Important Finance Terms You Must Know

Here’s a clean, exam-friendly + practical list of important finance terms every finance individual should know. I’ve grouped them so they’re easy to remember and revise 👍

Basic Finance Terms

• Assets – What a person/company owns
• Liabilities – What a person/company owes
• Equity – Owner’s interest (Assets − Liabilities)
• Capital – Money invested in the business
• Revenue – Income from operations
• Expenses – Costs incurred to earn revenue
• Profit – Revenue − Expenses
• Cash Flow – Movement of cash in and out

Financial Statements

• Balance Sheet – Financial position at a point in time
• Income Statement (P&L) – Profit or loss over a period
• Cash Flow Statement – Cash from operating, investing & financing activities
• Working Capital – Current Assets − Current Liabilities

Investment & Market Terms

• Stock/Share – Ownership in a company
• Bond/Debenture – Fixed-income security
• IPO – Initial Public Offering
• Market Capitalization – Share Price × Total Shares
• Dividend – Profit distributed to shareholders
• Bull Market – Rising market
• Bear Market – Falling market
• Portfolio – Collection of investments
• Diversification – Spreading risk across assets

Risk & Return Concepts

• Risk – Uncertainty of returns
• Return – Gain or loss from investment
• Beta – Measure of market risk
• Volatility – Price fluctuation
• Systematic Risk – Market-wide risk
• Unsystematic Risk – Company-specific risk

Valuation & Ratios

• EPS (Earnings Per Share) – Profit per share
• P/E Ratio – Price ÷ EPS
• ROE (Return on Equity) – Profitability of equity
• ROA (Return on Assets) – Efficiency of assets
• Debt-Equity Ratio – Financial leverage
• Current Ratio – Liquidity position

Corporate Finance Terms

• Cost of Capital – Cost of funds
• WACC – Weighted Average Cost of Capital
• Capital Structure – Mix of debt & equity
• Leverage – Use of debt to increase returns
• Dividend Policy – Profit distribution decision

Time Value of Money

• Present Value (PV) – Current value of future money
• Future Value (FV) – Value of money in future
• NPV – Net Present Value
• IRR – Internal Rate of Return
• Discount Rate – Rate used to value future cash flows

Banking & Credit Terms

• Credit Risk – Risk of default
• Liquidity Risk – Inability to meet short-term obligations
• Collateral – Security for a loan
• NPA – Non-Performing Asset
• EMI – Equated Monthly Installment

Tax & Compliance

• Direct Tax – Income tax
• Indirect Tax – GST
• TDS – Tax Deducted at Source
• Tax Planning – Legal reduction of tax liability

Advanced Financial Analysis Terms

• EBIT – Earnings before interest & tax
• EBITDA – EBIT + Depreciation + Amortization
• Gross Margin – Gross Profit ÷ Revenue
• Operating Margin – Operating Profit ÷ Revenue
• Net Margin – Net Profit ÷ Revenue
• Free Cash Flow (FCF) – Cash left after capex
• Break-even Point – No profit, no loss level
• Contribution Margin – Sales − Variable Cost

Stock Market & Trading Terms

• Face Value – Original value of a share
• Book Value – Net assets per share
• Intrinsic Value – True value of a stock
• 52-Week High/Low – Price range in a year
• Circuit Breaker – Trading halt limit
• Upper/Lower Circuit – Max daily price movement
• Volume – Number of shares traded
• Liquidity – Ease of buying/selling

Derivatives & Risk Management

• Derivatives – Value derived from underlying asset
• Futures – Contract to buy/sell at future date
• Options – Right (not obligation) to buy/sell
• Call Option – Right to buy
• Put Option – Right to sell
• Hedging – Reducing risk using derivatives
• Speculation – High-risk trading for profit
• Arbitrage – Risk-free profit from price differences

Corporate Actions

• Bonus Issue – Free shares to shareholders
• Stock Split – Split of shares to reduce price
• Rights Issue – Shares offered to existing holders
• Buyback – Company repurchases its shares
• Delisting – Removal from stock exchange

Banking & Lending Terms

• CRR – Cash Reserve Ratio
• SLR – Statutory Liquidity Ratio
• Repo Rate – Rate at which RBI lends to banks
• Reverse Repo Rate – Rate RBI pays banks
• Base Rate / MCLR – Lending rate benchmark
• Priority Sector Lending (PSL) – Mandatory lending areas

Credit & Risk Assessment

• Credit Appraisal – Borrower evaluation
• Credit Rating – Risk score of borrower
• Debt Service Coverage Ratio (DSCR) – Repayment capacity
• Loan-to-Value (LTV) – Loan ÷ Asset value
• Default – Failure to repay loan
• Provisioning – Funds set aside for bad loans

Mutual Funds & Portfolio

• NAV – Net Asset Value
• AUM – Assets Under Management
• SIP – Systematic Investment Plan
• Lump Sum Investment – One-time investment
• Expense Ratio – Fund management cost
• Exit Load – Penalty for early exit

Mergers, Acquisitions & Strategy

• Merger – Two firms combine
• Acquisition – One firm buys another
• Takeover – Gaining control of a company
• Synergy – Combined benefit
• Hostile Takeover – Against management’s will
• Due Diligence – Financial/legal verification

Accounting & Costing Terms

• Depreciation – Asset value reduction
• Amortization – Intangible asset expense
• Accrual – Income/expense recorded when earned
• Provision – Expected liability
• Contingent Liability – Possible obligation
• FIFO / LIFO – Inventory valuation methods

Startup & Venture Finance

• Burn Rate – Monthly cash usage
• Runway – Survival time with current cash
• Valuation – Company worth
• Pre-money / Post-money – Valuation before/after funding
• Angel Investor – Early-stage investor
• Venture Capital (VC) – Institutional funding

International Finance

• Forex – Foreign exchange market
• Exchange Rate – Currency price
• Appreciation – Currency value rises
• Depreciation – Currency value falls
• FDI – Foreign Direct Investment
• FII / FPI – Foreign Portfolio Investment

Compliance & Governance

• SEBI – Market regulator (India)
• Insider Trading – Trading on non-public info
• Corporate Governance – Ethical company management
• Related Party Transaction – Deal with connected parties
• Audit – Financial statement verification

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