5 Financial terms every banker should know

Welcome to the world of finance! If you’re not new to the banking world, you must have already noticed that finance has its own language. If you want to exchange with your peers or just understand what they’re talking about, you have to know the jargon.

In this article, we have decided to share few terms every banker should know. You won’t appear smarter if you use these terms, but not knowing them will definitely make your teammates question your belonging to the herd. Here's a quick rundown of five of the most important ones:

Whether you are a fast-developing company or the founder of a new startup, one undeniable fact governs your company's fortunes: The performance of your supply chain is directly related to the success of your company. If you want to be successful in business, you must also be successful in your supply chain. 


According to a Deloitte survey in 2014, 79 percent of companies with higher-than-average supply chains would generate revenue growth that is likewise above-average within their industry. It is easy to understand how a company's financial health could be influenced by its supply chain. Similarly, supply chain costs are likely to be a major role in the collapse of many businesses.

Profitability

The main purpose of a company is to create value and generate cash. This term refers to a company's ability to generate income (profits). A company's profitability can be measured by its Net Income, which is the difference between its revenues and expenses. We can use the Net Margin (income divided by the revenues) to measure the profitability of a business. 
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Working capital

This term refers to the company’s ability to meet its financial obligations in the short term. A company’s working capital can be calculated by subtracting its current liabilities from its current assets. If the number is positive, then the company will be able to meet its financial obligations in the short term. 
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Risk appetite

This term refers to a company's willingness to take on risk in pursuit of profit. A company with a high-risk appetite may be more likely to invest in new products or ventures, while a company with a low-risk appetite may be more conservative in its approach.
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Business model

This term refers to the way which the company generates revenue and profits. It refers to a set of decisions the company takes to create value. For example, some companies decide to operate under a SAAS model (software as a service) whereas others can decide to run as one time fee model. The wrong business model can jeopardize the viability of a company, especially if the management is not agile enough to adapt rapidly. 
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Leverage

This term refers to the company's use of debt to finance its operations (vs equity). A business with a high leverage may have a higher risk of default, but they may also have the potential of higher returns.


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