
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.
Fixed cost
A fixed cost is a type of cost that remains constant regardless of the volume of goods or services produced. This means that the amount of the fixed cost does not change, even if the volume of production increases or decreases. Fixed costs are also known as overhead costs, and they include expenses such as rent, insurance, salaries, and property taxes.
Forecasts
Financial forecasting is the process of estimating future financial performance based on an organization’s current and historical financial data. Financial forecasting typically involves projecting key financial metrics, such as revenue, expenses, and profit, and is used to inform decision-making and planning.
For example, a company may use financial forecasting to project its revenue and expenses for the next quarter. To do this, the company may review its financial data from the previous quarter, including its sales and expenses, and consider any known or expected changes in its business, such as the introduction of a new product or an increase in operating costs. Based on this information, the company can create a financial forecast that projects its revenue and expenses for the next quarter.
Financial forecasting is an important tool for businesses, as it allows them to plan for the future and make informed decisions about how to allocate their resources. By regularly forecasting their financial performance, businesses can identify potential challenges and opportunities and take action to maximize their profitability and growth. Additionally, financial forecasting is often used by investors and analysts to evaluate the potential performance and risk of a business.
Fractional CFO
Fractional CFO is a type of financial management service in which a business can hire a Chief Financial Officer (CFO) on a part-time or temporary basis. This allows a company to access the expertise and knowledge of a CFO without the need to hire one full-time. Fractional CFOs can provide a range of services, such as helping a company develop and implement financial strategies, managing budgets and forecasting, and providing financial analysis and advice. This can be a cost-effective solution for small and medium-sized businesses that do not have the need or the resources to hire a full-time CFO.
Free Cash Flow (FCF)
Free cash flow (FCF) is a measure of a company’s financial performance that represents the amount of cash it has available for distribution to shareholders after accounting for capital expenditures. In other words, it is the cash that a company generates from its operations, minus the amount of money it needs to invest in order to maintain and grow its business.
Here is an example of how to calculate free cash flow:
Let’s say that a company has the following financial information for the year:
Net income: $500,000
Depreciation and amortization: $100,000
Capital expenditures: $150,000
To calculate the company’s free cash flow, we would first add back the amount of depreciation and amortization to its net income, since these are non-cash expenses that were subtracted from net income to arrive at the company’s net cash flow from operations. This would give us net cash flow from operations of $500,000 + $100,000 = $600,000.
Next, we would subtract the company’s capital expenditures from this amount to arrive at its free cash flow. In this case, the company’s free cash flow would be $600,000 – $150,000 = $450,000.
This means that the company has $450,000 in free cash flow that it can use to pay dividends, buy back shares, pay off debt, or invest in other opportunities.
Free cash flow
Free cash flow is a measure of a company’s financial performance that indicates how much cash it is generating from its operations after accounting for the purchase of assets, such as property, plant, and equipment. It is calculated by subtracting a company’s capital expenditures from its operating cash flow.Free cash flow is an important metric for investors, as it shows how much cash a company has available to pay dividends, repurchase its own stock, pay off debt, or invest in new opportunities. A company with positive free cash flow is able to fund its ongoing operations and growth without having to rely on additional borrowing or selling new equity.
Full-Time Employee (FTE)
A full-time employee (FTE) is someone who works a regular number of hours for an employer. In most cases, a full-time employee works at least 35 to 40 hours per week. The exact number of hours that constitutes full-time employment can vary depending on the company and the industry in which it operates. Some companies may consider employees who work fewer hours per week to be full-time, while others may require employees to work more hours in order to be considered full-time. Full-time employees are typically entitled to a range of benefits that are not offered to part-time employees, such as health insurance, paid time off, and retirement plans. These benefits are typically based on the number of hours an employee works, so a full-time employee is more likely to be eligible for them than a part-time employee. The number of full-time employees a company has can be an important metric for investors and analysts, as it can give insight into the company’s growth and financial health. A company with a high number of full-time employees is generally considered to be more stable and successful than a company with a low number of full-time employees.
Generally Accepted Accounting Principles (GAAP)
Generally accepted accounting principles (GAAP) are a set of rules, standards, and guidelines for the preparation of financial statements. These principles are used by accountants and financial professionals to ensure that financial statements are presented in a consistent and transparent manner, and that they accurately reflect the financial condition and performance of a business. GAAP is developed and maintained by the Financial Accounting Standards Board (FASB), which is an independent organization that sets accounting standards in the United States.
