Money the company owes to its creditors, lenders and other institutions for goods and services received that are due and must be paid in the short term. Classified as a current liability.

A financial health indicator that measures the number times the company has paid its average accounts payable balance within a fiscal year. This ratio is calculated by dividing purchase made by a company by the average accounts payable balance (i.e. average of accounts payable at the beginning of the period and at the end of the period). Ideally the resulting ratio should be less than six to demonstrate that the company has the ability to pay its bills. Classified as an activity ratio.

Money owed to a company for goods delivered or services rendered and must be paid in the short term. Classified as a current asset.

A financial health indicator of how efficiently a company is in collecting its revenues; and measures the number times the company has received its average accounts receivable balance within a fiscal year. This ratio is calculated by dividing revenues earned by a company by the average accounts receivable balance (i.e. average of accounts receivable at the beginning of the period and at the end of the period). Ideally the resulting ratio should be less than six to demonstrate that the company is collecting its bills. Classified as an activity ratio.

An obligation to suppliers, lenders and other institutions that a company has assumed but for which it has not received documentation such as a supplier invoice. Accrued liabilities are recorded when the invoice has not arrived but for which there is sufficient documentation to estimate amount of the liability such as receipt of goods. The corresponding expense underlying the accrued liability is an accrued expense. Classified as a current liabilities.

Money to which a company is entitled because it has reached a certain milestone in a contract but when the contract terms do not allow the company to issue an invoice for the work completed. This receivable may also be accrued when the contract will pay the company for hours worked, rather than for a specific work product. Generally, receivables are accrued at year end to match revenues to expenses incurred. The corresponding revenue underlying the accrued receivable is an accrued revenue. Classified as a current asset.

A financial health indicator that measures the ability of a company to pay immediate its creditor demands using its most liquid assets (cash or assets that are easily converted into cash). This ratio is calculated by adding cash, accounts receivable and marketable securities and then dividing this sum by total current liabilities. Ideally the resulting ratio should be greater than 1.25 to demonstrate that the company has the ability to pay for its bills. Classified as a liquidity ratio.

A variety of financial health indicators that measure how efficiently a company is using its capital and resources. Key ratios in this group of ratios include working capital ratios (Accounts receivable turnover, Inventory turnover, Accounts payable turnover) and the fixed asset turnover ratio.

The reduction in value of an intangible asset. Intangible assets such as patents, brands, trademark, or copyright are amortized annually to reflect the reduction in the value of these assets. Accumulated amortization represents how much of an intangible asset’s value has fallen since it was originally established. Amortization and depreciation are often used interchangeably, but this is inaccurate because amortization refers to intangible assets, while depreciation refers to tangible assets.

A financial health indicator that measures the efficiency with which a company uses its assets to produce sales. The asset turnover ratio calculated by total revenues by the total or average assets (i.e. average of assets at the beginning of the period and at the end of the period). This ratio varies by industry and depends on the capital intensity of the industry. Classified as an activity ratio, of a company, a company with a high asset turnover ratio operates more efficiently as compared to competitors with a lower ratio.

Any tangible (inventory, machinery, building, etc.) or intangible (intellectual property, goodwill, etc.) resource that is owned by a person, group of persons or business and is expected to provide a future benefit or to have economic value. Assets may be classified as current assets, non-current or fixed assets, and intangible assets.

A financial indicator that measures the average number of days it takes for a company to receive payments from its customers within a fiscal year. This ratio is calculated by dividing the number of days in a fiscal year by the accounts receivable turnover ratio. The longer a company to pay its bills the more likely it is to experience cash flow challenges. Notably this receivable is normally interest free and is viewed a lost opportunity to use cash for other purposes. Classified as an activity ratio.

One of four financial statements that provides information on the financial standing of a company. The balance sheet is a report that summarizes the assets that a company owns, the money that is owed to lenders and investment that shareholders have made into the company at a specific point in time. The reports shows that Assets (what the company owns) minus Liabilities (what it owes its creditors) equals Shareholders’ Equity (what shareholders have invested in the company), on a specific date. Assets do not represent the financial worth of the company.

The sales (or volume of sales) when total revenues exceed total expenses. Break-even sales represent the minimum revenue (or sales units) a company is required to earn to ensure that it makes no losses. The break-even point analysis is calculated by dividing fixed costs by the contribution per unit (to determine break-even sales units) or by dividing fixed costs by the contribution margin percentage (to determine break-even sales).

