This topic will provide an overview of key financial terms and concepts that are essential for understanding loans and finance in general.
Asset: Any resource owned by an individual or entity that has economic value and can provide future benefits.
Liability: A financial obligation or debt that an individual or organization owes to another party.
Equity: The ownership interest in a company, represented by shares of stock; it’s the difference between total assets and total liabilities.
Interest: The cost of borrowing money, usually expressed as a percentage of the principal amount, or the income earned on investments.
Principal: The original sum of money borrowed or invested, excluding interest.
Cash Flow: The total amount of money being transferred into and out of a business, used to assess liquidity and financial health.
Revenue: The total income generated from normal business operations, typically from sales of goods or services.
Expense: The costs incurred in the process of earning revenue, including operational costs, salaries, and rent.
Investment: The allocation of resources, usually money, in order to generate income or profit.
Return on Investment (ROI): A measure used to evaluate the efficiency of an investment, calculated by dividing net profit by the initial cost of the investment.
Diversification: A risk management strategy that involves spreading investments across various financial instruments, industries, or other categories to reduce exposure to any single asset.
Market Capitalization: The total market value of a company’s outstanding shares of stock, calculated by multiplying the share price by the total number of shares.
Liquidity: The ease with which an asset can be converted into cash without affecting its market price.
Credit Score: A numerical representation of a person's creditworthiness, based on credit history and financial behavior.