The financial sector is jam-packed with acronyms and abbreviations. Getting to grips with the language of finance can feel like deciphering a code.
However, once you are familiar with these acronyms and abbreviations, learning the language of finance becomes much easier.
Here is a list of 25 frequently used finance acronyms and what they mean in alphabetical order.
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1. AML - Anti-Money Laundering
Money laundering is always a threat for the financial sector. AML, or anti-money laundering, refers to the laws and regulations in place that aim to unearth and stop criminals trying to disguise illicit funds from illegal activities, like drug trafficking and terrorism, as lawful income.
2. BS - Balance Sheet
A balance sheet is a statement that provides information on a company’s assets, liabilities and shareholder equity. A balance sheet is a financial statement that can be used to assess a business’ financial health and provide insight into a business’ finances at the time of publication.
3. CA - Capital Allowance
Capital allowances are a type of tax relief for businesses that allow them to deduct some or all of the value of an item from their profits before they pay tax. Capital allowances can be claimed on machinery, equipment and vehicles used by a business to conduct its operations – these are also referred to as plant and machinery.
4. CA - Current Assets
Current assets are assets owned by a business that can be converted to cash, whether through liquidation, use or sales, within a financial year. Examples of current assets include cash, accounts receivable, stock inventory and marketable securities.
5. CAGR: Compound Annual Growth Rate
The average annual rate of growth of an investment or business over a specific period, accounting for compounding effects.
6. CF - Cashflow
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Just as the name suggests, cashflow refers to the flow of cash moving in and out of a business. Cashflow is vital for the smooth running of a business as it dictates whether a business can pay its suppliers, employees, owners and other expenses on time. The amount of cash in the business is determined by the cash made from selling products, investments and bank loans.
7. CFO - Chief Financial Officer
CFO is the title given to a senior executive in a company who is responsible for managing the financial matters of the business. Often holding the highest financial position in a business, the chief financial officer plays a key role in ensuring the business is operating efficiently and within financial legislation and regulations. Find out more about the role of a CFO in our article.
8. EBITDA: Earnings Before Interest, Taxes, Depreciation, and Amortisation
EBITDA, or earnings before interest, taxes, depreciation, and amortisation, is a useful measurement for judging a company's operating performance.
9. FA - Fixed Assets
Fixed assets refer to long-lived assets that a company owns and uses in its operations that it is unlikely to sell. Examples of fixed assets include buildings, factories, computer hardware and software, and equipment and machinery.
10. FY - Financial Year
A financial year refers to a one-year period that businesses use for preparing financial reports and budgeting. A financial year doesn’t necessarily have to match the calendar year (1 January - 31 December). Different businesses have different financial years, for example, educational institutions might match their financial year to fit in with term-time, but it does have to cover a 12-month period.
11. GAAP - General Accepted Accounting Principles
GAAP refers to the standards, rules and procedures issued by the Financial Reporting Council (FRC) in the United Kingdom. These standards cover the details and legalities of business and corporate accounting. GAAP creates consistent accounting and reporting standards, providing stakeholders with reliable methods of assessing a business’ financial health.
(Note: Businesses can also follow the IFRS rules.)
12. GDPR - General Data Protection Regulation
GDPR is a data protection and privacy law in the EU and the European Economic Area. Coming into force in 2016, GDPR restricts what organisations can do with personal data and enhances how individuals can access their personal data.
GDPR applies to any entity that processes the personal data of EU citizens or residents. If entities provide goods or services to EU citizens or residents, even if the entity itself isn’t based in the EU, they still need to comply with GDPR. The Data Protection Act 2018 is the UK's implementation of the General Data Protection Regulation (GDPR).
13. HMRC – Her Majesty's Revenue and Customs
HM Revenue & Customs (HMRC) is responsible for collecting, paying, administering and enforcing taxes.
14. Initial Public Offering
The process of offering shares of a private company to the public for the first time, allowing it to become a publicly traded company.
15. MTD- Making Tax Digital
Making Tax Digital for VAT (or MTD, for short) is a component of a larger government effort to streamline the taxation system so that taxpayers can pay their taxes more accurately. Ultimately, the government aims to reduce the amount of tax lost due to avoidable errors from manual data entry. It requires both companies and qualifying individuals to:
Maintain digital records
Utilise Making Tax Digital compatible software
Submit quarterly updates, which will help the tax system get closer to real-time
16. M&A: Mergers and Acquisitions
The consolidation of companies through various transactions, including mergers, acquisitions, and takeovers.
17. NBV – Net Book Value
The financial term "net book value" refers to the value of an asset as recorded on a company's balance sheet after deducting its accumulated depreciation, depletion, or amortisation.
18. OPM - Operating Profit Margin
Operating profit margin is a metric used to work out the profitability or performance of a business. It measures the percentage of profit a company makes from its operations before the deduction of interest charges and taxes. It is calculated with the following formula:
Operating Profit Margin = (Operating Profit / Total Revenue)
19. P&L Statement - Profit and Loss Statement
A profit and loss statement, sometimes referred to as an income statement, is a financial report that shows how much a company has spent and earned over a specified period of time. It also shows if the company has made a profit or a loss over that time. Along with the balance sheet and cash flow statement, the P&L statement is issued by every public company on a quarterly and annual basis.
20. ROA - Return On Assets
ROA, or return on assets, is a metric used to work out how well a company uses its assets to make a profit. ROA can be expressed as a percentage by dividing the net income of a business by its total assets. The higher the ROA, the more efficient a business is at generating profit.
21. ROI - Return On Investment
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ROI refers to the metric that shows how profitable an investment is. ROI is calculated using the following formula:
ROI = (Net Profit / Cost of Investment) x 100
The ROI is expressed as a percentage. A business can then use this to see if a specific business activity, like participating in a tradeshow or running a paid advertising campaign, has been worth it.
22. TB - Trial Balance
A trial balance is a list of credit and debit entries that a company uses to audit its double-entry accounting systems internally. The aim of a trial balance is to verify that the sum of all debits equals the sum of all credits and check if any entries have been recorded in the wrong account.
23. VAT – Value Added Tax
VAT stands for Value Added Tax and the current standard rate is 20% for most services and goods. Subject to various conditions, there are exemptions, which means that some goods earn a reduced rate of 5% (such as home energy) and other items are zero VAT.
24. WDA – Written Down Allowance
The term "written down allowance" refers to a tax deduction that allows businesses to reduce the value of an asset over time, reflecting its depreciation or wear and tear. It is calculated by applying a depreciation rate or percentage to the initial cost of the asset. The depreciation rate varies depending on the asset type and the applicable tax laws. Each year, the business deducts the written-down allowance from its taxable profits, thereby reducing its tax liability.
25. YTD - Year-to-date
YTD stands for "Year-to-Date." It is a financial term used to describe the period of time from the beginning of the current calendar year up to the present date. YTD is often used to analyse and compare financial data, performance, or metrics within the context of the current year.
For example, if the current date is 12th July 2023, the YTD period would represent the time from 1st January 2023 to 12th July 2023. During this period, financial figures or metrics can be tracked and evaluated to assess performance or measure progress.
Disclaimer: This is not an exhaustive list.
