FINANCIAL TERMS THAT ONE SHOULD KNOW !!!

HERE ARE CERTAIN IMPORTANT FINANCIAL TERMS WHICH AN ENTREPRENEUR SHOULD KNOW, THESE TERMS ARE VERY MUCH NECESSARY SINCE THESE FINANCIAL TERMS GIVES THE INSIGHTS OF THE BUSINESS.MOREOVER THE KNOWLEGE AND UNDERSTANDING OF THE ENTREPRENEUR INCREASES TROUGH THESE FINANCIAL TERMS AND THEY CAN EASILY BE ABLE TO CO-RELATE THESE FINANCIAL TERMS IN THERE OWN BUSINESS VENTURE.

SO, HERE IS THE LIST OF 10 MOST IMPORTANT FINANCIAL TERMS WHICH AN ENTREPRENEUR SHOULD KNOW

1. CAPITALIZATION :- IT TELLS HOW THE COMPANY HAS FUNDED ITS FIXED ASSETS.FIXED ASSETS ARE THOSE ASSETS WHICH ARE GENERALLY FIXED AND WILL NOT CHANGE IN LONG COURSE OF TIME EX- LAND,MACHINERY,WAREHOUSING ETC IT IS ALSO KNOWN AS CAPEX, CAPEX SHOWS LONG TERM DEBT AND EQUITY IN A FIRM.THE EQUITY WILL SHOW PREFFERED STOCK, COMMON STOCK ADN PAID UP STOCK FROM OUTSIDE INVESTORS, AS WELL AS RETAINED EARNINGS FROM OPERATIONS.

2. DEPRECIATION :- DEPRECIATION IS BASICALLY SEEN AS A TAX SAVER FOR A FIRM BECAUSE IT SAVES TAX SINCE, DEPRECIATION IS APPLIED ON FIXED ASSETS HENCE A DEPRECIATION ACCOUNT HAS TO BE CREATED IN THE COMPANY FOR VARIOUS DEPRECIATION ON FIXED ASSETS. THE DEPRECIATION WHICH IS GENERALLY IN THE FORM OF MONEY IS COLLECTED UNDER THE NAME DEPERCIATION. THE COMPANY GENERALLY TRANSFERS A CERTAIN PERCENTAGE OF MONEY EVERY YEAR CONSIDERING THE NATURE OF FIXED ASSET. THIS TRANSFER OF MONEY ALLOWS THE ORGINIZATION TO GIVE LESS TAX THAN WHAT IS REQUIRED.

3. AMORTIZZATION :- IT TELLS THAT HOW SOME PURCHASES CAN BE POSTED TO THE COMPANY'S BOOK ON A PERIODIC BASIS.

4. THE MODIFIED ACCELERATED COST RECOVERY SYSTEM (MACRS) :- IT IS A METHOD OF DETERMINING THAT HOW MUCH OF A GIVEN ASSET VALUE CAN BE WRITTEN OFF EACH YEAR THE MACRS TABLE SHOWS US THAT WHAT PERCENTAGE OF ASSET'S VALUE CAN BE DEDUCTED AS TAX WRITE-OFF EACH YEAR OVER THE USEFUL LIFE OF THE ASSET.

5. MARGINAL COST :- MARGINAL COST IS THE COST WHICH IS INCURREDD TO PRODUCE ONE ADDITION UNIT OF THE PRODUCT. THIS CAPTURES THE INCREASE IN LABOUR AND MATERIAL COST OF A COMPANY.

6. GROSS PROFIT :- THE GROSS PROFIT IS THE DIFFERENCE BETWEEN THE PRICE AT WHICH IT'S SOLD, AND THE PER UNIT COST OF THE LABOR AND MATERIAL TO PRODUCE THAT UNIT.

7. GROSS MARGIN :- IT IS THE DIFFERENCE BETWEEN COST AND REVENUE BEFORE ACCOUNTING CERTAIN OTHER COST.

8. BURN RATE :- EVERY COMPANY HAS TO GO THROUGH CERTAIN OVERHEAD COSTS THAT HAS TO BE PAID EVERY MONTH REGARDLESS OF WHATEVER SALES THEY DO. THIS BURN RATE IS TYPICALLY OF WHATEVER COST GOES IN A MONTH LIKE RENT, PROPERTY TAXES, SALARIES, MARKETING BUDGET, PRINTING & COPYING ETC.BREAK-EVEN SALES ANALYSIS IS BASED HOW MUCH CASH THE COMPANY BURN CASH IN A MONTH.

9. BREAK-EVEN POINT :- THIS IS THE POINT IN THE ANNUAL OUTPUT WHERE THE NUMBER OF UNITS SOLD, OR NUMBER OF SERVICES PROVIDED, PRODUCES ENOUGH GROSS PROFIT TO COVER ALL THE FIXED OVERHEAD COSTS OF OPERATIONS.

10. VOLUME :- THIS REFERS TO THE QUANTITY OF UNITS OF OUTPUT WHICH THE COMPANY SELLS OR THE NUMBER OF TIMES ITS SERVICES HAVE BEEN USED BY THE CUSTOMER, THE COMPANY WILL FIRST DETERMINE ITS BREAK EVEN VOLUME, THEN HOW MANY UNITS BEYOND THAT POINT WILL BE THE PROFIT VOLUME WHERE AS TOTAL UNIT IS WHAT ALL UNITS A COMPANY HAS SOLD OR THE TOTAL SERVICE PROVIDED FOR THE YEAR.