The Importance of Money in Business Glossary

A
Accounting equation

Assets = Capital + Liabilities

Analyst

Short for investment analyst. A professional advisor to investors, responsible for analysing
information released by companies and interpreting and summarising it to help investors make
decisions

Angel investor

A private investor, usually an individual, who provides equity investment for the start-up or growth
phases of a business

Annual general meeting (AGM)

A meeting of shareholders in a company, at which directors may give presentations and answer
questions, and at which shareholders vote on major decisions. This is a legal requirement in many
countries

Annual report

A document produced by a company which contains the financial statements and other information
about performance, both financial and non-financial. Some of its content is highly regulated, and
some may have to be audited by independent accountants

Assets

Items owned by a business that allow it to generate profits. Examples are stock (inventory), cash,
property and equipment

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B
Backward looking information

Also known as historic information. Most financial accounting information reports on a financial
period that is already complete by the time the information is released by a company, so it is
backward looking

Balance sheet

A financial statement showing the financial position of an organisation at a point in time. Essentially,
it shows the split between assets, liabilities and capital at that point

Balanced scorecard

A commonly used tool developed by Kaplan and Norton in the 1990s. It is designed to capture the
link between strategy and success measurement, and is an integrated set of performance measures
linked to strategic objectives

Board

Short for board of directors. The board is the group of the most senior managers in an organisation

Board member

A member of the board of an organisation. Board members will typically be directors

Borrowing

Also known as debt. A liability representing amounts owed to lenders. An example of borrowing
would be a bank loan

Brand advocacy

A marketing term meaning how strongly customers would recommend a brand to others

Budget

A budget is a plan of what an organisation wants to achieve financially. The finance team is
involved in putting a budget together, typically as an annual process

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Budget price

A low price for the product or service which is being sold. This would typically be charged by a
business targeting cost-conscious consumers (for example, value ranges at supermarkets)

Business

An organisation that is separate from its owners and oriented towards making a profit for them

Business plan

The document that those starting a business need to put together to set out their vision and
persuade others to fund it

C
Call in

A lender asks for immediate repayment of amounts due to them

Capital

Also known as equity or investment. Money invested in a business, which pays for its assets

Capital expenditure

Expenditure on long-term (non-current) assets such as premises, equipment and vehicles

Cannibalise

To launch a new product or service, which has a negative impact on existing products or services
essentially swapping sales of the existing products for the new one, not increasing overall sales

Cash cycle

Measures how quickly money comes into and out of a business. Typically, it starts with payments
for stock, and ends with receiving cash from customers, but the steps in the cycle and the length of
the cycle will vary from business to business

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Cash flow forecast

This is a prediction of cash receipts and payments for a period of time extending into the future
(e.g. 3 months, 6 months or 1 year). It is a critical component of a business plan

Channel

Short for distribution channel. This is a method by which a business products or services reach its
customers. For example, channels could be retail, online or business to business sales

Chief executive

Also known as CEO (chief executive officer) or managing director. This is the senior director in
charge of the organisation

Clinical service unit

A type of organisation whose performance is monitored in the UK National Health Service

Code of ethics

A set of principles to guide ethical behaviour. ICAEWs code of ethics contains 5 principles

Company

One form of business structure, in which the owners (shareholders) invest money in exchange for
shares in the business. A company is a legal entity, registered as such under company law

Company secretary

A senior person within an organisation, who is responsible for ensuring regulatory and legal
requirements are met by a company and supports the board of directors

Corporate governance

Rules, policies and practices by which a company is run at board level

Corporate taxes

Also known as corporation tax or corporate income tax. A proportion of profits earned that are
payable to the government of a country
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Cost

Also known as expenses or overheads. These are amounts incurred in order to run a business.
Examples are purchases of goods, wages and salaries and rent

Cost of sales

Production and purchase costs to make goods or provide services being sold to customers. A cost
of running a business, which is deducted from sales to arrive at gross profit

Credit

The ability to buy now and pay later. Credit may be given to customers of a business, and/or
extended from suppliers to a business

Credit control

The process by which customers are assessed as to whether credit should be extended to them, and
the process by which amounts owed by customers to the business (debtors) are managed and
collected on time. The aim of credit control is to manage credit risk (how far the business is
exposed to customers not paying)

Creditor

See trade payable

Crowdfunding

Also known as crowdsourcing. A form of fundraising involving a large number of people

contributing a small amount of money, typically organised via dedicated internet sites

Crowdsourcing

See crowdfunding

Cumulative position

The position after the impact of several transactions has been taken into account. A balance sheet
shows the cumulative position of an organisation as at the date when it is produced

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D
Data

Distinct pieces of information, which can exist in a variety of forms as numbers or text on pieces
of paper, in electronic format, or as facts stored in a persons mind

Debt

See borrowing

Debtor

See trade receivable

Diluted

In finance, ownership being spread over a larger number of people than previously

Director

A senior manager within an organisation. Directors may sit on the board

Dividend

An amount paid to owners (shareholders) of a company, usually in cash, as part of the return on
their investment. Some companies pay interim (half year) and final (full year) dividends. The amount
to be paid is determined by the directors and approved by shareholders at the annual general
meeting

E
Employment taxes

Also known as payroll taxes. These are taxes imposed on employees and/or employers, which are
payable to the government of a country. Examples would be National Insurance and income tax in
the UK.

