Basic finance terms that every entrepreneur should fully understand. They represent the core of understanding how business development works across all stages in the life of a venture 1. Capitalization: This describes the way the company has funded its fixed assets. These assets include plant, warehousing and other facilities; equipment and machinery; trucks, delivery vans and other vehicles; long-term contracts; and telecommunications infrastructure. The "cap sheet" typically shows the long-term debt and the equity in the firm. The equity will include preferred stock, common stock and any paid-in capital from outside investors, as well as retained earnings from operations. The various ownership stakes in the company will be delineated, both by shares owned and the relative percentage those represent of the company's total. 2. Depreciation: The fixed assets used in company operations have significant tax advantages for the company as well. Depreciation refers to the incremental value of a brand-new asset that is lost each year due to normal use in the company. Each year, equipment, buildings, machinery and vehicles lose some of their "newness" to technology advances, as well to everyday wear and tear from usage. Over time, the company is allowed to deduct that "annual loss in value" from its revenues (as if it is a cost), and this lowers the taxable income that must be reported when the company files its annual tax returns. For example, a $100,000 write-off on some equipme ...
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