Asset

An asset is any resource owned or controlled by a business or an economic entity. It is anything (tangible or intangible) that can be used to produce positive economic value. Assets represent value of ownership that can be converted into cash.

Net worth

Your net worth is simply the difference between your assets (what you own) and liabilities (what you owe).

You can calculate yours by adding up all of the money or investments you have, including the current market value of your home and car, as well as the balances in any checking, savings, retirement or other investment accounts.

Then subtract all of your debt, including your mortgage balance, credit card balances and any other loans or obligations.

The resulting net worth number helps you take the pulse of your overall financial health.

Capital gains

Capital gains are the difference between how much something is worth now versus how much it was originally purchased for.

The gain, however, is only on paper until the asset or investment is actually sold. The flipside is a capital loss, which is the decrease in the asset’s or investment’s value since you purchased it.

You pay taxes on both short-term capital gains (a year or less) and long-term capital gains (more than a year) when you sell an investment.

Rebalancing

Rebalancing is a standard practice in any portfolio. It is the process of bringing your stocks and bonds back to your desired percentages.

For example, let’s say your target allocation is 60 percent stocks, 20 percent bonds and 20 percent cash. If the stock market has performed particularly well over the past year, your allocation may now have shifted to 70 percent stocks, 10 percent bonds and 20 percent cash.

To rebalance your portfolio, you could sell some of your stocks and reinvest that money in bonds, or invest new money in bonds to bring the portfolio back to the original balance.

Asset allocation

Asset allocation is where you choose to put your money.

The three major asset classes are stocks, bonds and cash (or cash equivalents). Each of these reacts differently to conditions in the market and economy, so be sure you choose those that line up best with your personal goals, risk tolerance and time horizon.

For example, investing in stocks could give you strong growth over time, but they can also be quite volatile. Thus, one of the most common pieces of investment advice out there is to diversify your portfolio — or put your money in several buckets to make sure you’re risking as little as possible while still achieving your particular goals.

Stock options

Stock options can be offered by companies as management incentives. These options give you the right (but not the obligation) to buy your employer’s stock at a pre-set price within a specified time period.

For example, if a manager helps boost the value of the company’s stock above the price of his or her option, the manager can buy the stock at the lower price and pocket the gain if they sell. But all shareholders benefit from the increased value of the stock.

Capital

Refers to the overall wealth of a business as demonstrated by its cash accounts, assets, and investments. Often called “fixed capital,” it refers to the long-term worth of the business. Capital can be tangible, like durable goods, buildings, and equipment, or intangible such as intellectual property.

Cash Flow

Every business needs cash to operate. The business finance term and definition cash flow refers to the amount of operating cash that “flows” through the business and affects the business’s liquidity. Cash flow reports reflect activity for a specified period of time, usually one accounting period or one month. Maintaining tight control of cash flow is especially important if your small business is new, since ready cash can be limited until the business begins to grow and produce more working capital.

Depreciation

The value of any asset can be said to depreciate when it loses some of that value in increments over time. Depreciation occurs due to wear and tear. Various methods of depreciation are used by businesses to decrease the recorded value of assets.

Gross Profit

This business finance term and definition can be calculated as total sales (income) less the costs (expenses) directly related to those sales. Raw materials, manufacturing expenses, labor costs, marketing, and transportation of goods are all included in expenses.