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Equity

See capital

Exit planning

A process by which a business owner plans how they will sell the business to maximise the price
and return on their own initial investment. The exit might be due to retirement, or wishing to move
on to start another business

Expenditure

The process of spending money

Expense

See cost

Export finance

Ways to fund or insure against the risk of selling products and services to overseas customers, who
might take longer to pay or be more likely not to pay than domestic customers. One common form
of export finance is letters of credit

F
Finance

See funding

Forecast

A prediction of what might happen in the future as a result of external and internal factors and their
impact on the business

Forward looking information

Financial and sometimes non-financial information that forecasts or sets expectations for future
performance. This is sometimes released by companies, but for listed companies, it is highly
regulated due to the lack of certainty inherent in forward looking information
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Finance director

Also known as CFO (chief financial officer) or head of finance. The person in charge of the finance
team within an organisation

Finance life-cycle

The usually annual to do list of finance team activities

Finance team

The group of employees and managers who manage the finances of an organisation

Financial accounting

See financial reporting

Financial controller

Also known as FC. A senior finance manager, who works for the finance director

Financial management

FM for short. The process by which financial aspects of an organisation are overseen and controlled

Financial period

A period of time covered by a set of financial accounts. This is typically one year, but can also be
one quarter (3 months) or a half year (6 months)

Financial reporting

Also known as financial accounting. Production of financial information for use by external
stakeholders. An example would be financial reporting within an annual report, which comprises a
statement of financial position (balance sheet), income statement (profit and loss account),
statement of cash flows and notes to the accounts

Four Ps

A marketing term used in business plan development. The four Ps are product, price, place and
promotion

Funding

Also known as finance. Money used to support an organisation, particularly when it is growing
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G
Grant

A form of funding provided to an organisation to fund a specific project or for a specific purpose,
for example to buy machinery or hire apprentices. They are non-repayable, and may be available
from national or local government or other not-for-profit organisations such as charities

Gross profit margin (GPM)

A profitability ratio showing how profitable a business is in terms of selling products or services

I
ICAEW

Institute of Chartered Accountants in England and Wales

In advance

A payment made before receiving the goods (or more commonly services) it is paying for. A
common example of a payment in advance is insurance, which is often paid for the full year in
advance

In arrears

A payment made after receiving the goods (or more commonly services) it is paying for. A common
example of a payment in arrears is salaries, which are often paid by a business at the end of the
month in which employees have done the work

Income

Monies earned by an organisation primarily from sales, but also from things like renting property to
others. For a not-for-profit entity, the income might come from donations or government funds

Income statement

A statement displaying items of income and expense in a reporting period (typically a year) as
components of profit or loss for the period. The statement shows whether the business has had
more income than expense (a profit) or vice versa (a loss)
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Interest

An amount payable on loans, which provides a return to the lender

Inventory

Also known as stock. Materials or finished goods which will be sold by a business. This is an asset
of the business

Investment

See capital

Investor

See shareholder

Investor relations

A specialist team, particularly in listed companies, which manages two-way communication with
investors

IT

Abbreviation for information technology

K
Key performance indicator (KPI)

Financial and non-financial measures of performance of an organisation

L
Lender

An individual or organisation who has lent money to a business, in the expectation of being repaid
and, usually, earning interest on the borrowed funds

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Liability

An amount owed by a business to a third party. For example, a loan or a trade payable

Listed

A company whose shares are available for public trading on a stock market

Loss

A negative profit (i.e. when costs are larger than sales)

LUBS

Leeds University Business School

M
Management accounts

Financial information prepared for users internal to the business. Examples include budgets and
forecasts, performance monitoring information and information to support decision-making.
Management accounts are not made publicly available to external stakeholders of the business

Margin

A way of expressing profitability in percentage terms. See gross profit margin for an example

Market share

The percentage of a market that is represented by the sales of a businessh

N
Not for profit

An organisation whose aim is not to generate profits, but to fulfil another specific purpose, such as
providing public or charitable services

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O
Operating profit

Profit after deduction of day to day business running expenses (operating expenses)

Overdraft

A negative bank balance, which means that funds are being borrowed from the bank. This is a
method of short-term finance used by some businesses. An overdraft is typically repayable on
demand and interest is usually charged on it

Overhead

See cost

P
P and L

Profit and loss account. See income statement.

