Basic Terms in Finance

Friends, we are all familiar with the word 'investment' but it is just like a drop of water in the ocean. It is advisable to understand the frequently used words in the financial/ investments world. Hereby, I simple want to share few of the drops of water with you all the lovely readers.

ADR (American depository receipts) – Depository receipt issued by a company in the USA

Amortization – Process of writing off of intangible assets

Annual Report – The report containing profit and loss statement, balance sheet and cash flow statement, issued annually by a company to its share holders

Arbitrage – Purchase and sale of securities in different markets in order to earn profit from price discrepancies. It reduces risk of loss in your investment portfolio

Authorized Share Capital – Maximum amount of the share capital which a company can raise for the time being

Bad debts – Amount lost from debtors to whom the goods were sold on credit

Balanced Funds – Funds invested both in debt and equity markets

Bank Reconciliation Statement (BRS) – Statement reconciling the balance as shown by the bank pass book and the balance as shown by the Cash Book in order to know the difference & pass necessary correcting, adjusting entries in the books

Bankruptcy – A situation under which a firm is unable to meets its obligations and hence, its assets are surrendered to court for administration

Book Keeping – Recording of financial data relating to the business operations in a significant and orderly manner

Budgeting – Process of preparing budgets

Capital Budgeting – The process of decision making with regard to investment in fixed assets or long term projects

Capital Employed – Total long term funds employed in the business

Certificate of Deposits (CDs) – Similar to a FD receipt, issued by banks where interest rate is not fixed. It is based on the prevailing market conditions

Close Ended Funds – Funds open for sale to investors for a specific period, after which further sales are closed

Commercial Paper – A short term promissory note issued by a company, negotiable by endorsement and delivery, issued at a discount on face value as may be determined by the issuing company

Contingency – A condition (or) situation the ultimate outcome of which gain or loss will be known as determined only as the occurrence or non occurrence of one or more uncertain future events

Debentures – A certificate issued by a company under its seal acknowledging a debt due by it to its holder

Debt Funds – Funds pre-dominantly invest in debt securities

Deficiency – the excess of liabilities over assets of an enterprise at a given date

Deficit – When expenses are more than incomes

Depreciation – Continuous decrease in the value of asset due to wear and tear, technology changes, laps of time and accident

Equity Share Capital – The total sum of equity shares

Equity Shares – Shares carrying no preference rights

Euro Issues – The issues listed on a European stock Exchange for which subscription can come from any part of the world except India

Factoring – An arrangement under which a firm (called borrower) receives advances against its receivables, from a financial institutions (called factor)

Fictitious Assets – Assets not represented by tangible possession or property

Financial Break-even Point (Financial BEP) – Level at which a firm’s pre-interest and tax profit (EBIT) is just sufficient to cover interest and preference dividend

Funds Flow Statement (FFS) – A statement explains procurement and utilization of the funds

Gilt funds – Funds invests only in securities that are issued by the GOVT having no risk

Global depository receipts (GDR) – A negotiable receipt dominated in US dollars that represents a non-US company publicly traded in local currency equity shares

Goodwill – The present value of firm’s anticipated excess earnings

Hedging – Minimizing the risk

Intangible Assets – Assets having no physical appearance

Joint Venture – An association of 2 or more persons who are combined for the execution of a specific transaction and divide the profit or loss thereof an agreed ratio

Journal – Journal means chronological record of transactions.

Lease – A contract between two parties in which the owner of the asset gives the right to use the asset to the user over an agreed period of the time for a consideration

Ledger – A set of accounts

Leverage – It is a force applied at a particular point to get the desired result.

Liquid Funds – Debt funds invests only in instruments with maturities less than one year

Marketable Securities – A short term instruments

Master Budget – A summary of budget schedules in capsule form made for the purpose of presenting in one report

Maximum Permissible Bank Finance (MPBF) – Maximum amount that banks can lend a borrower towards his working capital requirements

Minority Interest – Equity of the minority shareholders in a subsidiary company

Mutual fund – A pool of money collected from investors which is invested based on specific objectives

Net Asset Value (NAV) – The value of one unit of investment

Net Present Value (NPV) – the net present value of an investment proposal is defined as the sum of the present values of all future cash inflows less the sum of the present values of all cash out flows associated with the proposal

Open Ended Fund – Funds can be bought and sold directly from the fund at NAV related prices at any time

Overdraft (OD) – A credit facility in which a fixed limit is granted within which the borrower allowed to overdraw from his account

Partnership – Relationship between 2 or more persons who have agreed to share the profits of business carried on by all or any of them acting for all

Pay-back period (PBP) – Time period required for complete recovery of the initial investment in the project

Petty Cash Book – Maintained by business to record petty cash expenses of the business, such as postage, stationery, etc.

