Regardless of your position within a company, it's important to know some basic English financial vocabulary so that you can participate in conversations and understand conversations about the company's financial situation. This lesson covers the most important words to know.
Revenue – income from doing business before paying expenses (also called “the top line”)
The company's revenue last year was $5 million.
Revenue Stream – one source of revenue for the company (ex. a particular product or service)
Apple's biggest revenue stream is the iPhone. Other revenue streams include the Mac, iPad and Apple Watch
Sales/Turnover – income from selling products
Starbucks's sales were 15% higher last quarter than the previous quarter.
Expenses – money paid to operate a business
Our company has many expenses but our biggest expense is the wages and salaries of staff.
Overhead Costs – the costs that are not specifically related to each product (ex. rent, utilities, advertising, consultancy fees, legal fees, insurance, etc.)
I think we can reduce our overhead costs by doing less advertising next quarter.
Profit – the amount of money that a company keeps after paying all their expenses and taxes (Also called “the bottom line” because it is the number on the bottom line of an income statement)
Although our revenue was quite high at $12.5M, our expenses increased to $10.5M, meaning that our profit was only $2M.
Profit Margin – the company's profit divided by its revenue (expressed as a % number). This calculation tells us what percentage of the revenue is kept as profit by the company. In the example above, the profit margin is 2M / 12.5M = 16%, which means the company kept 16% of their revenue as profit.
Our profit margin used to be higher, around 31%, but now it's decreased to only 23% because our expenses are higher and our revenue has not changed much.
Return – the amount of profit that comes from an investment (also expressed as a %)
We invested in some new equipment that is more efficient and we believe we've received a 20% return from that investment.
Losses – the opposite of profit (when your profit result is actually negative so you are losing money)
The company is failing and is now suffering losses. If it continues to lose money, it will go out of business soon.
Asset – something that a company owns that has value (equipment, real estate, inventory of products)
The company's assets are worth over $2B.
Current Asset: an asset that are expected to be sold, consumed or used within one year
Intangible Asset: an asset that is not physical (ex. a brand name or expertise)
Goodwill: the extra amount of money that another company would be expected to pay to acquire this company due to the company’s reputation, skill, and position in the market
Liability – something that a company owes and must pay (ex. debt like loans, accounts payable)
The company has paid off some of their liabilities and become healthier financially lately
Current Liabilities: short-term financial obligations that are due within one year
Long-term Liabilities: liabilities that are not due within one year
Capital – resources (usually money) that a company can use for investment
The company invests its capital very well, which has helped the business grow significantly.
Shareholders – people who own shares/stock of a company
Shareholders are very pleased with the new CEO's strategy.
Shareholder’s Equity – the amount of money that has been invested in a company from shareholders. It shows the amount of money that shareholders would hypothetically receive if the company closed down and the company's assets were sold and debt was paid completely.
The shareholder's equity is currently $6.25B
Retained Earnings – the money that a company keeps (“retains”) from past profits
The company's retained earnings continue rising as the business keeps growing.
Board of Directors (“the board”) – people who vote on major decisions for the company.
The Board of Directors voted to approve the company's acquisition of East Regional Bank.
Interest – money that is paid to someone who lends money
We have to pay 4.5% interest on the $500,000 loan we borrowed from the bank.
Forecast – prediction/estimation of the company’s financial future
Our economic forecast shows that we expect revenue to rise by around 8% next year.
Depreciation – when an asset loses value during its life
We must account for the depreciation of our factory equipment in our calculations.
Be fully prepared for doing business in English by learning the 200 most common business idioms and phrasal verbs with my e-book below:
Practice
Choose the correct option from the three options provided in each sentence below:
The company's expenses were higher than their revenue last quarter, which resulted in losses/profit/capital.
Rent is one of our biggest assets/overhead expenses/retained earnings.
Our vehicles are not worth as much as they used to be due to interest/depreciation/forecast.
The company will sell some of their liabilities/assets/profits to generate cash and pay some of their debt.
Our losses/revenue/profit margin is 17%, which is higher than our competitors because we can charge a higher price owing to our strong brand name.
The building that we bought in 2016 for $500,000 was sold for $900,000 last year, so our depreciation/return/liability was 80%.
If we borrow $100,000 we'll need to pay back more than that because of overhead costs/profit margins/interest.
We should invest our capital/interest/revenue in research and development.
Amusement parks is one of Disney's many revenue streams/liabilities/shareholders.
The company's biggest revenue stream/liability/return is a $2M loan that it owes to a lender.
Answers
The company's expenses were higher than their revenue last quarter, which resulted in losses.
Rent is one of our biggest overhead expenses.
Our vehicles are not worth as much as they used to be due to depreciation.
The company will sell some of their assets to generate cash and pay some of their debt.
Our profit margin is 17%, which is higher than our competitors because we can charge a higher price owing to our strong brand name.
The building that we bought in 2016 for $500,000 was sold for $900,000 last year, so our return was 80%.
If we borrow $100,000 we'll need to pay back more than that because of interest.
We should invest our capital in research and development.
Amusement parks is one of Disney's many revenue streams.
The company's biggest liability is a $2M loan that it owes to a lender.