A business plan is a document that summarizes the companies objectives, the actions and initiatives it intends to take to achieve those objectives, and the financial outcomes it expects as a result of its tactics. It provides an important narrative to lenders and shareholders by businesses to gain their commitment for a loan or investment. It is also used to communicate the company’s mission and vision to its employees, customers and suppliers to gain their support and participation in the company’s plan. This document organizes management towards a goal and it is often used to provide information to prospective financial institutions to make decisions on a business loan.

The length of time (in days) that it takes a company to convert its inventory into cash flows from sales those goods; adjusted for the grace provided by suppliers to repay them for inventory and/or purchases. In the case of service based companies, it is the length of time (in days) to collect cash after services are rendered adjusted for any payables that have accrued to generate those sales (e.g. subcontractor payables). Ideally a company with a very low cash conversion cycle does not require a lot of working capital to operate its business compared to one that has a long cycle. Notably, while a company waits to convert inventory or services into cash, it must still pay operating costs (payroll, rent, utilities, communications, etc.) to maintain operations.

Sales revenue minus total variable expenses incurred to earn that sales revenue. Variable expenses can include both variable manufacturing and sales expenses.

The unit of profit that is earned for each sale of unit. Contribution margin is equal to selling price minus variable manufacturing costs and variable selling costs. This margin can be calculated on a per unit basis or can be expressed as a percentage of the unit price.

All costs that have been incurred to produce a product or service which has been sold. In addition the cost of goods sold, other costs such as credit card charges, commissions, discounts, and installation costs would be included.

The costs that are incurred to produce goods that have been sold by a company. Costs typically include raw materials, parts and components, supplies, labour and factory overhead in the case of a manufacturing company. Factory overhead includes indirect labour, repair and maintenance, utilities, depreciation expense of equipment and facilities and other indirect costs associated with manufacturing operations. In the case of retail services, cost of goods sold would include the sale of products that have been purchased from suppliers.

Assets that can be converted into cash within the next 12 months or operating cycle, such as inventory, accounts receivable, prepaid expenses, marketable securities, taxes payable.

A company’s financial obligations that are due within the next 12 months or operating cycle, such as demand loans, accounts payable, government remittances payable, payroll liabilities, corporate taxes payable, customer deposits.

A financial health indicator that measures whether a company has the ability to meet its short term obligations (i.e. its current liabilities). This ratio is calculated by dividing current assets by current liabilities. Ideally the resulting ratio should be greater than 2.0 to demonstrate that the company has the ability to pay for its bills. Classified as a liquidity ratio.

A financial health indicator that measures the number of days inventory is held before it is sold to a customer. This ratio is calculated by dividing the number of days in a fiscal year by the inventory turnover ratio. The longer a company to hold on to its inventory, the longer it is incurring carrying costs, shrinkage, and obsolescence. Money tied up in inventory cannot be used for other purposes, reductions in inventory are a source of cash because the money was spent in the past. Classified as an activity ratio.

A financial health indicator that measures the average number of days it takes on average for a company to pay its bills and other obligations. This ratio is calculated by dividing the number of days in a fiscal year by the accounts payable turnover ratio. The longer a company to pay its bills the greater its current liabilities will be. Notably this debt is normally interest free and is viewed as free cash, and the longer a company can defer its payments to suppliers, the more cash it has available to deploy elsewhere. But this practice is not sustainable with key suppliers. Classified as an activity ratio.

A financial health indicator that measures whether a company generating adequate earnings to repay its debt. This ratio calculated by dividing the business’s operating profit before interest and depreciation by the annual principal and interest payments on its debt. This ratio is calculated by dividing current assets by current liabilities. Ideally the resulting ratio should be greater than 3.0 to demonstrate that the company has the ability to service its debt. Classified as a leverage ratio.

A financial health indicator that measures the percentage of total assets that are financed by creditors. This ratio measures the financial stability, where the higher the ratio, the higher the degree of leverage, the higher the risk of investing in that company. Ideally the resulting ratio should be no higher than 67% to demonstrate financial capacity to service its debt. Classified as a leverage ratio.

