Financial Terms

FINANCIAL TERMS
If your like many, you don't always understand what people are talking about when it comes to
loans. Without understanding the basic terminology when it comes to loans you just aren't setting
yourself up right to make an educated decision when it comes to applying for a loan. There are
hundreds of terms; Below are some of the most important:
Assets
Assets can be described as anything that holds value. Assets can be all types of things from cars
to houses. Assets can be used in helping to build credit. For example if you are applying for a
house loan, you might use your car as an asset, to show that if you default on a payment, that you
have assets to fall back upon such as your car.
Capital
Capital can be a bit of tricky term as it can be used in several different situations to do with
finances. Capital can be described as the assets that are available for use towards creating further
assets; it can also apply to the cash in reserve, savings, property, or goods.
Debt
Debt is amount of money or something of value that is borrowed from a person referred to as a
debtor. Usually a debt that is borrowed will carry some type of penalty along with the payback
such as an interest, or service.
Debt Consolidation
Debt Consolidation is replacing multiple loans with a single loan that is normally secured on
property. This can often reduce your (the borrowers) monthly outgoing interest payments by
paying only one loan which is secured on the property sometimes over a longer term. Because
the loan is secured, the interest rate will generally be considerably lower.
Equity
Equity is the difference between the value of a product (for example a house) and the amount
that is owed on it.
Liabilities
Liabilities refers to the sum of all outstanding debts in which a company or individual owes to
it's debtors.
Principal
Principal is used to describe the amount of money that is borrowed without including any interest
or additional fee's.
Term
Term refers to the length of a debt agreement. For example if you were to take out a loan for a
house over 10 years. 10 years would be the term.
Feel free to reprint this article as long as you keep the following caption and author biography in
tact with all hyperlinks.
Ryan Fyfe is the owner and operator of Loans Area [http://www.loans-area.com]. Which is a
great web directory and information center on Loans and related issues like Debt consolidation
and Credit issues.
Article Source: http://EzineArticles.com/35267
Glossary of Financial Terms*
List of Terms
Definition
Bonds
A certificate of debt issued to raise funds. Bonds typically pay a fixed rate of interest and are repayable at a
fixed date.
Capital Budgeting
The process of managing capital assets and planning future expenditure on capital assets.
Capital Investments
Funds invested by a business in its capital assets that are anticipated to be used before being replaced. Capital
investments are generally significant business expenses, requiring long-term planning and financing.
Current Asset
A balance sheet item, current assets are those items owned by the firm with the intention to generate profits or
other assets that can be converted to cash within one year. It includes cash, account receivables, inventory,
cash equivalents and other cash equivalents.
Convertible Loans :A loan with a provision allowing it to be converted to equity within a specific time frame.
Convertible Preference Shares

Preference equity shares issued by a business that include a provision allowing them to be converted to
ordinary equity shares after a specific time frame.

Creditors or Accounts Payable
Suppliers the company owes money to, usually for services or goods supplied.
Creditors' Turnover Rate

A short-term liquidity measure used to quantify the rate at which a business pays off its suppliers.
Debt Financing Debtors or Accounts Receivable

The money that you borrow to finance a business. Customers who owe the company money, usually for
services or goods supplied.
Debtors' Turnnover Rate : A short-term liquidity measure used to quantify the rate at which a business
receives payment from customers.
Default Risk or Risk of Default

The risk of loss due to non-payment by the borrower.
EBITDA
The earnings before interest, taxes, depreciation and amortization. It is the net cash inflow from operating
activities, before working capital requirements are taken into account.
EBITDA Margin
A measure of operating performance. It is calculated by dividing EBITDA by sales and is usually expressed as
a percentage.
Equity Financing: The issuance of ordinary shares to raise money for a business.
Factoring
Selling the interest in the accounts receivable or invoices to a financial institution at a small discount. It is
sometimes called "accounts receivable financing". Factoring helps a company speeds up its cash flow so that
it can more readily pay its current obligations and grow.
Fixed Assets
Fixed assets are those long-term tangible assets that the business has acquired for use to earn income over
more than one year. These assets normally must have a useful life over a few years and not expected to be
converted to cash in the current financial year. Examples include, factory, warehouse, equipment, fixtures and
etc.

Initial Public Offering (IPO

The sale of a company's shares to the public on a stock exchange for the first time.
Interest Coverage Ratio: An indication of the ability of a business to cover interest expenses with its income.
It is calculated by dividing income before interest and taxes by interest paid.
Letter of Credit
A written undertaking by a bank, given to a seller at the request and on the instruction of the buyer, to pay up,
at sight or at a future date, up to a stated sum of money within a prescribed time limit.
Trust Receipt
A financing facility for imports where a bank makes an advance to the buyer to settle an import sight bill. The
advance is generally for a certain period. On the due date, the buyer is required to settle the bill with interest at
an agreed rate.

Profit Margin
A measure of a company's profitability. It is calculated by dividing net profit by sales and is usually expressed
as a percentage.

Return on Equity (ROE) A measure of the return on each dollar of shareholder investment. It is calculated by
dividing net profit by equity and is usually expressed as a percentage.
Stock Turnover
A measure of inventory performance to show how fast stock is converted from purchases to sales. It is
calculated by dividing stock level by cost of sales x 365 days

Term Loan: A loan for a fixed period of more than one year and repayable by regular installments.

Financial Terms

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FINANCIAL TERMS

Article Source: http://EzineArticles.com/35267

Glossary of Financial Terms*

Convertible Preference Shares

Creditors' Turnover Rate

Debt Financing Debtors or Accounts Receivable

Default Risk or Risk of Default

Initial Public Offering (IPO

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