Financial and Economics Terms for Analytics

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What are the differences between GBV and GMV? And what exactly is P&L? Let’s delve into a comprehensive list of financial terms commonly used in business, spanning economics, corporate finance, and accounting. As data storytellers, it’s crucial for us to understand the business context, serving as the bridge between business users and technical engineers. This enables us to actively engage in analysis, visualization, insight generation, and knowledge sharing.

• Revenue is the income generated from normal business operations and includes discounts and deductions for returned merchandise. It is the top line or gross income figure from which costs are subtracted to determine net income.
• Profit is referred to as net income on the income statement. There are variations of profit on the income statement that are used to analyze the performance of a company.
• Budget, is an estimation of revenue and expenses over a specified future period of time and is usually compiled and re-evaluated on a periodic basis. Budgets can be made for a person, a group of people, a business, a government, or just about anything else that makes and spends money.
• Expense, is the cost of operations that a company incurs to generate revenue. As the popular saying goes, “it costs money to make money.”
• A fee is a fixed price charged for a specific service. Fees are applied in a variety of ways such as costs, charges, commissions, and penalties. Fees are most commonly found in heavily transactional services and are paid in lieu of a wage or salary.
• A commission is a service charge assessed by a broker or investment advisor for providing investment advice or handling purchases and sales of securities for a client.
• A fiscal year, a calendar year is always January 1 to December 31. A fiscal year, by contrast, can start and end at any point during the year, as long as it comprises a full twelve months. A company that starts its fiscal year on January 1 and ends it on December 31 operates on a calendar year basis. The calendar year represents the most common fiscal year in the business world.
• NI (Net income), also called net earnings, is calculated as sales minus cost of goods sold, selling, general and administrative expenses, operating expenses, depreciation, interest, taxes, and other expenses. It is a useful number for investors to assess how much revenue exceeds the expenses of an organization.
• P&L (Profit and Loss) is a financial statement that summarizes the revenues, costs, and expenses incurred during a specified period, usually a fiscal quarter or year.
• GBV (Gross Booking Value) is the original (historical) price paid for an asset, without any depreciation deduction.
• GMV (Gross Merchandise Value) is the total value of merchandise sold over a given period of time through a customer-to-customer (C2C) exchange site. It is a measure of the growth of the business, or use of the site to sell merchandise owned by others.
• EBIT (Earnings before interest and taxes) is an indicator of a company’s profitability. EBIT can be calculated as revenue minus expenses excluding tax and interest. EBIT is also referred to as operating earnings, operating profit, and profit before interest and taxes.
• EVA (Economic value-added) is a measure of a company’s financial performance based on the residual wealth calculated by deducting its cost of capital from its operating profit, adjusted for taxes on a cash basis. EVA can also be referred to as economic profit, as it attempts to capture the true economic profit of a company.
• The contribution margin, represents the incremental money generated for each product/unit sold after deducting the variable portion of the firm’s costs. The contribution margin is computed as the selling price per unit, minus the variable cost per unit. Also known as dollar contribution per unit, the measure indicates how a particular product contributes to the overall profit of the company.
• COGS (Cost of goods sold) refers to the direct costs of producing the goods sold by a company. This amount includes the cost of the materials and labor directly used to create the good. It excludes indirect expenses, such as distribution costs and sales force costs.
• Profit margin is a percentage measurement of profit that expresses the amount a company earns per dollar of sales. If a company makes more money per sale, it has a higher profit margin. Gross profit margin and net profit margin, on the other hand, are two separate profitability ratios used to assess a company’s financial stability and overall health.
• Gross profit margin is a measure of profitability that shows the percentage of revenue that exceeds the cost of goods sold (COGS).
• Net profit margin is the ratio of net profits to revenues for a company or business segment.
• VAT (Value-added tax) is a consumption tax placed on a product whenever value is added at each stage of the supply chain, from production to the point of sale. The amount of VAT that the user pays is on the cost of the product, less any of the costs of materials used in the product that have already been taxed.
