Amortization
The gradual repayment of a loan. Each payment covers interest and pays down some principal under a standard amortizing schedule.
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Break-even point
The sales volume at which modeled total revenue equals total costs. Profit is zero at the exact mathematical point.
See it in actionCAGR
Compound annual growth rate: the smooth annual rate linking a starting and ending value, without intermediate external cash flows.
See it in actionCompound interest
Growth that can earn more growth. Unlike simple interest, the interest or return becomes part of the base for future growth.
See it in actionContribution margin
Selling price minus variable cost. It is the amount each sale leaves to cover fixed costs and then profit.
See it in actionDepreciation
An accounting allocation of an asset’s cost over its useful life. It is not a direct estimate of the asset’s resale price.
See it in actionEffective annual rate
The actual one-year growth factor expressed as a rate, including compounding. A 12% nominal rate compounded monthly is about 12.68% effective.
See it in actionEmergency fund
Money reserved for unexpected bills or income interruptions. A suitable target depends on your own circumstances.
See it in actionFixed cost
A cost that stays the same over the activity range and period being modeled, such as a monthly rent payment.
See it in actionGross pay
Pay before taxes and deductions. It is not the same as take-home pay.
See it in actionInflation
A rise in the general price level. When prices rise, unchanged money buys less. Your own spending basket can differ from an official average.
See it in actionMargin
Profit divided by selling price. With a cost of 40 and a price of 60, margin is 20 ÷ 60 = 33.33%.
See it in actionMarkup
Profit divided by cost. With a cost of 40 and a price of 60, markup is 20 ÷ 40 = 50%.
See it in actionNominal annual rate
An annual rate quoted before allowing for compounding within the year. A 12% nominal rate compounded monthly uses 1% per month.
See it in actionOpportunity cost
The value of the next-best alternative you give up when you make a choice. Not every benefit or cost can be measured in money.
See it in actionPercentage point
The arithmetic difference between two percentages. A rate rising from 4% to 6% rises by 2 percentage points, or 50% relative to 4%.
See it in actionPrice elasticity
A measure of how much quantity responds to a price change. An absolute elasticity above 1 is called elastic; below 1 is inelastic.
See it in actionPrincipal
The starting amount: money you invest, or the balance you owe before additional interest.
See it in actionPurchasing power
What your money can buy, rather than just the number printed on it or shown in an account.
See it in actionReal return
A return adjusted for inflation. A positive nominal return can still leave you with less buying power.
See it in actionResidual value
The estimated value left at the end of an asset’s useful life, also called salvage value.
See it in actionROI
Return on investment: net gain compared with money committed. A total-period ROI does not automatically tell you the annual pace.
See it in actionUnit price
Price per standard quantity, such as per 100 grams or per item. It lets different pack sizes compete on equal terms.
See it in actionVariable cost
A cost that changes with output or sales, such as packaging for each item sold.
See it in actionDefinitions are original plain-English summaries. Each linked calculator includes its formula, limitations, and relevant further reading.