The FASB issues GAAP in the form of Statements of Financial Accounting Standards, which provide detailed guidance on how to account for specific transactions and events. Adherence to GAAP is important because it ensures that financial statements are comparable across different companies and industries. This makes it easier for investors and analysts to evaluate the financial health of a business and make informed decisions about whether to invest in it. In addition, GAAP provides a common language that allows businesses to communicate their financial information to a wide audience.
Go-to-Market (GTM)
Go-to-market (GTM) is a strategy that describes the process of bringing a product or service to market and making it available for customers to buy. The go-to-market strategy includes all of the activities and initiatives that are needed to make a product or service successful in the market, such as market research, product development, pricing, marketing, sales, and distribution.
Here is an example of a go-to-market strategy:
A company is launching a new mobile phone. The go-to-market strategy for this product might include the following steps:
Conducting market research to identify target customers and understand their needs and preferences
Developing the product based on the insights from the market research
Setting the price of the mobile phone based on factors such as the cost of production, competitors’ prices, and the value it offers to customers
Developing a marketing plan to promote the mobile phone, including advertising, social media, and events
Training the sales team on the features and benefits of the mobile phone and how to sell it effectively
Identifying and partnering with distributors who can help the company reach its target customers
Launching the mobile phone and making it available for customers to purchase
By following a well-defined go-to-market strategy, the company can maximize its chances of success and achieve its goals for the product launch.
Gross Margin
Gross margin is a measure of a company’s profitability that represents the percentage of revenue that the company retains after accounting for the cost of goods sold. It is calculated by dividing the company’s gross profit by its total revenue.
Here is an example of how to calculate gross margin:
Let’s say that a company has the following financial information for the year:
Total revenue: $1,000,000
Cost of goods sold: $600,000
To calculate the company’s gross margin, we first need to calculate its gross profit, which is the amount of money it makes from its sales after accounting for the cost of goods sold. In this case, the company’s gross profit would be $1,000,000 – $600,000 = $400,000.
Next, we would divide the company’s gross profit by its total revenue and multiply the result by 100% to convert it to a percentage. In this case, the company’s gross margin would be $400,000 / $1,000,000 = 40%.
This means that the company makes a profit of 40% on each dollar of revenue it generates. A high gross margin is generally considered to be a good sign, as it indicates that a company is able to generate a lot of profit from its sales.
Gross Merchandise Value (GMV)
Gross merchandise value (GMV) is a measure of the total value of goods sold through a particular platform or channel. GMV is a commonly used metric in e-commerce, as it provides a broad overview of the total value of sales made on a website or app.
For example, let’s say an e-commerce company sells a variety of products on its website. In a given month, the company sells $100,000 worth of products. The company’s GMV for that month is $100,000, as this is the total value of the products sold.
GMV is an important metric for e-commerce companies, as it provides insight into the overall performance and growth of the business. By tracking GMV over time, companies can identify trends and patterns in their sales and make data-driven decisions about how to improve their operations. Additionally, GMV is often used by investors and analysts to evaluate the potential value and growth of an e-commerce company.
Gross Retention
Gross retention refers to the percentage of a company’s customers or clients that remain with the company over a specific period of time. This metric is often used to measure the effectiveness of a company’s customer retention efforts and to identify areas for improvement.
For example, let’s say a company has 100 customers at the beginning of the year. After one year, the company has retained 80 of those customers. This means the company’s gross retention rate is 80%, as 80 out of the original 100 customers have remained with the company.
Gross retention can be a useful metric for companies to track, as it can provide insight into the overall health and sustainability of the business. A high gross retention rate may indicate that the company is providing high-quality products or services, has strong customer relationships, and is effectively retaining its customer base. On the other hand, a low gross retention rate may indicate that the company is losing customers at an unsustainable rate and may need to improve its customer retention efforts.
Gross profit
Gross profit is a measure of a company’s profitability that excludes the costs of producing and selling its products or services. It is calculated by subtracting a company’s cost of goods sold (COGS) from its total revenue. Gross profit is also known as gross margin, and it is expressed as a percentage of total revenue.

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