Financial Terminologies and Ratio Reference Guide for Data Analysts

I still remember the frustration I felt as a young data analyst, stuck between my technical expertise and the mysterious world of finance. I knew I needed to bridge the gap between my technical background and the world of finance. So, I took the initiative to learn key concepts, and it changed everything.

Today, I’m excited to share my insights with you, so you can navigate the world of finance with confidence.

Firstly, understand the difference between Budget, Forecast, and Actual.

Category	Timing	Purpose	Example
Budget	Beginning of period (e.g., Jan 1, 2024)	Planning and allocation: A planned estimate of income and expenses for a specific period – by management team.	A company budgets $100,000 for marketing expenses in 2024.
Forecast	During the period (e.g., June 30, 2024)	Prediction and adjustment: A predicted estimate of future income and expenses based on historical data and trends.	A company forecasts $120,000 in marketing expenses for 2024 based on a 20% increase from the previous year.
Actual	End of period (e.g., Dec 31, 2024)	Recording and evaluation: The real income and expenses incurred during a specific period.	The company actually spends $110,000 on marketing expenses in 2024.

General Terms

SN	Topic	Synonyms	Details and Examples
1	Assets		Resources owned by a company that hold economic value. Example: Cash, accounts receivable, and property are all examples of assets on a company’s balance sheet.
2	Liabilities	Debts, Obligations	Financial obligations or debts owed by a company to external parties. Example: Accounts payable, bank loans, and bonds payable are common liabilities found on a balance sheet.
3	Equity	Shareholders’ Equity, Net Worth	Residual interest in the assets of a company after deducting liabilities. Example: Common stock, preferred stock, and retained earnings are components of a company’s equity.
4	Revenue	Sales, Income	Income generated from the sale of goods or services by a company. Example: Sales revenue from product sales or service fees earned by a consulting firm.
5	Expenses	Costs, Expenditures	Costs incurred in the process of generating revenue for a company. Example: Rent, salaries, utilities, and marketing expenses are all types of operating expenses for a business.
6	Profit	Net Income, Earnings	Positive financial gain resulting from revenue exceeding expenses. Example: Net income is calculated by subtracting total expenses from total revenue on a company’s income statement.
7	Cash Flow		Movement of cash in and out of a company over a specific period. Example: Operating cash flow represents the cash generated or used in the core operations of a business.
8	Depreciation	Amortization	Allocation of the cost of tangible assets over their useful lives. Example: Machinery, equipment, and buildings are depreciated over time to reflect their wear and tear and loss of value.
9	Dividends		Distribution of a portion of a company’s earnings to its shareholders. Example: A publicly traded company may pay dividends to its shareholders quarterly or annually as a return on investment.
10	Interest		Cost of borrowing money, usually expressed as a percentage. Example: Interest is paid on loans, bonds, mortgages, and other forms of debt used by individuals and businesses.
11	Capital		Financial assets or the money used to start or operate a business. Example: Equity financing and debt financing are two primary sources of capital for businesses.
12	Budget		Financial plan outlining expected revenues and expenses over a specific period. Example: A company creates an annual budget to allocate resources and track financial performance throughout the year.
13	Return on Investment (ROI)		Measure of the profitability of an investment relative to its cost. Example: A project with a high ROI generates greater returns compared to its initial investment, indicating its efficiency.
14	Assets Under Management (AUM)		Total market value of assets that a financial institution manages on behalf of clients. Example: An investment firm’s AUM includes the value of stocks, bonds, mutual funds, and other investments.
