Finance Glossary → A to Z
The Business & Finance Glossary
70 essential finance and business terms — short definitions, real-world context, and direct links to the calculators that put each concept into action.
A
Amortisation
The systematic repayment of a loan over time through fixed periodic payments — each EMI splits between principal and interest, with interest dominating early instalments and principal dominating later ones.
APR
Annual Percentage Rate — the true annual cost of borrowing, including interest plus fees and charges. Always compare APR (not just headline interest rate) when shopping for loans.
Asset Allocation
How you split investments across asset classes — equity, debt, real estate, gold, cash. The single biggest determinant of long-term portfolio risk and return; matters far more than picking individual securities.
AUM
Assets Under Management — the total market value of all assets a mutual fund or AMC manages on behalf of investors. Larger AUM doesn’t automatically mean better — but very small AUM funds (<₹100 cr) may face liquidity and continuity risks.
B
Bear Market
A sustained decline of 20%+ in a major equity index from its peak. Bears typically last 9–18 months historically. Best response: don’t panic, keep SIPs running, possibly increase contributions.
Beta
How much a stock or fund moves relative to the broader market. Beta of 1.0 means it moves with the market; 1.5 means 50% more volatile; 0.5 means half as volatile.
Break-even Point
The exact sales volume where total revenue equals total costs — neither profit nor loss. Below it, every sale loses money; above it, every sale is profit.
Bull Market
A period of sustained equity index growth, conventionally 20%+ rise from a recent low. Bull markets historically last 4–7 years on average.
C
CAGR
Compound Annual Growth Rate — the smoothed annualised growth rate of an investment from start to end value. Best for single in / single out investments; falls apart for SIPs and irregular flows.
Capital Gain
Profit from selling a capital asset (stock, mutual fund, property) above its purchase price. Taxed differently based on holding period (short vs long-term) and asset class.
Cash Flow
The actual movement of cash in and out of a business or household. Positive cash flow = sustainable; negative = burning down savings or borrowing. Far more important than profit for survival.
Compound Interest
Interest earned on previously earned interest — “interest on interest.” The single most powerful force in long-term wealth building. Einstein allegedly called it “the eighth wonder of the world.”
Contribution Margin
The portion of revenue from a sale that covers fixed costs (and after that, profit). Calculated as Selling Price − Variable Cost. The fundamental unit of unit economics.
D
Dividend
A cash distribution from a company to its shareholders, typically paid quarterly or annually. Funded from retained earnings; dividends signal stability but reduce reinvestment for growth.
Dollar-Cost Averaging
Investing a fixed amount at regular intervals regardless of price. Smooths out entry timing — buy more units when prices are low, fewer when high. The principle behind SIPs.
DSO
Days Sales Outstanding — average days to collect payment from customers after a sale. Lower is better. Industry-standard formula: (Accounts Receivable / Revenue) × Days in Period.
E
EBITDA
Earnings Before Interest, Taxes, Depreciation, and Amortisation. A measure of operating profitability that strips out financing and accounting effects. Useful for comparing companies but ignores capital intensity.
EMI
Equated Monthly Instalment — the fixed monthly payment a borrower makes to service a loan. Each EMI splits between principal and interest, calculated using the standard amortisation formula.
Equity
(1) Ownership stake in a company, represented by shares; (2) On a balance sheet, the residual value of assets after subtracting liabilities — what owners actually own.
Expense Ratio
Annual fee charged by a mutual fund as a percentage of AUM, deducted daily from NAV. Index funds: 0.05–0.20%. Active funds: 0.5–2.0%. Over 30 years, a 1% gap can cost 25%+ of your final corpus.
F
FIRE
Financial Independence, Retire Early — a movement based on saving 50%+ of income to retire decades before traditional retirement age. Variants: Lean (frugal), Regular, Fat (luxe), Coast (stop saving).
Fixed Cost
Costs that don’t change with sales volume — rent, salaries, software subscriptions, insurance. The denominator in break-even calculations.
FOIR
Fixed Obligation to Income Ratio — total monthly EMIs (including the new loan) as a percentage of net monthly income. Banks typically cap at 40–55%. Determines maximum loan eligibility.
