18/05/2026
📘 Financial Management Important Terms 💰
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✅ 1. Leverage
Leverage means using borrowed funds (debt) to increase the return on investment.
It helps a business expand operations without using only own capital.
✅ 2. Liquidity
Liquidity is the ability of a business to pay its short-term obligations easily.
Cash and bank balances are the most liquid assets.
✅ 3. Liability
Liability is a financial obligation or debt that a business has to pay in future.
Examples include loans, bills payable, and taxes.
✅ 4. Equity
Equity is the owner’s claim in a business after deducting liabilities from assets.
It represents the net worth of the business.
\text{Equity} = \text{Assets} - \text{Liabilities}
✅ 5. Asset
Assets are resources owned by a business that have economic value.
They can be used to generate future income, like machinery or cash.
✅ 6. Working Capital
Working capital is the difference between current assets and current liabilities.
It shows the short-term financial health of a business.
\text{Working Capital} = \text{Current Assets} - \text{Current Liabilities}
✅ 7. Capital Budgeting
Capital budgeting is the process of planning long-term investment decisions.
It helps in deciding whether to invest in projects like machinery or buildings.
✅ 8. Dividend
Dividend is the portion of profit distributed to shareholders.
It is usually paid in cash or additional shares.
✅ 9. Capital Structure
Capital structure refers to the mix of debt and equity used by a company.
It shows how a business finances its overall operations.
✅ 10. Retained Earnings
Retained earnings are the profits kept in the business instead of being distributed.
They are used for expansion or future investments.
