Common Finance Phrases Explained

New to the world of finance? As with any other field, finance has its own set of terms and jargon that can leave outsiders and novices confused. In the following paragraphs, we shall share with you a number of common finance phrases and acronyms and their meanings to help you understand them.

1. Bull and Bear. We’re talking about money when we talk about finance, so what do these animals have to do with it? When you call someone a bull, he or she has a positive outlook of the market. So when the market is referred to as a bull market, it is a one that is on the rise. The opposite is true for bears and the bear market. Bears are those who have a negative outlook so a bear market is one that is on a decline.

2. Bottom Line. This is another common financial term that you will most likely encounter often. This simply refers to the net income or net earnings of the company (that is after-tax income or earnings), which is usually found on the bottom line of the income statement.

3. T-bill, T-note, T-bond. You will often come across these terms when the government sells securities. The t-bill has the shortest term which lasts for a year or less, the t-note has a term of two to 10 years and finally the t-bond has the longest term, which goes beyond 10 years.

4. ROI. This is an acronym that stands for Return On Investment. This measures the rate of return on the money that a business invests. Naturally, businesses want to put up investments that provide bigger returns than what they invested.

5. Assets and Liabilities. The former refers to the resources an individual or a business owns. The latter meanwhile are the debts that that person or business has.

6. Default. When you fail to make a loan or interest repayment, then it is said that you defaulted on your payment. This term is used anywhere from mortgages to bonds.

7. EBITDA. This stands for earnings before interest, taxes, depreciation, and amortization. This provides a picture of how profitable a business is with its current assets and operations on whatever it produces or sells. A business with positive EBITDA is usually considered profitable, while the opposite is true for a company with a negative EBITDA.

8. Q1, Q2, Q3, Q4. This simply refers to the quarters of the year, with three months for every quarter. So if, for example, data is presented that covers Q1, it means that the data covers the first quarter of the year, which is from January to March.

There you have it, some of the most common phrases and acronyms used in finance. Of course there are more terms that you need to be familiar with, but you will learn them as you go along.