Financial glossary for entrepreneurs
When the borrower makes a request to reduce his or her loan amortization period by increasing the amount or frequency of payments, allowing the loan to be paid off earlier.
A document that summarizes a company's assets, liabilities and shareholders’ equity at a specific point in time (as indicated at the top of the statement). It is one of the fundamental documents that make up a company’s financial statements.
Measures how much cash a company takes in versus how much it expends. More cash coming in than going out means the cash flow is positive. If the opposite is true, the cash flow is negative.
A financial ratio measuring a business’s capacity to generate adequate earning to repay its debt. It’s typically calculated by dividing the business’s operating profit before interest and depreciation by the annual principal and interest payments on its debt.
Acronym for Earnings Before Interest, Taxes, Depreciation and Amortization. It’s a fairly standard indicator of a company’s general financial performance.
A set of documents showing a company’s current financial status. They generally include the income statement, balance sheet, statements of retained earnings and cash flow.
Entrepreneurs collect sales taxes on behalf of federal and provincial governments. Most businesses collect the goods and services tax (GST) and/or the harmonized sales tax (HST). However, in British Columbia, Saskatchewan, Manitoba or Quebec, you may be required to register with the provincial government to collect the provincial sales tax—called the Québec sales tax in Quebec and the Retail Sales Tax in Manitoba.
Assets that cannot be easily converted into cash.
Also called letter of guarantee.
A document issued by a financial institution guaranteeing payment to a seller if certain conditions are met. The letter of credit serves as a payment guarantee for the seller regardless of whether the buyer ultimately pays.
Also called bottom line, net income or net earnings.
A company’s total income minus all the expenses, including taxes, interest, depreciation and amortization, or operating expenses for a determined period of time.
Also called selling, general and administrative expenses (SG&A). The costs of running a business. They include rent and utility costs, marketing expenditures, computer equipment and employee benefits. They are categorized as indirect expenses on an income statement because they do not directly contribute to the making of a product or delivery of a service.
A way of structuring loan security (the assets that would be taken over by creditors if the borrower defaulted on the loan) where creditors are said to be equal in terms of who gets paid first. This means that in the event of a loan default, distribution of the assets will occur proportionate to the amount owed to each creditor with no other preference. This allows for the risk exposure of each institution to be reduced.
A loan payment schedule that is adapted to the company’s cash flow availability. For example, a business in the tourism industry will have lower payments during its off-season months and higher payments during high-season period.
Assets that have a physical form, such as real estate, equipment, vehicles, furniture and inventory. Tangible assets are usually required as collateral by conventional lenders when considering a loan request.
Financing to cover everyday operations in a company, such as marketing, developing or launching new products.