Every Finance Term.
Explained Clearly.
Business, finance and accounting terms explained in plain language – with real-life examples in ₹. Covers taxation, investments, markets, accounting, banking, and more.
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EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortisation — a measure of core operational profitability before non-cash and financing items. It strips away the effects of capital structure and tax environment to show how much cash a business generates purely from operations.
Compound interest is interest calculated on both the initial principal and the accumulated interest from previous periods. Unlike simple interest, compounding causes wealth to grow exponentially over time — which is why starting early matters so much in long-term investing.
Working capital = Current Assets − Current Liabilities. It represents the funds available for day-to-day operations. Positive working capital means the business can cover short-term obligations; negative working capital signals potential liquidity stress.
Capital gains tax applies to the profit from selling a capital asset. In India: Short-Term Capital Gains (STCG) on listed equity held under 12 months is taxed at 20% (FY 2025–26). Long-Term Capital Gains (LTCG) above ₹1.25 lakh on equity is taxed at 12.5% without indexation.
A mutual fund pools money from many investors and invests it in a diversified portfolio — stocks, bonds, or other securities — managed by a professional fund manager. In India, mutual funds are regulated by SEBI and range from liquid funds to ELSS tax-saving funds.
A balance sheet is a financial statement showing a company’s Assets = Liabilities + Equity at a specific point in time. It gives a snapshot of what the company owns, what it owes, and the owner’s stake — an essential tool for investors and lenders.
GST (Goods and Services Tax) is a comprehensive indirect tax on the supply of goods and services in India, replacing multiple cascading central and state taxes. It has four slabs: 5%, 12%, 18%, and 28%, plus a composition scheme for small businesses.
Depreciation is the systematic allocation of a fixed asset’s cost over its useful life, reflecting wear, tear, and obsolescence. Common methods include Straight-Line Method (SLM) and Written Down Value (WDV) — the latter is mandatory under Indian Income Tax Act for most assets.
A Systematic Investment Plan (SIP) lets you invest a fixed amount at regular intervals (weekly, monthly) into a mutual fund. It uses rupee-cost averaging — you buy more units when prices are low and fewer when prices are high — making it ideal for long-term, disciplined wealth creation.
ROE = Net Profit ÷ Shareholders’ Equity × 100. It shows how efficiently a company uses owner-invested capital to generate profit. A consistently high ROE (above 15–20%) is generally a sign of a competitive, well-managed business.
Inflation is the rate at which the general price level rises over time, eroding purchasing power. In India it’s measured by CPI (Consumer Price Index) and WPI (Wholesale Price Index). RBI targets CPI inflation at 4% (with a ±2% band).
NPV = Present value of future cash inflows − Present value of cash outflows. A positive NPV means the investment creates value; a negative NPV means it destroys value. It’s the foundation of capital budgeting and project appraisal decisions.