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20 Most Confusing Finance Terms
By Brian Feroldi
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Fixed Costs vs. Variable Costs- Fixed Costs: Costs that do not change with production volume.
- Variable Costs: Costs that vary with production or sales volume.
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EBITDA vs. Net Income- EBITDA: Earnings before interest, taxes, depreciation, and amortization.
- Net Income: Total profit after all expenditures have been subtracted.
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Profit vs. Revenue- Profit: Net earnings after deducting all expenses.
- Revenue: Total income generated from product & service sales.
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CAPEX vs. OPEX- CAPEX: Funds used by a company to acquire, upgrade, and maintain physical assets.
- OPEX: Day-to-day expenses to run the business.
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Accrual vs. Cash Accounting- Accrual Accounting: Recording revenues and expenses when they are incurred, regardless of when cash is exchanged.
- Cash Accounting: Recording revenues and expenses only when cash is exchanged.
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Market Cap vs. Enterprise Value- Market Cap: Total value of a company's outstanding shares.
- Enterprise Value: Total value of a company, including debt and excluding cash.
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Assets vs. Liabilities- Assets: All resources owned and controlled by a company.
- Liabilities: All obligations a company owes to others.
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Gross Margin vs. Net Margin- Gross Margin: Revenue minus cost of goods sold, divided by revenue.
- Net Margin: Net profit divided by revenue.
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Return on Investment vs. Return on Equity- Return on Investment (ROI): Measures profitability relative to total investment.
- Return on Equity (ROE): Measures profitability relative to shareholders' equity.
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Financial Leverage vs. Operating Leverage- Financial Leverage: The use of debt in capital structure to amplify net income.
- Operating Leverage: The use of fixed vs. variable expenses to amplify operating income.