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Financial Fluency

 

# A B C D E F G H I J K L M N O P Q R S T U V W X Y Z
A
ARR (Annual Recurring Revenue)
Definition of ARR:
The predictable and recurring annual revenue generated from subscriptions or contracted services. ARR is a key metric for subscription-based businesses (or companies with similar, recurring products) to gauge revenue stability and growth potential.
Assets
Definition of Assets
The resources owned by a company, such as cash, inventory, buildings, and equipment, which have economic value.
B
Balance Sheet
Definition of Balance Sheet:
A financial statement that provides a snapshot of a company’s financial position, showing its assets, liabilities, and shareholders’ equity at a specific point in time.
Bootstrapping
Definition of Bootstrapping
The practice of funding and growing a business using its internal resources without relying on external financing or investment. Bootstrapping involves self-sustainability and a focus on organic growth.
Burn Rate
Definition of Burn Rate
The rate at which a startup is using up its cash reserves or capital to cover operating expenses, typically measured on a monthly basis. This metric reflects how quickly the company is spending its available funds.
C
CAC (Customer Acquisition Cost)
Definition of CAC
The total cost a company incurs to acquire a new customer, including marketing, advertising, and sales expenses. Calculating CAC helps businesses assess the efficiency and sustainability of their customer acquisition strategies.
Capital Expenditure (CapEx)
Definition of CapEx
Funds used by a company for the acquisition, maintenance, or improvement of physical assets like property, plants, and equipment.
Cap Table (Capitalization Table)
Definition of Cap Table
A detailed spreadsheet that outlines the ownership structure of a company, including the equity ownership of founders, investors, and other stakeholders. Cap tables are essential for tracking ownership percentages and valuation.
Cash Flow
Definition of Cash Flow
The movement of money into and out of a business, reflecting its liquidity and ability to meet short-term financial obligations.
Churn Rate
Definition of Churn Rate
The percentage of customers who stop using a company’s product or service within a given period. A lower churn rate indicates higher customer retention and is vital for sustaining growth. Meanwhile, a high churn rate means that customers frequently stop using the company’s product, which can be a poor sign.
Convertible Note
Definition of Convertible Note
A type of short-term debt that can convert into equity at a later stage, usually during a future financing round. Convertible notes are commonly used by startups as a form of investment from angel investors or venture capitalists.
Cost of Capital
Definition of Cost of Capital
The weighted average cost of a company’s debt and equity, representing the minimum return a company must earn to satisfy its investors.
E
Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)
Definition of EBITDA
A measure of a company’s operating performance, excluding the impact of non-operating expenses.
L
Liabilities
Definition of Liabilities
The financial obligations or debts that a company owes to external parties, including loans, accounts payable, and accrued expenses.
LTV (Customer Lifetime Value)
Definition of LTV
The predicted total revenue a company expects to earn from a customer throughout their entire relationship. LTV is a crucial metric for determining the long-term profitability of acquiring and retaining customers.
P
Profit Margin
Definition of Profit Margin
A percentage that measures the profitability of a business by dividing its net profit by total revenue, often expressed as a percentage. Profit margin is the percentage of sales that has turned into profits.
R
Return on Investment (ROI)
Definition of ROI
A measure of the profitability of an investment, calculated by dividing the gain or loss from the investment by its cost.
Run Rate
Definition of Run Rate
An estimate of a company’s annual financial performance based on its current financial results. Run rate is often used to annualize data from a shorter period, providing a projection for the entire year.
Runway
Definition of Runway
The estimated time a company can operate before depleting its available capital. Runway is often expressed in months and is calculated by dividing the current cash reserves by the average monthly burn rate.
W
Working Capital
Definition of Working Capital
The difference between a company’s current assets and current liabilities, reflecting its operational liquidity.

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