Finance Level 1

Income Statement (IS)

Measures a company's financial performance (revenues and expenses) over a specific window of time like a quarter or a year.

Balance Sheet (BS)

A static snapshot of a company's financial position at a single moment in time, obeying the rigid rule: Assets = Liabilities + Equity.

Cash Flow Statement (CF)

Tracks the actual physical cash entering and exiting a company's bank account, divided into Operating, Investing, and Financing activities.

Net Income

The final profit line at the very bottom of the Income Statement after all operating expenses, interest, and taxes have been paid.

Revenue (Top Line)

The total amount of money a company physically brings in from selling its goods or services before any expenses are deducted.

COGS (Cost of Goods Sold)

The direct costs attributable to the production of the goods sold by a company (like raw steel, concrete, or factory labor).

Gross Profit

A company's revenue minus its Cost of Goods Sold (COGS), showing the pure profit on production before overhead.

SG&A (Selling, General & Administrative)

The indirect operational costs of running a business, often called overhead (like corporate office rent, executive salaries, and marketing).

Operating Income (EBIT)

Earnings Before Interest and Taxes. Calculated as Gross Profit minus SG&A, showing a company's profit purely from core operations.

EBITDA

Earnings Before Interest, Taxes, Depreciation, and Amortization. The ultimate corporate metric used to look at raw operational profitability before capital structure and accounting choices skew it.

Depreciation

An accounting method of allocating the cost of a physical asset (like an excavator or concrete mixer) over its useful lifespan rather than writing it off all at once.

Amortization

The exact same concept as depreciation, but applied exclusively to non-physical, intangible assets (like patents, copyrights, or trademarks).

CapEx (Capital Expenditures)

Funds used by a company to acquire, upgrade, and maintain physical assets such as property, plants, buildings, or heavy machinery.

Working Capital

The cash tied up in a company's day-to-day operations. Calculated as Current Assets (like inventory and cash owed by customers) minus Current Liabilities (bills the company owes).

Accounts Receivable (AR)

Money owed to a company by its customers for goods or services that have already been delivered but not yet paid for.

Accounts Payable (AP)

Money a company owes to its suppliers and vendors for goods or services it has already received but hasn't paid for yet.

Liquidity

How quickly and easily an asset can be converted directly into crisp cash without losing its market value.

Equity Value (Market Cap)

The total market value of a company's outstanding shares. This represents the value of the business strictly to its shareholders.

Enterprise Value (EV)

The total value of a company's core operations. It represents the theoretical cost it would take to buy the entire business (both its equity and its debt).

Net Debt

A company's total outstanding bank loans and bonds minus its current cash balance.

Valuation Multiples

Financial ratios used to compare companies apples-to-apples (e.g., EV

Discount Rate

The interest rate used in finance to determine the present value of future cash flows, reflecting the riskiness of the investment.

Present Value (PV)

The current worth of a future sum of money or stream of cash flows, calculated by applying a specific discount rate to account for time and risk.

IRR (Internal Rate of Return)

The annualized compounded rate of return that an investor expects to earn on a project or an acquisition. Think of it like a deal's interest rate yield.

LBO (Leveraged Buyout)

An acquisition strategy where a private equity firm buys a company using a small amount of equity and a massive amount of borrowed debt, using the target company's cash flow to pay off the loans.