Do you know the financial logic behind the reports that your company generates?
There’s no reason to fear the numbers. Numbers tell stories, and the data you are sitting on could be a trove of story ideas. Even budgets tell stories: Some things are valued by your organization, and others are not.
Here are 27 important terms every communicator should know:
1. Accruals. Expenses that have been incurred but haven’t yet been recorded in the company’s books. An example would be wages or taxes.
2. Adjusted EBITDA. EBITDA stands for “earnings before income taxes, depreciation and amortization.” This figure is a standardization of the EBITDA measure so you can accurately compare the value of two dissimilar organizations.
3. Annual report. Yearly report on the health of a company to shareholders. It usually includes a letter from the CEO; financial statements including balance sheet, income statement and cash flow statement; and auditor’s report—a summary of financial data and accounting policies.
4. Annuity. A financial product that pays out a yearly amount, usually used as income streams for retirees.
5. Balance sheet. A snapshot view of your organization’s finances. This should list both assets and liabilities.
6. Cash conversion cycle (CCC). Measured in days, this is the time it takes your organization to collect money from sales and turn over inventory. The shorter the cycle, the better.
7. Cash flow. The money that passes through your organization in the course of its operations. If it’s poorly managed (too much cash going out and not enough coming in), you won’t have enough capital to run your business, or “stay liquid.”
8. Cash flow statement. A report that details and summarizes the cash entering and leaving your organization. This is one of the three most important financial reports about your company.
9. Cash position. The state of your level of cash relative to your organization’s expenses and liabilities.
10. Depreciation. How an asset loses value over time, due to wear and tear. An example of depreciation from everyday life is how a car loses value as it ages.
11. Dividend. A distribution of a part of the company’s earnings to a select class of shareholders. This is managed by the board of directors but is voted on by shareholders who have voting rights.
12. Earnings per share (EPS). A company’s profit divided by the outstanding shares of its common stock. The number is often used to measure a company’s profitability.
13. Fixed asset. A business holding that cannot be easily offloaded or monetized. Some examples include real estate, manufacturing equipment or other long-term investments.
14. Fixed capital. This is the total value of your holdings, including assets and investments; it can be tangible, like goods and buildings, or intangible, like intellectual property.
15. Gross profit. This is the raw profit you get from the sale of a product, minus direct costs from making that product. These costs might include raw materials, labor costs and marketing expenses.
16. Income statement. An incredibly valuable measure of an organization’s health and viability. This reports how much the business has earned and spent over a given period of time, recording either a net gain or a net loss. This can also be called a profit and loss statement.
17. Intangible asset. Something you own that isn’t physically touchable, such as intellectual property.
18. Liability. In business, this term refers to when you have a legal obligation to pay or otherwise settle a debt. A liability can be current (payable in one year or less) or long-term (payable after one year). They are listed on your balance sheet and include accounts payable, wages, taxes and accrued expenses.
19. Liquidity. This refers to how easily an asset can be converted into cash. If your assets aren’t “liquid,” you can’t use them to settle short-term debts and obligations.
20. Margin. In a general business sense, margin is the difference between a product’s or service’s selling point and the cost of production.
21. PP&E. A report that looks at the value of property, plants and equipment held by a company. To get the number, add value of these assets plus capital expenditures and subtract for depreciation.
22. Profit and loss statement. Also called a P&L or an income statement. This reports how much the value a business has brought in and lost over a given period, recording either a net gain or a net loss.
23. Recurring revenue. This refers to a stream of expected, periodic sales, instead of one-off purchases. Businesses want to develop this kind of revenue to be sustainable. Examples include renewing subscriptions and long-term contracts.
24. Return on sales (ROS–not to be confused with RoUS). A ratio used to evaluate a company’s operational efficiency. It measures how much profit is produced per dollar of sales.
25. Statement of shareholders equity. You are required to share changes in your equity as reported on your balance sheet to shareholders or to part owners of your business.
26. Turnover. This measures how quickly you collect cash from your operations. It often refers to how quickly you move inventory and collect cash from accounts receivable.
27. Working capital. The financial resources needed maintain the day-to-day operations of a company. By definition, working capital consists of cash or assets you can easily liquidate.
What would you add to the list Ragan/PRDaily readers?