Glossary of Financial Terms

Annual Report

An official annual financial document published by a public company, showing the Profit & Loss Statement, the Balance Sheet and the Cash Flow Statement.

Balance Sheet

This is the summary of the financial condition of an institution at a specific point in time, including its assets, liabilities and net worth.

The first part of a balance sheet shows all the productive assets a company owns, and the second part shows all the financing methods (such as equity and debt). The term ‘balance sheet’ is derived from the simple purpose of detailing where the money came from, and where it is now. The balance sheet equation is fundamentally:

Assets (where the money is now) = Liabilities (long-term and short term debt) + Capital (the amount accruing to investors).

Hence the term ‘double entry book-keeping’ - for every change on one side of the balance sheet, so there must be a corresponding change on the other side - it must always balance.

Capital Invested

The money invested in a company's operations. This is the sum of an institution’s long-term debt (to IEW), and retained earnings (which will be credited to the Investment Fund).

Cash

Currency on hand, bank balances, and negotiable money orders and cheques.

Cash Flow

A measure of an institution’s financial health. Equals cash receipts minus cash payments over a given period of time.

Cash Flow Statement

The Cash Flow statement provides a third perspective alongside the Profit and Loss account and the Balance Sheet. The Cash Flow statement shows the movement and availability of cash through the business over a given period.

The availability of cash in a company that is necessary to meet payments to suppliers, staff and other creditors is essential for any business to survive, and so reliable forecasting and reporting of cash movement and availability is crucial.

Corporate Social Responsibility (CSR)

Corporate Social Responsibility is a concept whereby institutions integrate social and environmental concerns into their business operations and in their interaction with their stakeholders (employees, customers, investors, local communities, government), on a voluntary basis.

Cost of Goods Sold (COGS)

The directly attributable costs of products or services sold, (usually materials, labour, and direct production costs). Sales less COGS = gross surplus.

Credit Rating

A published ranking, based on detailed financial analyses by a credit bureau, of the institution’s financial history, specifically as it relates to its ability to meet debt obligations. The highest rating is usually AAA, and the lowest is D. Banks use this information to decide whether to approve a credit.

Current Assets

A balance sheet item which equals the sum of cash and cash equivalents, accounts receivable, inventory, prepaid expenses, and other assets that could be converted to cash in less than one year. An institution’s creditors will often be interested in how much that organisation has in current assets, since these assets can be easily liquidated in case it goes bankrupt.

Debt

A liability or obligation in the form of bonds, loan notes, or mortgages, owed to another person or company (such as a bank).

Debt Ratio
This will tell you how much the company relies on debt to finance assets. When calculating this ratio, it is conventional to consider both current and non-current debt and assets. In general, the lower the institution’s reliance on debt, the less risk is involved, since excessive debt can lead to a very heavy interest and principal repayment burden.

Depreciation
depreciation is the reduction in the value of an asset due to usage, passage of time, wear and tear, technological outdating or obsolescence, depletion, inadequacy, rot, rust, decay or other such factors.

Equity
Ownership interest in an institution. This is the capital invested by IEW in the enterprise. It is the risk-bearing part of the company’s capital and contrasts with debt capital which is usually secured and has priority over other owners, if the company becomes insolvent and its assets are distributed.

Fixed Costs
These are the costs that cannot easily be changed from Quarter to Quarter. 

Gross Surplus
Net sales less the cost of sales (COGS).

Gross Margin
Gross surplus divided by sales, expressed as a percentage.

Interest Rate
A rate which is charged for the use of money. An interest rate is often expressed as an annual percentage of the principal. It is calculated by dividing the amount of interest by the amount of principal. Interest rates often change as a result of inflation and government policies.

Long-Term Assets
On a balance sheet, the value of an enterprise’s property, equipment and other capital assets expected to be useable for more than one year, minus depreciation.

Net Income
Sales minus interest, depreciation, and all other expenses. Also called net earnings or bottom line.

Profit & Loss Statement
An official quarterly or annual financial document, showing earnings, expenses, and net profit. The P&L typically shows sales revenues, cost of sales (COGS), a gross surplus, fixed overheads and or operating expenses, and then a profit before tax figure (PBT). The P&L shows how well the enterprise has performed in its business activities.

Return on Investment (ROI)
This measures an enterprise’s profitability, although there are a number of possible interpretations! Generally, ROI measures how effectively the firm uses its capital to generate profit.

Revenue
The final amount of the cash generated through sales over a specified fiscal period.

Staff Cost
The cost of teaching staff on each programme. Each programme is taught by a team of teachers who can be allocated to a Programme on a quarterly basis.

Sustainability Factor
This is a measure relating to how successful the enterprise is likely to be over the longer term.

Taxes
Amounts charged to the enterprise by local or national government. In SEL, there are no tax liabilities, since IEW is established as a charity, and there is an agreement with the government to invest in community schools.

Total Assets
The sum of current and long-term assets owned by a person, company, or other entity.