15	Financial Statement		Formal records of a company’s financial activities and position. Example: The balance sheet, income statement, and cash flow statement are the three main financial statements used by businesses.
16	Gross Profit Margin		Percentage of revenue that exceeds the cost of goods sold. Example: A gross profit margin of 30% means that for every dollar of revenue, the company retains 30 cents after covering production costs.
17	Net Profit Margin		Percentage of revenue remaining after deducting all expenses. Example: A net profit margin of 15% means that 15 cents out of every dollar in revenue represents profit after all expenses are paid.
18	Working Capital		Measure of a company’s short-term liquidity and operational efficiency. Example: Working capital is calculated by subtracting current liabilities from current assets on a company’s balance sheet.
19	Return on Equity (ROE)		Measure of a company’s profitability relative to shareholder equity. Example: A high ROE indicates that a company efficiently utilizes its equity to generate profits for shareholders.
20	Earnings Before Interest & Taxes (EBIT)	Operating Income, Operating Profit	Measure of a company’s operating performance before deducting interest and taxes. Example: EBIT is calculated by subtracting operating expenses from gross profit on a company’s income statement.
21	Earnings Per Share (EPS)		Portion of a company’s profit allocated to each outstanding share of common stock. Example: If a company earns $1 million in profit and has 1 million outstanding shares, its EPS is $1.
22	Liquidity		Ability to convert assets into cash quickly without significant loss of value. Example: Cash and marketable securities are highly liquid assets, while real estate and equipment are less liquid.
23	Solvency		Ability of a company to meet its long-term financial obligations. Example: A company with strong solvency has sufficient assets to cover its debts and maintain operations over the long term.
24	Capital Expenditure (CapEx)		Funds spent by a company to acquire, upgrade, or maintain physical assets. Example: Purchasing new machinery, building a factory, and upgrading technology infrastructure are examples of CapEx.
25	Financial Ratios		Quantitative metrics used to assess a company’s financial performance. Example: Current ratio, debt-to-equity ratio, and return on assets are common financial ratios used for analysis.
26	Amortization		Allocation of the cost of intangible assets over their useful lives. Example: Amortization expenses are recorded for items like patents, trademarks, and copyrights over their estimated useful life.
27	Credit Rating		Assessment of the creditworthiness of a borrower or issuer of debt securities. Example: Credit ratings provided by agencies like Moody’s or S&P help investors evaluate the risk of investing in bonds.
28	Yield		Return on an investment in the form of interest, dividends, or other distributions. Example: A bond’s yield represents the annual interest payments received relative to its current market price.
29	Valuation		Process of determining the present value of an asset or company. Example: Valuation methods include discounted cash flow, comparable company analysis, and asset-based valuation approaches.
30	Financial Modeling		Technique of building mathematical models to forecast financial performance. Example: Financial models are used to project future cash flows, analyze investment opportunities, and assess risk.
31	Accounts Receivable (AR)	Receivables, Debtors	Amounts owed to a company by its customers for goods or services provided on credit. Example: AR represents sales made to customers who have yet to pay their invoices within the agreed-upon terms.
32	Accounts Payable (AP)	Payables, Creditors	Amounts owed by a company to its suppliers or vendors for goods or services received on credit. Example: AP includes invoices from suppliers that have not yet been paid by the company.

