Do you wonder what are the meanings of the words you read or hear in business news? Do you get confused hearing the language of business your friends speak? Or you want to start a business or invest your money but do not know the basic financial words? Do not worry, you have come to the right place. We are going to help understand some common financial jargon. These will help you to understand the business world better. Also, you will have a high success rate. So, here are a few jargons you must know.
Accounts Payable (AP) and Account Receivable (AR)
As the name suggests, account payable(AP) is the money you need to pay to the suppliers. AP is for the goods and services you or your company received from them. These suppliers can be banks, other companies, or even an individual who provides you goods and services.
Account receivable(AR) is just like AP except in this the customer has to pay for the company’s goods and services. Many companies provide delivery before the payments and these payments are the ARs. Hence, these kinds of purchases are credited to customers’ accounts.
Account reconciliation is a matching process. It is to done check if the money taken from the account is equal to the money spent. It is to see that these two sets are the same and in agreement with each other. The account reconciles after the resulting balance and ending balance is equal. Therefore, it ensures that the balances are the same at the end of the accounting period.
Balloon Mortgage and Balance Sheet
A balloon mortgage is a loan paid at the end of the term. The amount is paid in a lump sum at the end of the term. There is low or no monthly interest in a balloon mortgage. The other name for balloon mortgage is a balloon payment. Since it is a large size or large amount, commercial real estate uses balloon mortgage.
A Balance Sheet is a financial record or a statement of a company’s assets, liabilities, and equity. It shows how much money you can spend or the money left after purchases and payments.
As the word suggests, earning announcements are the public announcements of a company’s earnings and profits. There is a specific time period for these announcements. Hence, the time of the announcement is yearly or quarterly. These announcements are used for kicking off the earnings season. Also, earnings announcements affect the share price in the market. It moves up or down depending on the company’s performance. In an earnings announcement, you will hear these terms frequently, EBITDA, GAAP, EPS, and net income.
It stands for earnings before interest, tax, depreciation, and amortization. It is the overall measure of a company’s performance. Furthermore, net income is used as an alternative to the specific situation. Unlike net income, back depreciation and amortization add to the profit of the company. EBITDA gives a more accurate image of the profits.
It is a “generally accepted accounting principle”. They are the standard and rules followed in accounting and financial reporting. Furthermore, the U.S. Securities and Exchange Commission has adopted it. GAAP is important in the finance world. It helps the investors evaluate the company. Furthermore, it helps the companies to have insight into their performances and practices.
Earnings per share are the profits of a company are the monetary value per common shares it has outstanding. It helps the inventors to evaluate a company’s earnings. Also, EPS affects the stock price after the earnings announcements.
Net income is the total income of the company. The calculation is done after subtracting all the expenses of the company. Also, the expenses also include taxes. If the net income of a company is increasing, there are two reasons for it. Either the expenses are decreasing or revenue is increasing. An increase in net income affects the stock market. Also, it is a positive sign for the company if net income high.
International funds are the mutual funds that companies invest in other companies in the world. These are not invested in the residential country. However, investments are done in emerging economies and growing markets all around the world. Foreign funds are another name for international funds. However, international funds are different from global funds. Since you can invest global funds in any country in the world including residential countries. Moreover, international should keep up with the securities trends. Managing with foreign currency trends is a must.
Preferred stock is a stock with a combination of features that common stock does not have. It is also called a hybrid instrument. Since it has the properties of both equity and debt instruments. Also, preferred shareholders do not have a voting right at shareholders’ meetings. But common shareholders have that voting right. Though common shareholders collect more dividends. But, preferred shareholders have priority over the company’s income. Also, they get dividends before common shareholders.
As the name suggests, recapitalization is the process of rebuilding a company’s structure to stabilize the capital structure. In the process of recapitalization, preferred stocks are exchanged with bonds. Usually, recapitalization is used if a large part of equity is replaced with debt and vice versa. However, new debt is issued in place of existing debts. One of the examples is the reorganization bonds.
These are some of the many financial jargons. Now that you know some terms of the finance world, you can start a business or invest your money with ease. You do not have to wonder when hearing these words in news bulletins or reading them. Also, you can flaunt the knowledge of this financial jargon amongst your finance-speaking friends.