Financial report terms can seem confusing if you’re just getting started. This glossary is designed to give beginners clear, practical definitions of the terms you’re most likely to come across when reviewing profit and loss statements, balance sheets, or cash flow reports.
Comparative Report:
A financial report that shows multiple time periods side by side to highlight changes and trends.
Forecast:
An estimate of future income, expenses, or cash flow based on current and expected data.
Actuals:
The real financial results are recorded in the books, as opposed to budgeted or forecasted figures.
Budget Variance:
The difference between budgeted figures and actual results, showing over- or under-performance.
Gross Profit:
Revenue minus the direct cost of goods sold excludes operating and other expenses.
Net Profit:
The amount of money left after all expenses (including taxes and interest) are subtracted from revenue.
Operating Profit:
Profit from regular business operations, excluding interest and taxes; also called operating income.
Working Capital:
Current assets minus current liabilities; measures a business’s short-term financial health.
Current Ratio:
A liquidity ratio is calculated by dividing current assets by current liabilities to assess the ability to pay short-term obligations.
Earnings Before Interest and Taxes (EBIT):
A measure of a company’s profitability from core operations before financing and tax expenses.
Year-to-Date (YTD):
Financial data is calculated from the beginning of the year to the current date.
Trailing Twelve Months (TTM):
A rolling total of financial performance over the past 12 months, used to analyze recent trends.
Cash Basis Report:
A financial report that only includes income and expenses when cash is actually received or paid.
Accrual Basis Report:
A financial report that includes income and expenses when they are earned or incurred, regardless of cash flow.
Owner’s Equity:
The residual interest in the assets of the business after liabilities are deducted, shown on the balance sheet.
Retained Earnings:
Profits from previous periods that have been kept in the business rather than distributed to owners.
This glossary isn’t meant to cover every financial term you might come across, but it includes the most common and relevant ones for those getting started with reading financial reports. You can use it as a reference as you continue learning or reviewing profit and loss statements, balance sheets, or cash flow reports.
The Bottom Line:
Understanding these financial report terms can help you feel more confident and informed when reviewing your business numbers.