A financial health indicator that measures the ratio of total liabilities to total shareholders equity. This ratio measures the financial stability, where the higher the ratio, the higher the degree of leverage, the higher the risk to shareholders. Ideally the resulting ratio should be no higher than 2 to demonstrate financial capacity to service its debt. Classified as a leverage ratio.

The reduction in value of a physical asset. Physical assets such as property, plant and equipment, with the exception of land, are depreciated annually to reflect the wear and tear of an asset. Assets are depreciated using a variety of methods, over the estimated useful life of an asset. Accumulated depreciation represents how much of an asset’s value has been used since the time it was originally purchased. Amortization and depreciation are often used interchangeably, but this is inaccurate because amortization refers to intangible assets, while depreciation refers to tangible assets.

Costs that are directly related to manufacturing or providing services. Costs can be fixed or variable.

A share of profits that a company pays out to its shareholders.

Money loaned by the company to the related parties.

Money loaned by the company to the shareholders.

Money loaned by the related parties to the company.

Money loaned by the shareholders to the company.

Total revenues minus operating costs minus depreciation.

Acronym for earnings before interest and taxes. This is a standard indicator of a company’s general financial performance, calculated by taking total revenues minus operating costs.

Acronym for earnings before interest, taxes, depreciation and amortization. This is a standard indicator of a company’s general financial performance, calculated by taking total revenues minus operating costs.

Costs incurred to manufacture products but which are not directly related to the manufacturing of products or provision of services. These costs are included in the calculation of Cost of Goods Sold. Examples of overhead costs include rent, utilities, insurance, repair and maintenance, small tools, consumable supplies, etc. Some factory overhead costs will not change with changes in production volume, but other costs such as hydro, power, supervision are likely to change if production volumes increase.

A variety of financial health indicators that measure the finances of a company. Ratios are categorized as follows: Profitability ratios, Liquidity ratios, Leverage ratios and Activity ratios.

Reports that present an overview of the finances of a company. Information presented in financial reports are prepared under generally accepted accounting principles and standards to ensure that the information presented is a fair and true presentation of the company’s finances. There are four types of financial reports: the balance sheet, the income statement, the statement of changes in cash flow and the statement of retained earnings.

Physical assets such as buildings, vehicles, equipment, real estate, and leasehold improvements. These are all things that can be physically viewed and touched. These that are not intended to be turned into cash or be consumed within the next 12 months or operating cycle, such as property and equipment.

Costs that remain unchanged if production or sales volumes change.

Gross profit reported as a percentage of revenues.

Total revenues minus cost of sales (or cost of goods sold).

One of four financial statements that provides information the revenues earned and expenditures incurred by the during a specified period of time. The major components of this statement include revenues (or sales), cost of sales (inclusive of cost of goods sold), operating expenses (selling, general and administrative expenses), interest expenses, depreciation expenses, and taxes paid. Non-operating items, that is revenues and expenses that have no relationship to the main operations of the business (such as gains or losses on sales of assets, foreign exchange, special subsides) are captured at the bottom of the statement to ensure that readers can assess the profitability of the business before non-operating items. Revenues minus all expenses (including interest, depreciation, taxes and non operating items equals profit if greater than zero or loss if less than zero. Profit (and loss) are not the same as Net cash inflow (or out flow).

Costs that are indirectly related to manufacturing or providing services. Costs can be fixed or variable. Costs can be classified as indirect factory overhead, or selling, general and administrative costs.

Intangible assets are non-physical assets that play a role in your company’s success, even if they are not physical in nature. These assets have an instrumental role in the long term growth of a company and include such items as: brand recognition, licensing arrangements, copyrights and patents, computer software development, trade secrets, legal rights, etc. Oftentimes intangible assets play into your company’s long-term growth. Intangible assets can be broken down into two categories: those with indefinite useful lives, and limited-life intangible assets. These that are not intended to be turned into cash or be consumed within the next 12 months or operating cycle.

A financial health indicator that measures the number times inventory has been sold and replenished during fiscal year. This ratio is calculated by dividing purchase made by a company by the average inventory balance (i.e. average of inventory balance at the beginning of the period and at the end of the period). Ideally the resulting ratio should be converted to a “days inventory on hand” and be just a little higher than the supplier lead time required to replenish inventory, or the shelf life of the inventory (as in the case of food). Classified as an activity ratio.

