*Glossary of Financial Terms*

List of Terms Definition
Bonds
A certificate of debt issued to raise funds. Bonds typically pay a fixed rate of interest and are repayable at a fixed date.

Capital Budgeting
The process of managing capital assets and planning future expenditure on capital assets.

Capital Investments
Funds invested by a business in its capital assets that are anticipated to be used before being replaced. Capital investments are generally significant business expenses, requiring long-term planning and financing.

Current Assets
A balance sheet item, current assets are those items owned by the firm with the intention to generate profits or other assets that can be converted to cash within one year. It includes cash, account receivables, inventory, cash equivalents and other cash equivalents.

Convertible Loans
A loan with a provision allowing it to be converted to equity within a specific time frame.

Convertible Preference Shares
Preference equity shares issued by a business that include a provision allowing them to be converted to ordinary equity shares after a specific time frame.

Creditors or Accounts Payable
Suppliers the company owes money to, usually for services or goods supplied.

Creditors' Turnover Rate
A short-term liquidity measure used to quantify the rate at which a business pays off its suppliers.


Debt Financing Debtors or Accounts Receivable
The money that you borrow to finance a business. Customers who owe the company money, usually for services or goods supplied.

Debtors' Turnnover Rate
A short-term liquidity measure used to quantify the rate at which a business receives payment from customers.

Default Risk or Risk of Default
The risk of loss due to non-payment by the borrower.

EBITDA
The earnings before interest, taxes, depreciation and amortization. It is the net cash inflow from operating activities, before working capital requirements are taken into account.

EBITDA Margin
A measure of operating performance. It is calculated by dividing EBITDA by sales and is usually expressed as a percentage.


Equity Financing
The issuance of ordinary shares to raise money for a business.

Factoring
Selling the interest in the accounts receivable or invoices to a financial institution at a small discount. It is sometimes called "accounts receivable financing". Factoring helps a company speeds up its cash flow so that it can more readily pay its current obligations and grow.


Fixed Assets
Fixed assets are those long-term tangible assets that the business has acquired for use to earn income over more than one year. These assets normally must have a useful life over a few years and not expected to be converted to cash in the current financial year. Examples include, factory, warehouse, equipment, fixtures and etc.


Initial Public Offering (IPO)
The sale of a company's shares to the public on a stock exchange for the first time.


Interest Coverage Ratio
An indication of the ability of a business to cover interest expenses with its income. It is calculated by dividing income before interest and taxes by interest paid.


Letter of Credit
A written undertaking by a bank, given to a seller at the request and on the instruction of the buyer, to pay up, at sight or at a future date, up to a stated sum of money within a prescribed time limit.


Trust Receipt
A financing facility for imports where a bank makes an advance to the buyer to settle an import sight bill. The advance is generally for a certain period. On the due date, the buyer is required to settle the bill with interest at an agreed rate.


Profit Margin
A measure of a company's profitability. It is calculated by dividing net profit by sales and is usually expressed as a percentage.


Return on Equity (ROE)
A measure of the return on each dollar of shareholder investment. It is calculated by dividing net profit by equity and is usually expressed as a percentage.

Stock Turnover
A measure of inventory performance to show how fast stock is converted from purchases to sales. It is calculated by dividing stock level by cost of sales x 365 days


Term Loan
A loan for a fixed period of more than one year and repayable by regular installments.