Mathematical Terms (Ratios)

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SN	Topic	Synonyms	Details and Examples
33	Accounts Payable Days Ratio		Accounts payable / COGS x 365. Average number of days a firm takes to pay for items purchased.
34	Accounts Payable Turnover		Cost of sales / Accounts payable (either the ending balance or average balance). This ratio measures how effective management is in paying its suppliers.
35	Accounts Receivable Days Ratio		Accounts receivable / Sales x 365. Average number of days a firm takes to collect payments on goods sold.
36	Accounts Receivable Turnover		Sales / Accounts receivable (either the ending balance or average balance). This ratio measures how effective the company’s credit and collection policies are.
37	Acid Test	Quick Ratio	A measure of a company’s ability to meet its short-term obligations with its most liquid assets. Calculated as (Current Assets – Inventory) / Current Liabilities.
38	Administration Cost Ratio		Administration costs / Sales. This margin shows the general overhead cost for each dollar of sales.
39	Amortization		The gradual reduction of a financial amount over time.
40	Asset Turnover Ratio		Sales / Total assets. This ratio shows how effective the company is in generating sales from its assets.
41	Audit		The process of examination and verification of a firm’s books of account, transaction records, and other relevant documents, including financial models.
42	Average Balance		(Opening balance – Closing balance) / 2. This balance can be used to calculate efficiency/turnover ratios instead of using a closing balance.
43	Balance Sheet		A financial statement that provides a snapshot of a company’s financial position at a specific point in time, showing assets, liabilities, and shareholders’ equity.
44	Capital Asset		Assets such as property, plant, and equipment employed to generate income.
45	Capital Employed	Capital	Represents the funds provided to an organization in the form of equity or debt.
46	Capital in Excess of Par Value	Contributed Surplus	The amount received from selling shares above their nominal value.
47	Capital Stock		Represents ownership in a corporation through shares of stock.
48	Cash Flow Statement		A financial statement that shows the inflows and outflows of cash and cash equivalents during a specific period, helping to understand a company’s liquidity and solvency.
49	Circular References		Occur when a formula includes a reference to the cell in which the formula appears.
50	COGS	Cost of Goods Sold	The direct costs attributable to the production of goods sold in a company.
51	Common Shares	Common Stock	Represent ownership in a corporation and typically carry voting rights.
52	Contributed Surplus	Share Premium	The excess amount received from selling shares over their nominal value.
53	Coverage Ratios		Ratios that analyze a company’s liquidity or its ability to “cover” its financial debt obligations.
54	Creditors	Accounts Payable	Entities to whom a company owes money for goods or services purchased on credit.
55	Current Assets		Assets expected to be converted into cash or consumed within one year.
56	Current Liabilities		Financial obligations due within one year.
57	Current Ratio		Current assets / Current liabilities. A measure of a company’s short-term liquidity.
58	DCF	Discounted Cash Flow	A financial evaluation method that takes the “time value of money” into account.
59	Debt		Capital used to finance an organization that is subject to payment of interest over the life of the loan.
60	Debt Financing		Raising money for a business through loans or by issuing bonds.
61	Debtors	Accounts Receivable	Entities who owe money to a company for goods or services provided on credit.
62	Depreciation		The allocation of the cost of fixed assets over their useful life.
63	Direct Costs		Costs directly attributable to the production of goods or services.
64	Dividends		Distributions of a company’s profits to its shareholders.
65	EBIT		Earnings Before Interest and Taxes.
66	EBIT Margin		EBIT / Sales.
67	EBITDA		Earnings Before Interest, Taxes, Depreciation, and Amortization.
68	Equity	Shareholders’ Equity	Represents the residual interest in the assets of a company after deducting liabilities.
69	Equity Financing		Capital acquired from business owners or investors.
70	Financial Covenants		Promises made by a borrowing firm in a loan agreement to adhere to certain limits in the firm’s operations.
71	Financial Model		A mathematical model describing the interrelationships among various financial variables.
72	Financial Statements		Summarized statements of an entity’s financial position and performance.
73	Fixed Assets		Long-term assets used in the production or operation of a business.
74	Forecast		A projection or estimate of future financial performance.
75	Goodwill		The excess of the purchase price over the fair value of net assets acquired in an acquisition.
76	Gross Margin		Gross Profit / Sales Revenue.
77	Gross Profit		Sales Revenue – Cost of Goods Sold.
