8 Basic Finance Concepts You Need To Know

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Basic finance concepts

There are eight Basic Finance concepts you need to know when you are a trained financial professional, and comfortable with finance.

If ignoring finance, it will be a competition when it comes to being well versed in all its aspects of working in the business.

If you have no idea what the market is all about or what CAPM stands for, it is accurate time to begin embracing money matter head.

To start your journey to financial fluency by learning some basic finance concepts and terms.

8 Basic Finance Concepts

1. Net Worth

You are in good financial health if your net worth is positive, you may have heard the term in your everyday life.

Net worth also simply means the difference between your total assets and the total amount you owe to your creditors and other financial stakeholder. A negative net worth means your company is operating at loss.

A positive net worth indicates good financial health, whilst a negative net worth means your company is operating at a loss.

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2. Inflation

Inflation means the sustained increase in the price of goods and services over some time. As the price increases due to inflation then you will be able to afford less. One inflation indicator working professionals should look out for is if their income is rising proportionately with the national rate of inflation.

3. Liquidity

liquidity is also part of Basic Finance Concepts, in this hand, it can be seen as the term which indicates how your money is accessible. Corporations usually need to have good liquidity since creditors can demand their money at any time.

4 Bull Market

Bull market can also be called bear market, let put it this way, a bull market is the market raise in a good stage. The economy is constant flux between bull and bear markets, so knowing the difference will help you stay on top of the ever-changing economic landscape.  

5. Risk tolerance

In this basic finance concept, risk tolerance is slightly trickier to nail down a concrete definition of this term. In simple language, risk tolerance is how someone is aggressive willing to be with their investments. Those who are classified in risk tolerance are willing to invest more money for a short period of time.

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6. Simple Interested

Simple interest means your money is going to work for you, it is very important to read the term of a financial agreement to know what kind of interest you will be accruing. Simple interest is a small percentage of the principal balance of your loan or deposit, charged or paid out on a regular basis.

7. Compound Interest

Compound interest is interest that you earn on a “rolling balance,” and not on the initial principle, If you’re being charged or payed compound interest, the amount you pay or receive on a regular basis will be the interest rate on the principal balance or deposit.

8. CAPM

CAPM is the full meaning of Capital Asset Pricing Model, and it is also among the basic finance concepts and it is one of the common terminologies and models used in corporate finance. CAPM is an invaluable tool to help corporate finance professionals evaluate which investments are best suited to the overall goals of their organisation.

After reading the 8 basic finance concepts, we understand that you will have a review about it.

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