• A subsidy, a benefit given to an individual, business, or institution, usually by the government. It is usually in the form of a cash payment or a tax reduction. The subsidy is typically given to remove some type of burden, and it is often considered to be in the overall interest of the public, given to promote a social good or an economic policy.
• Burn rate, is typically used to describe the rate at which a new company is spending its venture capital to finance overhead before generating positive cash flow from operations. It is a measure of negative cash flow.
• Cash flow is the net amount of cash and cash-equivalents being transferred into and out of a business. At the most fundamental level, a company’s ability to create value for shareholders is determined by its ability to generate positive cash flows, or more specifically, maximize long-term free cash flow (FCF).
• Liquidity refers to the ease with which an asset, or security, can be converted into ready cash without affecting its market price.
• A bid price is a price that is offered for a commodity, service, or contract. It is colloquially known as a “bid” in many markets and jurisdictions. Generally, a bid is lower than an asking price, or “ask”, and the difference between them is called a bid-ask spread​​​​​​​. Bids can also be made in cases where the seller is not looking to sell, in which case it is considered an unsolicited offer or unsolicited bid.
• Ancillary revenue is the revenue generated from goods or services that differ from or enhance the main services or product lines of a company. Ancillary income is defined as the revenue generated that’s not from a company’s core products and services.
• Market share is the percent of total sales in an industry generated by a particular company. Market share is calculated by taking the company’s sales over the period and dividing it by the total sales of the industry over the same period. This metric is used to give a general idea of the size of a company in relation to its market and its competitors.
• KPIs (Key performance indicators) refer to a set of quantifiable measurements used to gauge a company’s overall long-term performance. KPIs specifically help determine a company’s strategic, financial, and operational achievements, especially compared to those of other businesses within the same sector.
• YOY (Year-Over-Year) is a frequently used financial comparison for comparing two or more measurable events on an annualized basis.
• Seasonality is a characteristic of a time series in which the data experiences regular and predictable changes that recur every calendar year. Any predictable fluctuation or pattern that recurs or repeats over a one-year period is said to be seasonal.
• GDP (Gross Domestic Product) is the total monetary or market value of all the finished goods and services produced within a country’s borders in a specific time period. As a broad measure of overall domestic production, it functions as a comprehensive scorecard of the country’s economic health.
• GNP (Gross national product) is an estimate of total value of all the final products and services turned out in a given period by the means of production owned by a country’s residents. GNP is commonly calculated by taking the sum of personal consumption expenditures, private domestic investment, government expenditure, net exports and any income earned by residents from overseas investments, minus income earned within the domestic economy by foreign residents.
• Consumer spending is the total money spent on final goods and services by individuals and households for personal use and enjoyment in an economy. Contemporary measures of consumer spending include all private purchases of durable goods, nondurable goods, and services.
• The law of supply and demand is a theory that explains the interaction between the sellers of a resource and the buyers for that resource. The theory defines what effect the relationship between the availability of a particular product and the desire (or demand) for that product has on its price. Generally, low supply and high demand increase price and vice versa.
• Equity is typically referred to as shareholder equity (also known as shareholders’ equity), or owners equity (for privately held companies), which represents the amount of money that would be returned to a company’s shareholders if all of the assets were liquidated and all of the company’s debt was paid off.
• A liability is something a person or company owes, usually a sum of money. Liabilities are settled over time through the transfer of economic benefits including money, goods, or services. Recorded on the right side of the balance sheet, liabilities include loans, accounts payable, mortgages, deferred revenues, earned premiums, unearned premiums, and accrued expenses. Even marriages can change your liability.
• Unit economics is defined as the “direct revenues and costs associated with a particular business model, and are specifically expressed on a per-unit basis”. Some even go so far as say that unit economics are the fundamental or basic financial building blocks of a business. It is the starting point for management, outside analysts, investors, and other stakeholders to analyze, evaluate, or assess a company’s financial performance.

References

• https://www.investopedia.com
• http://www.businessdictionary.com
• https://www.cleverism.com/ultimate-guide-unit-economics/