Knowing customary business jargon and using it in its proper context is essential for effective communication with other business professionals.
Black swan: Used to describe a negative, unforeseen financial event that can potentially cause damaging outcomes.
Bootstrapping: A small-business financial approach that reinvests profits or uses one’s own financial resources to start or grow a company and avoid borrowing from a bank or an investor.
Business cycle: Fluctuations in revenue that businesses experience during periods of growth or contraction, varying in both intensity and time.
Capital expenditure: The purchase of additional fixed assets, including machinery, buildings, and land, as well as repair and maintenance of existing assets to build and retain value.
Capitalization rate: Generally expressed in percentages, it’s the rate of return a company experiences through generated income from its real estate holdings.
Depreciation: A nonmonetary expense based on the reduction in the value of assets over time, such as machinery and equipment.
Diversification: As a risk-reduction strategy, a company diversifies its portfolio by introducing new products and services to customers or markets.
Economies of scale: When an item is purchased in large quantities, the price of the item typically decreases.
Fixed costs: The costs a business incurs, such as rent or mortgage payments, insurance, and property taxes, that remain the same regardless of production levels.
Key performance indicator (KPI): A quantifiable measurement of a company’s overall success and its long- term performance.
Operating costs: The day-to-day expenses businesses need to operate, such as rent, payroll, insurance, equipment, inventory, supplies, maintenance, and repairs.
Profit and loss statement (P&L): The P&L measures a company’s financial performance during a particular period through a financial and cash flow statement and balance sheet.
Return on investment (ROI): A performance-based rating that evaluates the profitability of an investment, calculating the return compared to the cost of the initial investment.
Triple bottom line: Many businesses measure their performance based on a sustainability framework as it relates to profit, people, and the planet.
Variable costs: Based on a company’s productivity levels, costs vary—more production increases costs, and less production lowers costs.