial Modeling

  1. Comparable Company Analysis (CCA) [kum-puh-ruh-buhl kuhm-puh-nee uh-nal-uh-sis]: A valuation method that determines the value of a company by comparing it to similar companies in the same industry, using financial ratios, multiples, and other metrics.
  2. Discount Rate [dis-kount reyt]: The rate of return used to determine the present value of future cash flows in discounted cash flow (DCF) analysis or business valuation, considering the risk and opportunity cost of capital.
  3. Financial Forecasting [fi-nan-shuhl for-kast-ing]: The process of estimating or projecting future financial outcomes and performance based on historical data, assumptions, and financial models.
  4. LBO (Leveraged Buyout) [el-bee-oh (lev-er-ijd bahy-out)]: The acquisition of a company using a significant amount of borrowed money or debt, with the acquired company’s assets serving as collateral for the borrowed funds.
  5. Valuation [val-yoo-ey-shuhn]: The process of determining the economic value or worth of an asset, company, investment, or financial instrument, often performed for mergers and acquisitions, financial reporting, or investment analysis.

Financial Statements and Analysis

  1. Balance Sheet [bal-uhns sheet]: A financial statement that provides a snapshot of a company’s assets, liabilities, and shareholders’ equity at a specific point in time, reflecting its financial position.
  2. Cash Flow Statement [kash floh statement]: A financial statement that summarizes the cash inflows and outflows from operating activities, investing activities, and financing activities, providing insights into a company’s cash flow and liquidity.
  3. Financial Analysis [fi-nan-shuhl uh-nal-uh-sis]: The process of evaluating a company’s financial performance, including profitability, liquidity, solvency, and efficiency, using various financial ratios, metrics, and comparative techniques.
  4. Income Statement [in-kuhm statement]: A financial statement that reports a company’s revenues, expenses, gains, and losses over a specific period, reflecting its profitability or net income.
  5. Ratio Analysis [rey-shoh uh-nal-uh-sis]: The examination and interpretation of financial ratios to assess a company’s performance, financial health, and efficiency, comparing them to industry benchmarks or historical data.

Financial Risk and Insurance

  1. Insurance [in-shoor-uhns]: A contract between an individual or business (the insured) and an insurance company (the insurer) that provides financial protection or reimbursement against specified risks in exchange for premium payments.
  2. Risk Assessment [risk uh-ses-muhnt]: The process of identifying, analyzing, and evaluating potential risks and their potential impact on business operations, financial performance, or investment decisions.
  3. Underwriting [uhn-der-rahy-ting]: The process by which an insurance company evaluates and determines the terms, conditions, and pricing of an insurance policy based on the applicant’s risk profile and the coverage requested.
  4. Actuary [ak-choo-er-ee]: A professional who assesses and manages financial risks, typically employed in the insurance industry, using mathematical and statistical models to analyze and predict future events or contingencies.
  5. Reinsurance [ree-in-shoor-uhns]: The process by which an insurance company transfers a portion of its risk to another insurance company, called the reinsurer, to reduce its exposure to large losses or catastrophes.

Financial Planning and Analysis (FP&A)

By familiarizing yourself with these financial terms, you can navigate the complexities of financial planning, enhance your financial literacy, and effectively participate in discussions and decision-making processes related to money and investments.

  1. Cost of Goods Sold (COGS) [kost uhv goods sohld]: The direct costs associated with producing or purchasing the goods or services sold by a company, including raw materials, labor, and production overheads.
  2. Financial Forecast [fi-nan-shuhl for-kast]: A projection or estimation of a company’s future financial performance, typically prepared using historical data, market trends, and assumptions.
  3. Key Performance Indicators (KPIs) [kee per-for-muhns in-di-key-ters]: Quantifiable measures used to assess and evaluate the success or performance of a business or specific activities, providing insights into strategic objectives and operational efficiency.
  4. Profit and Loss Statement (P&L) [prof-it and loss statement]: A financial statement that summarizes a company’s revenues, costs, expenses, gains, and losses over a specific period, resulting in the net profit or net loss.
  5. Variance Analysis [vair-ee-uhns uh-nal-uh-sis]: The process of comparing and analyzing the differences between expected or budgeted figures and actual results, identifying the causes of variations and their impact on performance.

Financial Institutions and Services

Financial terms are key to the vocabulary of financial institutions and encompass a broad range of concepts and practices governing banking, investment, insurance, and other financial activities. These terms are essential for navigating the complex landscape of financial services and making informed decisions.

