Beyond Profit: 10 Terms for Discussing Financial Performance

Discussing a company's financial performance requires a specific vocabulary that goes beyond simple profit and loss. To understand a business's true health and operational efficiency, you need to be familiar with key performance metrics. This guide covers 10 essential terms used in financial analysis.

Mastering these concepts will enable you to participate confidently in strategic and financial discussions. For more foundational knowledge, see our guide to balance sheet terms and use the BizVoc app for practice.

Key Financial Performance Vocabulary

• Revenue

  The total amount of income generated by the sale of goods or services related to the company's primary operations.

  The company's revenue grew by 15% year-over-year.
• Cost of Goods Sold (COGS)

  The direct costs attributable to the production of the goods sold by a company. This includes material costs and direct labor costs.

  By negotiating with suppliers, we were able to reduce our COGS by 5%.
• Gross Margin

  A company's net sales revenue minus its cost of goods sold (COGS). In other words, it is the gross profit expressed as a percentage of revenue.

  Our gross margin improved to 45% this quarter, indicating better production efficiency.
• Operating Expense (OpEx)

  The ongoing costs a company incurs to run its business, which are not directly related to production, such as rent, marketing, and administrative salaries.

  We are looking for ways to reduce our operating expenses without impacting growth.
• EBITDA

  Earnings Before Interest, Taxes, Depreciation, and Amortization. It's a measure of a company's overall financial performance and is used as an alternative to net income.

  The company's strong EBITDA shows its core operational profitability is healthy.
• Net Profit (or Net Income)

  The amount of money a company has left over after subtracting all costs and expenses (including taxes and interest) from its total revenue. Often called "the bottom line."

  Despite higher revenues, our net profit was lower due to increased taxes.
• Profit Margin

  The degree to which a company or a business activity makes money, expressed as a percentage. Net Profit Margin = (Net Profit / Revenue) x 100.

  A 10% profit margin means the company makes $0.10 in net income for every dollar of sales.
• Operating Cash Flow (OCF)

  The amount of cash generated by a company's normal business operations. It indicates whether a company can generate sufficient positive cash flow to maintain and grow its operations.

  Positive operating cash flow is critical for funding our day-to-day business activities.
• Return on Investment (ROI)

  A performance measure used to evaluate the efficiency of an investment. ROI measures the amount of return on an investment relative to the investment's cost.

  The marketing campaign had an impressive ROI of 300%.
• Year-over-Year (YoY)

  A method of comparing financial results for one period (such as a quarter or a year) with the same period the previous year.

  Our Q3 sales show a 12% YoY growth, which is a very positive sign.

Analyze with Authority

A solid grasp of these terms will empower you to read financial reports more critically, understand your company's performance, and contribute with authority to strategic financial discussions.

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