A variety of financial health indicators that measure the financial stability of a company and its ability to meet its creditor obligations. Key ratios in this group of ratios include debt service ratio, times interest earned ratio, debt-to-assets ratio and debt-to-equity ratio.

Money owed by the company to suppliers, lenders, and other third parties.

A variety of financial health indicators that measure the ability of a company to meet its short term obligations. Key ratios in this group of ratios include quick ratio (or acid test ratio) and current ratio (or working capital ratio).

Money owed by the company to suppliers, lenders, and other third parties that are not due within the next 12 months or operating cycle.

A company’s total revenues minus all the expenses, including taxes, interest, depreciation and amortization, for a determined period of time. A negative profit is deemed a loss.

Costs incurred in the normal course of business. Costs exclude cost of sales (cost of goods sold) and other expense that such as one-time settlements, accounting adjustments, taxes, etc.

Total revenues minus operating costs minus interest and depreciation.

Costs that are not directly related to the manufacturing of products or provision of services. Example of overhead costs include rent, utilities, insurance, administrative and management salaries, office supplies, etc.

A variety of financial health indicators that measure the profitability of a company. Profits are calculated along a number of dimensions and are stated as a percentage of total revenues. Profit categories include gross profits, contribution margin, operating profit, earnings before interest, taxes, depreciation and amortization, and net income.

Profits that have been retained and reinvested into the company since its inception.

A financial health indicator that measures the profitability of a company in terms of the total assets it employs. This ratio is calculated by dividing annual net income, excluding taxes and financing charges, by average total assets i.e. average of assets at the beginning of the period and at the end of the period). Classified as a profitability ratio. This ratio will vary by industry.

A financial health indicator that measures the profitability of a company in terms of the total shareholders’ equity invested in the company. This ratio is calculated by dividing annual net income, excluding taxes and financing charges, by average shareholders’ equity i.e. average of assets at the beginning of the period and at the end of the period). Classified as a profitability ratio. This ratio will vary by industry.

A financial indicator to evaluate the profitability of an investment and is used to compare the efficiency of alternative investment opportunities. This ratio is calculated by estimating the total benefit (return) that is anticipated from the investment divided by the cost of the investment (annualized.)

A financial health indicator that evaluates the profit a company earns in terms of the total revenues generated. This ratio will vary by industry. Classified as a profitability ratio.

Costs incurred to execute selling, general and administrative functions and other general costs that are not directly related to the manufacturing of products or provision of services. Selling, general and administrative overhead costs have to be paid even if there were no sales. Examples of overhead costs include office and management salaries, insurance, office supplies, professional fees, etc.. Some S,G, & A costs will not necessarily change with changes in sales volume, but some could change and examples of these include sales commissions, sales discounts, etc..

The net worth of a company reported on the balance sheet. It represents the dollar value of the amount that would be returned to the company if its assets were liquidated at the book value reported on the balance sheet less the debts that are repaid to creditors of the company. Equal to total assets minus total liabilities of the company.

One of four financial statements that provides information how the money (cash inflow) as come into the business and how it has been spent (cash outflow) over a specified period of time. The cash inflows (and outflows) are organized into three sections: cash flows associated with operating activities (cash collected from sales, cash paid on operating activities, cash used purchase inventory, etc.); cash flows associated with investing activities (such as purchasing or selling marketable securities, fixed assets, etc.); and cash associated with financing activities (such as cash received from new loans, cash used to repay loans, cash received from (or paid out to) shareholders, etc.)

One of four financial statements that provides information on profits that have been retained and reinvested into the company since its inception. The statement is a cumulative assessment of how much income has been earned by the company less dividends that have been paid to shareholders. The beginning balance of retained earnings plus net income less dividends equals the ending balance of retained earnings. Sometimes this statement is presented separately or it may be appended to the bottom of another financial statement such as the income statement.

A financial health indicator that measures whether a company generating adequate earnings to repay its debt. This ratio calculated by dividing the business’s annual operating profit before interest and depreciation by its annual interest payments on its debt. This ratio is calculated by dividing current assets by current liabilities. Ideally the resulting ratio should be greater than 2.0 to demonstrate that the company has the ability to service its debt. Classified as a leverage ratio.

Costs that change as production or sales volumes change. Variable costs include variable manufacturing costs and variable selling costs.