  1. Commercial Bank [kuh-mur-shuhl bangk]: A financial institution that provides a range of banking services to individuals, businesses, and organizations, including accepting deposits, lending, and facilitating financial transactions.
  2. Investment Bank [in-vest-muhnt bangk]: A financial institution that assists companies and governments in raising capital through underwriting securities, providing advisory services, and facilitating mergers and acquisitions.
  3. Retail Banking [ree-tayl bangk-ing]: The provision of banking services to individual customers or small businesses, including deposits, loans, mortgages, and basic financial products and services.
  4. Universal Bank [yoo-nuh-vur-suhl bangk]: A financial institution that offers a wide range of financial services, including commercial banking, investment banking, and asset management, catering to both individuals and corporations.
  5. Wealth Management [welth man-ij-muhnt]: The professional advisory and financial planning services offered by financial institutions to high-net-worth individuals or families, encompassing investment management, estate planning, and tax optimization.

Business Management and Strategy

Understanding these financial terms is crucial for making informed financial decisions, managing business finances, evaluating investment opportunities, and analyzing financial strategy.

  1. Competitive Advantage [kuhm-pet-i-tiv ad-van-tij]: The unique attributes, resources, or capabilities that allow a business to outperform its competitors, differentiate its products or services, and achieve superior market position.
  2. Core Competencies [kor kuhm-pe-tuhn-seez]: The unique strengths, knowledge, or capabilities that are central to a company’s operations, strategic direction, and competitive advantage in its industry.
  3. Leadership [lee-der-ship]: The ability to guide, motivate, and influence individuals or teams to achieve shared goals and objectives, providing vision, direction, and inspiration.
  4. Organizational Culture [awr-guh-nuh-zey-shuhn-uhl kuhl-cher]: The shared values, beliefs, attitudes, and behaviors that shape the working environment and norms within an organization, influencing employee behavior and performance.
  5. Strategic Planning [struh-tee-jik plan-ing]: The process of defining an organization’s long-term goals, formulating strategies, and allocating resources to achieve a competitive advantage and drive sustainable growth.

Accounting and Auditing

Financial terms in the realm of accounting and auditing define and describe the fundamental concepts used in financial reporting, analysis, and audit procedures. These terms provide a standardized language for professionals to interpret financial information.

  1. Accrual Accounting [uh-kroo-uhl uh-koun-ting]: An accounting method that recognizes revenues and expenses when they are incurred or earned, regardless of when cash is exchanged, providing a more accurate representation of a company’s financial performance.
  2. Auditing [aw-di-ting]: The independent examination and verification of financial statements, records, and processes to ensure compliance with accounting standards, regulations, and internal controls.
  3. Generally Accepted Accounting Principles (GAAP) [jen-er-uh-lee ak-sept-ed uh-koun-ting prin-suh-puhlz]: A set of accounting principles, standards, and procedures that guide the preparation and presentation of financial statements, ensuring consistency, comparability, and transparency.
  4. Taxation [tak-sey-shuhn]: The process of imposing and collecting taxes on individuals, businesses, or other entities, in accordance with the tax laws and regulations of a particular jurisdiction.

Business Law and Contracts

These financial terms encompass a wide range of concepts related to business law, such as patents, liabilities, trademarks and more.

  1. Contract [kon-trakt]: A legally binding agreement between two or more parties that defines the rights, obligations, and terms of a business transaction or relationship, providing legal recourse in case of a breach.
  2. Intellectual Property [in-tuh-lek-choo-uhl prop-er-tee]: Legal rights and protections granted to individuals or businesses for their inventions, creative works, trademarks, or trade secrets, ensuring exclusive use and commercial benefits.
  3. Liability [lahy-uh-bil-i-tee]: The legal responsibility or obligation of an individual or business to settle debts, claims, or damages incurred as a result of their actions, negligence, or contractual agreements.
  4. Patent [pat-nt]: A form of intellectual property right granted to inventors, providing exclusive rights to produce, use, or sell an invention for a limited period, encouraging innovation and protecting inventions from unauthorized use.
  5. Trademark [treyd-mahrk]: A recognizable sign, symbol, word, or phrase used to distinguish and identify a company’s products or services from those of competitors, protected by law against infringement and misuse.
  6. Unfair Competition [uhn-fair kom-puh-tish-uhn]: The use of unethical, deceptive, or anti-competitive practices by businesses to gain an unfair advantage in the marketplace, such as false advertising, trademark infringement, or trade secret misappropriation.

Definitions and pronunciations are for informational purposes only and may vary slightly for different contexts or regions.

To send your feedback, suggestions, or requests for including new words in our financial terms dictionary, please comment below or reach out to us on LinkedIn at BusinessTenet.

Leave a Comment