Payback

Also known as payback period. How long it takes for investors to recover their initial investment in
a business

Performance target

Desired levels of performance of an organisation, part of an organisation, or an individual, measured

in quantifiable terms. Performance targets may be financial or non-financial, or a mixture of both

Planning

The establishment of objectives and the formulation, evaluation and selection of policies, strategies,
tactics and action required to achieve them. Planning comprises long-term/strategic planning, and
short-term/operational planning

Premium price

A high price for the product or service which is being sold. This would typically be charged by a
business that targets wealthy consumers, and has a luxury reputation
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Profit

Income minus expenses, or sales minus costs. A profit is achieved if income is larger than expenses

Profitability ratios

Ratios which measure aspects of profitability of a business. Examples are gross profit margin and
return on capital employed

Public company

Also known as a publicly quoted company. A company which can sell its shares on a stock market.
It may not actually be listed but has the potential to be

R
Recurring item

This is an item of income or expenditure which repeats in the financial information period after
period. The opposite of this is a one-off or non-recurring item

Red tape

A British colloquial phrase meaning bureaucracy

Reforecast

A revised forecast, taking into account changes in external and internal factors which have an
impact on an organisation

Repayment date

The date on which a loan is due to be paid back to the lender

Retained profits

Also known as retained earnings. Profits kept within the business and not paid out to owners

Return (on investment)

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This is a gain in value for an investor or lender relative to the original investment or amount lent.
This could come in the form of a dividend or increase in share price for an investor, or interest on a
loan for a lender

Return on capital employed (ROCE)

A profitability ratio that shows how well the business is making use of capital from shareholders
and lenders to make profits.

Revenue

See sales

S
Sales

Income from customers in exchange for providing products or services to them. Also known as
revenue or turnover

Salaries

Amounts due to employees for the work they have done. Salaries are usually paid on a monthly
basis

Sales invoices

A document confirming goods or products sold, their price and any applicable sales taxes, as well
as other information required by legislation. It may be provided to a customer, but a copy would be
retained in an organisations records

Sales orders

A document confirming that a customer wishes to make a purchase. It would typically set out how
many products or services and the price agreed. It may be provided to a customer, but a copy
would be retained in an organisations records.

Sector

A subdivision of an industry, used as a way to categorise a business. There are formal sector
categorisations used for stock market purposes. For example, Marks and Spencer is in the consumer
services sector within the general retail business, for the purposes of the London Stock Exchange.

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Share

A share in the ownership of a business. A subdivision of equity investment in a company

Shareholder

Someone who has made an equity investment in a business. They own shares in the business. They
do this in order to get a share of the business profits. They exercise ultimate control of the
business through their voting rights, but also carry the highest level of risk of not getting their
money back if the business fails

Stakeholder

A group external to an organisation but who has an interest in particular aspects of its performance

Stock
This has two meanings in finance:

Also known as inventory

Also known as shares. Stock is a US equivalent term.

Stock exchange

See stock market

Stock market

Also known as a stock exchange. A group of buyers and sellers of shares. There are well-known
regulated stock markets in large financial centres such as London , New York and Shanghai

Surplus

A term used in not for profit accounting. A surplus occurs if income exceeds costs. Surpluses are
reinvested for use by the organisation

T
Time value of money

The concept that a person would prefer money now rather than money later, because of risks such
as inflation and non-repayment
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Trade payable

Also known as a creditor. This is a liability (amount owed) from an organisation to a supplier
because goods or services have been purchased but not yet paid for

Trade receivable

Also known as a debtor. This is an asset (amount due) from a customer to an organisation because
they have been sold goods or services but have not yet paid for them

Trade finance

Specialised forms of funding to support trade, either domestic or export. Examples include factoring,
in which trade receivables are collected by a third party, in exchange for a fee, thereby accelerating
the cash receipts for a business, compared with managing credit control in-house

Trading update

Information about sales and financial performance released by listed companies in between annual
reports

Transaction processing system

A system which performs, records and processes routine transactions

Transaction recording

Ensuring that the organisation has an accurate record of its sales, costs, assets, liabilities and capital

Turnover

See sales

U
Unique selling point (USP)

Also known as unique selling proposition. A marketing term meaning the characteristic or
combination of characteristics of a product or service which causes a customer to buy it, and/or
switch from an alternative

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V
Variance

A variance is a difference between budgeted and actual income or expenditure. Variances can be
favourable (if the actual profit is higher than the budgeted profit) or unfavourable (if the actual
profit is lower than the budgeted profit)

W
Wages

Amounts due to employees for the work they have done. Wages are usually paid on a weekly basis

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