Preference Shares – Shares carrying preference rights

Price-earnings ratio (PE Ratio) – The ratio between the share price and the post tax earnings of company

Primary market – Where new shares have been issued directly through companies to investors

Profitability Index (PI) – Where different investment proposal each involving different initial investments and cash inflows are to be compared

Promissory Note – An instrument in writing containing an unconditional undertaking signed by the maker, to pay certain sum of money only to or to the order of a certain person or to the barer of the instrument

Public Deposits (PD) – Very important source of short term and medium term finance which the company can accept from members of the public and shareholders

Secondary Market – Where shares are exchanged (buy and sell). In India, stock exchange is our secondary market

Surplus – When incomes are more than expenses

Swaps – Private agreements between two parties to exchange cash flows in the future according to a pre–agreed formula

Time Value of Money – The worth (value) of a rupee received today is different from the worth of a rupee to be received in future

Trade Credit – Credit granted by suppliers of goods during trade

Venture capital – It refers to the financing of high risk ventures promoted by new qualified entrepreneurs who require funds to give shape to their ideas

Working capital – The funds available for conducting day to day operations of an enterprise

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Financial Quotes Having Fun

1. Honesty is very expensive gift. Do not expect it from cheap people – Warren Buffet.

2. Our incomes are like our shoes; if too small, they gall and pinch us; but if too large, they cause us to stumble and to trip – John Locke.

3. Money can’t buy you happiness but it does bring you a more pleasant form of misery – Spike Milligan.

4. The hardest thing in the world to understand is the income tax – Albert Einstein.

5. Too many people spend money they haven’t earned, to buy things they don’t want, to impress people they don’t like – Will Smith.

6. The quickest way to double your money is to fold it over and put it back in your pocket – Will Rogers.

7. Do not put all eggs in one basket – Warren Buffet.

8. No one’s ever achieved financial fitness with a January resolution that’s abandoned by February – Suze Orman.

9. A budget is telling your money where to go instead of wondering where it went – Dave Ramsey.

10. We can’t solve problems by using the same kind of thinking we used when we created them – Unknown.

11. All money makes possible is for you to stop worrying about money – Paul Stanley.

12. Nobody wants to pay higher taxes. But do you want your kids to get a good education? You have to pay for that. Do you want Medicare for senior citizens? I do. We have to pay for it – Shelley Berkley.

13. Things aren’t so bad after all; the bill says I’m OUTSTANDING – Unknown.

14. Forging an online presence is like prospecting for gold; the rich fields are hard to find and the competition numerous – Ken Brimhall.

15. It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning – Hendry Ford.

16. Money without brains is always dangerous – Napoleon Hill.

17. A father is someone who carries pictures in his wallet where his money used to be – Unknown.

18. Bills travel through the mail at twice the speed of checks – Steven Wright.

19. You can be young without money but you can’t be old without it – Tennessee Williams.

20. A bank is a place where they lend you an umbrella in fair weather and ask for it back when it begins to rain – Robert Frost.

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Ways To Improve Your Finances

Money is hard to get but it is very easy to spend it. One should know how to spend money. A good knowledge (not the expert knowledge) of finance will help us to tackle the money problems in future.

Anyway investorshomeguide, as an expert is here to guide you. Here, I want to share few of “the ways to improve your finance”.

1. Set your financial goals

First and foremost important step is to decide on your financial goals. Few satisfied with toasts and few with biryani, few with the two wheelers whereas few with big four wheelers. Your dreams help you to decide your financial goals and your goals make it easier to work toward them.

2. Prepare a realistic budget & track the achievements

Mostly people spend two-third (approx.) of their income just to fulfill basic needs of the family – food, clothes and shelter. Besides, there are the numbers of ways a person can spend his/her money. So, it’s better to create a budget which may be daily, monthly or annually based on situation and keeping track of every expenditure help to prohibit unnecessary wastage of money. You can take help of tools freely available online.