78	Income Statement		A financial statement that reports a company’s financial performance over a specific period.
79	Intangible Fixed Assets		Assets without a physical presence, such as patents or trademarks.
80	Interest Bearing Current Liabilities	IBCL’s	Liabilities that bear interest, usually short-term borrowings.
81	Interest Coverage Ratio		EBIT or EBITDA / Interest Expense.
82	Inventory		Goods held for sale or used in production.
83	Inventory Days Ratio		Inventory / COGS x 365. Average number of days goods remain in inventory before being sold.
84	Inventory Turnover Ratio		Cost of Goods Sold / Inventory.
85	Investing Activities		Activities related to the purchase and sale of long-term assets.
86	Labor Cost Ratio		Direct Labor / Sales.
87	Land and Buildings Ratio		Sales / Land and Buildings.
88	Leverage Ratios		Ratios that analyze a company’s solvency or the level of its debt financing relative to its equity financing.
89	Liabilities		Financial obligations or debts owed by a company.
90	Loan Capital		Debt used to finance an organization.
91	Material Cost Ratio		Materials / Sales.
92	Model Structure		The framework around which a financial model is built.
93	Net Assets		Total assets less total liabilities.
94	Net Asset Ratio		Sales / Net assets.
95	Net Book Value		The value of an asset recorded on the balance sheet, representing its original cost less accumulated depreciation.
96	Net Earnings		The profits retained by an organization after all expenses, taxes, and dividends.
97	Net Profit Margin		Net Income / Sales.
98	Non-Current Assets		Assets not expected to be converted into cash within one year.
99	Operating Activities		Cash flows related to a company’s primary business activities.
100	Operating Assets		Assets used in the day-to-day operations of a business.
101	Operating Cost Ratio		Operating Costs / Sales.
102	Operating Profit		Sales Revenue – Operating Costs.
103	Operating Profit Margin		Operating Profit / Sales.
104	Operating Revenues		Revenues generated from a company’s primary business activities.
105	Ordinary Shares	Common Stock	Common shares of a corporation that typically carry voting rights.
106	Output		Calculations produced by a financial model based on inputs.
107	Personnel Cost Ratio		Personnel Costs / Sales.
108	Plant and Machinery Turnover Ratio		Sales / Plant and Machinery.
109	Preferred Stock		Shares that typically have preferential rights to dividends and assets in the event of liquidation.
110	Property, Plant, and Equipment (PP&E)		Tangible assets used in the production or operation of a business.
111	Property, Plant, and Equipment (PP&E) Turnover Ratio		Sales / PP&E.
112	Quick Ratio		(Current Assets – Inventory) / Current Liabilities. A measure of a company’s ability to meet its short-term obligations with its most liquid assets.
113	Research and Development Cost Ratio		R&D Costs / Sales.
114	Research and Development Expenses		Costs directly related to the development of new products or processes.
115	Reserves		Profits retained within a company after all expenses and dividends have been paid.
116	Retained Earnings (Balance Sheet)		Accumulated profits retained by a company after dividends have been paid.
117	Retained Earnings (Income Statement)		Profits retained by a company after all expenses, taxes, and dividends have been paid.
118	Revenue	Sales Revenue	Income generated from a company’s primary business activities.
119	SG&A (Selling, General, and Administration)		Expenses related to a company’s operations, including direct and indirect selling expenses, and general administrative costs.
120	Share Capital		Capital raised by issuing shares of stock.
121	Share Premium	Contributed Surplus	The excess amount paid by investors over the par value of shares.
122	Shareholders’ Equity	Equity	The residual interest in the assets of a company after deducting liabilities.
123	Shares	Common Stock	Units of ownership in a corporation.
124	Stock Repurchases		The repurchase of a company’s own shares from the open market.
125	Tangible Fixed Assets		Physical assets used in the production or operation of a business.
126	Tax Expense		The amount of tax payable by a company based on its taxable income.
127	Tax Ratio		Tax / Sales.
128	Turnover Ratio		Total assets / Sales.
129	Work Overhead Ratio		Direct Overhead / Sales.
130	Working Capital		Current Assets – Current Liabilities.

Additional Topics

SN	Topic	Synonyms	Details and Examples
1	Liquidated Damage		Liquidated Damages are a specific amount of money, agreed upon by all parties to a contract, to be paid in the event that either party fails to perform its obligations by a scheduled completion date.

Mastering financial concepts and ratios is a powerful tool in the hands of a data analyst. By leveraging these tools and techniques, you’ll be able to derive meaningful insights, drive strategic decision-making, and navigate complex financial landscapes with confidence. So, go ahead, dive in, and start unlocking the full potential of your data.