5 Basic Terms That Novice Investors Should Know

If you are one of those people who has taken matters, and their money, into their own hands and learned about investing - good for you! You have likely learned a lot since you decided to learn more about financial strategies.

However, there is always more to learn. Investing can be quite a dynamic process. As such, it is also accompanied by a whole host of investing jargon. These terms can be overwhelming to an investing beginner.


While not every person has the chance to study bookkeeping, novice investors should know the essential aspects of the business. To help get you up-to-speed, we created this guide. Here are five abbreviations that new investors should get acquainted with.

1. Capital (CAP) 

This is a financial asset value such as goods or cash. Working capital is determined by taking your existing resources and deducting them from present liabilities. Capital is fundamentally the cash or funds than a firm can put into the task. 

It's also considered as a crucial wellspring of financing in nearly every organization since businesses need them to work. Organizations raise capital by giving bonds and stocks to investors who those monetary instruments by using other assets or cash. 


It's critical to differentiate cash from the capital since they aren't the same thing. Capital is much more durable and is utilized to create something and bring riches. 

2. Balance Sheet (BS) 

A BS is a monetary report that summarizes an organization's assets, liabilities, and proprietor or investor equity at a given time. 

A statement of financial position, as it's also called, is a broadly useful fiscal summary created during the bookkeeping cycle. You can consider it as a preview of how the business looks at that time.


In contrast to the income statement, this financial record doesn't report happenings over time. The accounting report is an image of an organization's recourses, ownership, and debts on a given day.

3. Net Income (NI) 

Net income is the total earnings of a company, otherwise called net profit. This is determined by subtracting all costs from total incomes. The title is also interchangeably referred to as earnings, or income, and refers to a firm's financial status when total revenues surpass the overall costs. 

In other words, net income is the total profit of an organization. It's the revenue that's left after the entire costs have been deducted. If total incomes do not correctly add up to costs, the organization would have an overall deficit rather than a net gain. Overall gain is determined by subtracting all-out costs from total incomes. 

4. Return of Investment (ROI) 

This is the measure utilized to assess the financial performance compared with the measure of cash that was contributed. The ROI is determined by dividing the net profit using the investment cost. The outcome is regularly portrayed as a percentage. 

ROI is a profitability proportion that computes the earnings of a venture against the original cost percentage. It quantifies the amount of cash made after investment as a purchase price percentage. It portrays to investors how proficiently every invested dollar is generating profit.

5. Profit and Loss Statement (P&L)

It's a fiscal report that outlines an organization's financial position and performance. It reviews revenues and costs during a specific timeframe, for example, quarterly or yearly. It's likewise called the income statement and shows the profitability of an organization within a particular period. 

Comprehensively, the P&L shows the entire organization's expenses and income. These are usually split into four fundamental segments: financial expenses, operating expenses, cost of services or goods sold, and revenues. 

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