3. Know to say ‘No’ during shopping

Don’t hesitate to say ‘No’ to the unnecessary shopping. The customers should understand the tricks of marketing such as bonus cards, reward cards, free gifts and so on and be familiar with them. It helps you to save money.

4. Do online research of products

Now-a-days it becomes easy to do a research of the product you want to purchase at home through online with no time which saves time and money during the time of shopping.

5. No MRP is Final

The customers should not accept the tagged price as final. It is profitable to negotiate the price of the product. Don’t hesitate to ask the seller if you have seen the same product somewhere else with lower price tag.

6. Negotiate your salary

If you have recently changed your jobs or realized that you are underpaid as compared to your juniors or subordinates of same rank then it might be time to sit down with your superiors and bring the same to their notice.

7. Increase your sources of income

“Don’t depend on one income. Make investment to create a second source" – Warren Buffet. Depending on one source of income is no more appreciable as well as advisable. Always do search for other sources of income. Now-a-day online businesses such as writing blogs, publishing video (including clips) at U-Tube, online teaching etc. are safest sources of income which are worth doing. It can help you to achieve financial stability.

8. Evaluate your debts planning

Evaluate your debt decisions by considering the options available and their pros and cons carefully. Pay off debt first having high-interest rate such as credit cards, help you to reduce fees and interest rate charges. One must read and understand the term and conditions very carefully before choosing any credit card. Moreover, set limits on your credit cards. Comparison websites such as CreditCards.com can help you find the best card for you.

9. Make the habit of regular investment

Make the habit of regular investment instead of market fluctuations. “Don’t put all eggs in one basket” – is one of famous quote by Warren Buffet with regard to the investment. It’s better to invest in index funds and other types of securities that reflect the market broadly, instead of one or two companies.

10. Start early

Time is money so start investment as early as possible. I do hope that we are all familiar with the power of compounding. Saving early will lead to a much bigger nest egg at retirement time than waiting to save until mid-career. Moreover, don’t forget risk verses profit rule. If you want higher profit then you have to take on greater risk.

11. Take shelter under professionals

There's nothing wrong with seeking professional’s advice whenever you are finding nervous in order to handle your own money. It helps you to avoid unnecessary tension in near future. Your employer might also offer free retirement investing assistance.

12. Secure yourself and family through life insurance

Taking life insurance policy is the best option till now in order to secure you, family or dependents. But choosing a right plan is not an easy task. Take advice of the professionals if required. Don’t take it as an investment option.

13. Do retirement planning

It is always advisable to the salaried persons to make the proper planning for their retirement. 'Retirement calculators', the readily available online tools, make it easy to estimate how much money you should save before retirement depending on your savings and lifestyle. Putting 10 percent or more of your income toward retirement can be overwhelming.

14. Do non-financial helps

Don’t hesitate to give your valuable advice or suggestions to the person who is seeking it. It’s a kind of non-financial help to the society. Giving away used clothes, toys or other things to needy brings peace to your mind.

15. Live simple life with simple habits

If you change the way you look at things, the things you look at will change. Small changes in lifestyle, brings big changes in life. Biking to work instead of driving, using public transport system to conveyance instead of private vehicle, watching cinema at home on online instead of going to cinema theater, eat at local restaurant instead of five star restaurants, etc., can significantly reduce monthly expenditures.

About investorshomeguide

Friends,

I am P Giri Rao, the writer of the blog, ‘investorshomeguide’ . I have a little passion regarding writing poems and stories which I have been publishing time to time in my hindi blog namely, ‘gyandarshanam’ (https://gyandarshanam.blogspot.in).

Well, as we all know, a writer feels happy whenever the readers pass on comments over his/her works. He/she gets encouragement as and when his/her piece of work is appreciated by the readers and learns lesson from the criticisms.

I am a south Indian, did spend my earlier 25 years of life in Assam, a part of North-east India which is truly the GIFT of GOD. You may feel the influence of it on my blogs.

Presently, I am staying in Hyderabad (India) and pursuing CA.

I have 8 years of rich knowledge in the field of taxation and finance which I want to share with the people who trust on me and my blogs.

You can contact me@

H.N.6-4-399, Krishna Nagar colony

Bholakpur, Gandhinagar – 500 080

Hyderabad (Telangana)

+91 9912069707