G
Gross Margin
(Revenue − Cost of Goods Sold) / Revenue. Measures how much of each sale remains after the direct cost of producing it. Service businesses: 60–90%. Retail: 20–40%. Manufacturing: 25–35%.
GST
Goods and Services Tax — India’s indirect tax on supply of goods and services, with slabs of 0%, 5%, 12%, 18%, 28%. Split into CGST + SGST (intra-state) or IGST (inter-state).
H
Hedge
An offsetting position taken to reduce risk on another investment — like buying put options on a stock you own. Hedging reduces upside as well as downside.
HRA
House Rent Allowance — a salary component for rent-paying employees, partially tax-exempt under Section 10(13A) of India’s Income Tax Act (Old Regime only).
Hurdle Rate
The minimum acceptable rate of return for a project to be approved. Typically equals cost of capital + risk premium. Projects with IRR above hurdle create value; below destroy it.
I
Inflation
The rate at which the general price level of goods and services rises over time, eroding purchasing power. India’s long-term average is ~5–6%; US ~2–3%; education/healthcare often 7%+.
Internal Rate of Return
The discount rate at which the net present value of all cash flows equals zero. The standard metric for evaluating multi-year projects against a hurdle rate.
Inventory Turnover
How many times a company sells through its inventory in a year. Higher turnover = leaner operations and less capital tied up in stock. Calculated as COGS / Average Inventory.
L
Liquid Net Worth
Net worth excluding hard-to-sell assets like primary residence and retirement accounts (which are typically penalty-locked). What you actually have available to spend if life goes sideways.
LTCG
Long-Term Capital Gains — profit from selling a capital asset held longer than the threshold (12 months for listed equity in India, 24 months for property). Taxed at favourable rates: 12.5% in India post-Budget 2024.
LTV
(1) Loan-to-Value: ratio of loan amount to property value, typically 75–90% for home loans; (2) Lifetime Value: total revenue a customer generates over their relationship with a business.
M
Markup
The amount added to a product’s cost to set its selling price, expressed as a percentage of cost. 100% markup = 50% margin. Easy to confuse with margin.
Maturity Value
The total amount you receive when an investment matures — principal + accumulated interest/returns. The headline number on most calculator outputs.
Mutual Fund
A pooled investment vehicle that collects money from many investors and invests in stocks, bonds, or other assets according to a stated objective. Charges an annual expense ratio.
N
NAV
Net Asset Value — the per-unit price of a mutual fund, calculated daily as (Total Assets − Liabilities) / Units Outstanding. The NAV at which you buy/redeem units.
Net Margin
(Net Income / Revenue) × 100. The bottom-line profitability after all expenses, taxes, and interest. Industry varies: software 20–40%, retail 2–5%, banking 15–30%.
Net Worth
Total Assets − Total Liabilities. The single most important number to track for long-term wealth-building. Income shows flow; net worth shows stock.
New Tax Regime
India’s simplified income tax structure, default since FY 2023-24. Lower slab rates, ₹75K standard deduction, but most other deductions disallowed. ₹12L tax-free for salaried via 87A rebate.
NPS
National Pension System — India’s government-backed retirement savings scheme. Tier-1 contributions get 80CCD(1B) tax deduction (additional ₹50K, Old Regime). 60% withdrawal at age 60 is tax-free.
NPV
Net Present Value — the present value of future cash flows minus initial investment, discounted at a chosen rate. NPV > 0 means the project creates value at that discount rate.
O
Old Tax Regime
India’s traditional income tax structure with higher slab rates but generous deductions: 80C (₹1.5L), 80D, HRA, NPS (₹50K), home loan interest (₹2L). Best for high earners with heavy deductions.
Operating Leverage
How sensitive operating profit is to changes in revenue, driven by the ratio of fixed to variable costs. High operating leverage means small revenue changes cause big profit swings.
P
Payback Period
How long it takes for an investment’s cumulative cash flows to recover the initial outlay. Simple payback ignores time value; discounted payback accounts for it.
