Glossary
Financial Glossary
Your Essential Guide to Financial & Tax Terms: A simplified, go-to reference for understanding the key terms, concepts, and compliance language used in accounting, VAT, tax consultancy, and business regulations. This glossary is designed to help entrepreneurs, business owners, and professionals navigate financial conversations with clarity and confidence.
Lock-Up Period
A lock-up period is a contractual agreement between a company and its investors that restricts the sale of the company’s shares for a certain period of time. This period typically lasts for 180 days after an initial public offering (IPO) or other major event, such as a merger or acquisition. During the lock-up period, insiders, such as company executives, are prohibited from selling their shares. The purpose of the lock-up period is to prevent a sudden influx of shares on the market, which could cause the stock price to drop.
Marginal cost
Marginal cost is the additional cost incurred by a company for producing one additional unit of a good or service. It is calculated by dividing the change in total cost by the change in the quantity of goods or services produced.Marginal cost is an important concept in economics because it helps a company determine the most cost-effective level of production. By comparing the marginal cost of production to the selling price of a good or service, a company can determine whether it is profitable to produce additional units.
Marginal cost calculation
To calculate marginal cost, you need to determine the change in total cost and the change in the quantity of goods or services produced. Here’s an example:
Suppose a company produces 100 units of a good and incurs a total cost of $1,000. If the company produces 101 units of the good, the total cost increases to $1,010. To calculate the marginal cost of producing the 101st unit, you would need to divide the change in total cost by the change in the quantity of goods produced:
Marginal cost = (Total cost at 101 units – Total cost at 100 units) / (Quantity at 101 units – Quantity at 100 units)
= ($1,010 – $1,000) / (101 – 100)
= $10,Therefore, the marginal cost of producing the 101st unit is $10.
Note that marginal cost is typically not constant and can change as a company increases or decreases production. As a result, it is important for a company to regularly calculate its marginal cost to ensure that it is making cost-effective production decisions.
Markup
Markup is the amount added to the cost of a product to determine the selling price. It is calculated by dividing the difference between the selling price and the cost by the cost and expressing the result as a percentage. For example, suppose a company sells a product for $100 and it costs $75 to produce. The difference between the selling price and the cost is $25, which is the markup.
Markup calculation
To calculate the markup as a percentage, you would divide the markup by the cost and multiply the result by 100:
Markup = (Selling price – Cost) / Cost * 100 = ($100 – $75) / $75 * 100 = $25 / $75 * 100 = 33.33%.
Therefore, in this example, the markup is 33.33%.
Markup is an important concept in business because it helps a company determine the selling price of a product. By adding a markup to the cost of a product, a company can cover its expenses and earn a profit. Markup is typically expressed as a percentage of the cost and can vary depending on the industry and the type of product being sold.
Minimum Viable Product (MVP)
A minimum viable product (MVP) is a product with just enough features to be able to be used by early customers who can then provide feedback for future product development. The goal of an MVP is to test the core assumptions of a product or service and gather feedback from early customers to see if the product is worth continuing to develop. This approach allows a company to quickly get a product to market, gather feedback, and then improve the product based on that feedback. By launching an MVP, a company can learn what works and what doesn’t without spending a lot of time and money on developing a full product.
Month Over Month (MoM)
Month over Month (MoM) is a term used to compare the performance of a metric or business metric from one month to the same month in the previous year.
For example, a company may compare its sales from December 2021 to its sales from December 2020 to see if its sales have increased or decreased over the last year. This type of comparison is useful for tracking the overall health of a business and identifying trends over time. It is often used in conjunction with other metrics, such as year over year (YoY) growth, to provide a more complete picture of a company’s performance.
Monthly Recurring Revenue (MRR)
Monthly Recurring Revenue (MRR) is a metric used to track the amount of predictable revenue that a company can expect to receive on a regular basis from its subscription-based business model. It is calculated by multiplying the number of paying customers by the average revenue per customer per month.
For example, if a company has 100 customers paying an average of $50 per month, its MRR would be $5,000. MRR is an important metric for subscription-based businesses because it allows them to forecast future revenue and plan for growth.
It is also used to measure the effectiveness of sales and marketing efforts, as well as the overall health of the business.
Net Dollar Retention (NDR)
Net Dollar Retention (NDR) is a metric used to measure the overall health of a subscription-based business. It is calculated by taking the total amount of revenue generated by existing customers in a given period, subtracting any revenue lost from churned customers, and dividing the result by the total amount of revenue generated by those customers in the previous period.
For example, if a company had $100,000 in revenue from its existing customers in the current period, and lost $10,000 in revenue from churned customers, its NDR would be 90% ($100,000 – $10,000 / $100,000).
Net Profit
Net profit, also known as net income or net earnings, is a company’s total earnings or profit after all expenses, taxes, and other costs have been deducted from its total revenue. It is calculated by subtracting the company’s total expenses from its total revenue. Net profit is an important measure of a company’s financial performance and is often used to evaluate the profitability of a business. It is typically reported on a company’s income statement and is one of the factors used by investors and analysts to determine the value of a company’s stock.
Net Promoter Score (NPS)
A limited liability company (LLC) is a type of business entity that provides its owners with limited liability protection. This means that the owners, known as members, are not personally responsible for the company’s debts and liabilities. Instead, the company is responsible for its own debts and liabilities, and the members’ personal assets are generally protected from creditors.
For example, let’s say a company is an LLC and it takes out a loan to expand its business. If the company is unable to repay the loan, the creditors cannot go after the members’ personal assets, such as their houses or cars, to collect the debt. Instead, the creditors can only go after the company’s assets, such as its property or equipment.
LLCs are a popular business structure for small businesses, as they provide owners with the benefits of both a corporation and a partnership. Like a corporation, LLCs provide limited liability protection to their members. Like a partnership, LLCs offer flexibility in terms of management and profit distribution. Additionally, LLCs are typically easier and less expensive to set up and maintain than corporations.
Net profit
Net profit, also known as net income or net earnings, is the profit earned by a company after all expenses have been accounted for. It is calculated by subtracting the total expenses from the revenue. Total expenses include the cost of goods sold (COGS), operating expenses, interest expense, and tax expense. Net profit is an important metric for a company because it shows the profit earned after all expenses have been accounted for. It is a useful measure of the company’s overall financial performance and can be used to assess its profitability. To calculate the net profit, you need to subtract the total expenses from the revenue.
Here’s an example:
Suppose a company has the following financials for the year:
Revenue: $100,000
COGS: $60,000
Operating expenses: $20,000
Interest expense: $5,000
Tax expense: $5,000.
To calculate the net profit, you would need to subtract the total expenses from the revenue:
Net profit = Revenue – COGS – Operating expenses – Interest expense – Tax expense
= $100,000 – $60,000 – $20,000 – $5,000 – $5,000
= $10,000.
Therefore, the company’s net profit for the year is $10,000.
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