PE Ratio
Price-to-Earnings — a stock’s current price divided by its earnings per share. Higher PE = market expects faster growth (or stock is overvalued). Useful for comparing companies in the same industry.
Principal
The original amount of money borrowed in a loan or invested in an interest-bearing account, before interest accrues.
Profit Margin
Profit as a percentage of revenue — gross, operating, or net depending on which costs you subtract. The headline measure of business profitability.
Q
Quick Ratio
Acid Test = (Cash + Receivables + Marketable Securities) / Current Liabilities. Stricter than current ratio because it excludes inventory. >1 means you can pay short-term debts even if all inventory is unsellable.
R
Risk Premium
The extra return investors demand for taking on risk above the risk-free rate. Equity risk premium has historically been ~5–7% globally.
ROCE
Return on Capital Employed — operating profit / (Total Assets − Current Liabilities). Measures how efficiently a business uses its capital. >15% sustained is generally excellent.
ROE
Return on Equity — Net Income / Shareholder’s Equity. Measures how effectively a company uses owners’ capital to generate profit. >15% is good; consistently >20% is exceptional.
ROI
Return on Investment — (Net Profit / Investment) × 100. The universal benchmark for whether something was worth it. Always quote alongside the time period.
S
Section 80C
Indian tax provision allowing up to ₹1.5 lakh annual deduction (Old Regime only) for specific investments and expenses: PPF, ELSS, EPF, life insurance premium, home loan principal, children’s tuition.
Section 87A Rebate
India’s tax rebate that effectively makes income up to ₹12 lakh tax-free under New Regime FY 2025-26 (or ₹5 lakh under Old Regime). Applied automatically when filing.
Sharpe Ratio
(Portfolio Return − Risk-Free Rate) / Portfolio Volatility. Measures risk-adjusted return — how much excess return you get per unit of risk taken. >1 is good; >2 is excellent.
SIP
Systematic Investment Plan — a disciplined practice of investing a fixed amount into a mutual fund at regular intervals (typically monthly). The default wealth-building tool for working professionals.
STCG
Short-Term Capital Gains — profit from selling a capital asset held less than the threshold (12 months for listed equity in India). Taxed at higher rates: 20% on equity post-Budget 2024.
Step-up SIP
A SIP that automatically increases the contribution amount by a set percentage each year (typically 10%). Dramatically increases final corpus without requiring discipline.
STP
Systematic Transfer Plan — moving money from one mutual fund (typically debt/liquid) to another (typically equity) in fixed periodic instalments. Used to deploy lumpsums gradually.
SWP
Systematic Withdrawal Plan — withdrawing a fixed amount from a mutual fund at regular intervals. The mirror image of SIP, typically used for retirement income.
T
Term Insurance
Pure-protection life insurance with no investment component. The cheapest way to get a large death benefit. Premiums are often 5–10× cheaper than comparable ULIP cover.
Time Value of Money
The principle that a dollar today is worth more than a dollar tomorrow because today’s dollar can earn returns. The foundation of all NPV, IRR, and discounting calculations.
U
ULIP
Unit-Linked Insurance Plan — a hybrid product combining life insurance with market-linked investment. High charges in early years; almost always loses to term + mutual fund.
V
Variable Cost
Costs that scale directly with sales volume — raw materials, payment processing fees, packaging, shipping. The numerator in unit economics.
Volatility
The degree of variation in an investment’s price over time, typically measured as standard deviation of returns. Higher volatility means bigger swings up and down — not necessarily worse, but harder emotionally.
W
Working Capital
Current Assets − Current Liabilities. The cushion that keeps a business operating day-to-day. Negative working capital can be lethal for most businesses.
X
XIRR
Extended Internal Rate of Return — the annualised return on a series of cash flows happening at irregular dates. The right metric for SIPs, top-ups, and partial withdrawals.
Y
Yield on Cost
A dividend stock’s current annual dividend divided by the price you originally paid. Long-term dividend investors care more about YoC than current yield because YoC reflects what your original investment is doing today.
Don’t just learn definitions — apply them
Our courses turn this glossary into a complete financial education with real-world projects.
Explore Our Courses →