Glossary
AI Finance Glossary
Plain-English definitions of AI, accounting, and SaaS-finance terms.
Categories
A
ACH Transfer
An electronic bank-to-bank transfer processed through the Automated Clearing House network, used for payroll, bill payments, and business transactions.
ADA Compliance
Adherence to the Americans with Disabilities Act prohibiting discrimination and requiring reasonable accommodations.
AI Bookkeeping
The application of artificial intelligence and machine learning to automate transaction categorization, reconciliation, and financial record-keeping.
AI Hallucination
AI model generating confident but factually incorrect or fabricated information not grounded in reality.
AML
Anti-Money Laundering — a framework of laws, regulations, and procedures designed to prevent criminals from disguising illegally obtained funds as legitimate income.
API Integration in Finance
The use of APIs to connect financial systems, enable real-time data exchange, and automate workflows between accounting, banking, and fintech platforms.
ASC 606
The GAAP revenue recognition standard requiring a five-step model to determine when and how to recognize revenue from customer contracts.
Accounts Payable
Short-term liabilities representing amounts a business owes to suppliers and vendors for goods or services received but not yet paid.
Accounts Receivable
Amounts owed to a business by customers for goods or services delivered but not yet paid for.
Accrual Accounting
An accounting method that records revenues and expenses when earned or incurred, regardless of when cash changes hands.
Activation Rate
Percentage of new users who complete a key action that predicts long-term retention.
Actuarial Analysis
Statistical and mathematical analysis of financial risks using probability and data to price insurance and manage reserves.
Aging Report
A financial report categorizing outstanding invoices or payables by how long they have been outstanding, used to manage collections and payment prioritization.
Alpha
Excess return of an investment relative to a benchmark index after adjusting for risk.
Alternative Minimum Tax
Parallel tax calculation ensuring high-income taxpayers pay a minimum federal tax regardless of deductions.
Amortization
The systematic allocation of an intangible asset's cost or a loan's principal over a defined period.
Annual Contract Value
Average annualized revenue from a customer contract, excluding one-time fees.
Annual Recurring Revenue
The annualized value of all active recurring subscription contracts, the primary revenue metric for SaaS businesses.
Anti-Bribery Compliance
Corporate program and legal framework preventing improper payments to government officials and commercial counterparties.
Anti-Dilution Protection
Provisions in preferred stock terms that protect investors from dilution if the company raises money at a lower valuation in a future down round.
Arbitrage
Simultaneous purchase and sale of equivalent assets to profit from price discrepancies across markets.
Asset Allocation
The strategic distribution of investments across asset classes — stocks, bonds, real estate, and cash — to balance risk and return based on goals and time horizon.
Asset Turnover
A ratio measuring how efficiently a company generates revenue from its asset base.
Asset-Based Lending
Commercial lending facility secured by specific business assets, typically receivables and inventory.
At-Risk Rules
Tax rules limiting loss deductions to the amount a taxpayer has economically at risk in an activity.
Audit Trail
A chronological record of all user actions, system events, and data changes in a financial system, providing a traceable history for auditing and investigation.
Average Revenue Per User
The mean revenue generated from each customer or user account over a given period, measuring monetization efficiency.
B
BSA (Bank Secrecy Act)
U.S. primary anti-money laundering law requiring financial institutions to assist in detecting and preventing financial crimes.
Balance Sheet
A financial statement showing a company's assets, liabilities, and equity at a specific point in time.
Bank Reconciliation
The process of matching a company's internal cash records to its bank statement to identify and resolve discrepancies.
Base Salary
Fixed cash compensation paid to an employee on a regular schedule regardless of performance or company results.
Basel III
International banking regulatory framework strengthening capital requirements and risk management for banks post-2008 crisis.
Batch Processing
Grouping payment transactions for processing together at scheduled intervals rather than individually in real time.
Beneficial Ownership
Identification of natural persons who ultimately own or control a legal entity above a defined ownership threshold.
Beneficiary Designation
A legal instruction naming who receives specific account assets directly upon the account holder's death, bypassing probate.
Benefits Administration
The management of employee benefits programs including health insurance, retirement plans, PTO, and other compensation components.
Beta
Measure of an investment's volatility relative to the overall market or benchmark index.
Blockchain in Finance
Distributed ledger technology applied to financial transactions for transparency, immutability, and disintermediation.
Bonus Depreciation
A tax incentive allowing businesses to immediately deduct a large percentage of the cost of eligible property in the year it is placed in service.
Break-Even Analysis
Calculation of the sales volume at which total revenue equals total costs, generating zero profit.
Bridge Loan
Short-term financing used temporarily until permanent long-term funding is arranged.
Burn Rate
The rate at which a company spends its cash reserves each month, critical for tracking how long funding will last.
Buy Now Pay Later
Point-of-sale financing allowing consumers to split purchases into installments, often interest-free.
C
CDD (Customer Due Diligence)
Process of verifying customer identity and assessing risk before and during a financial relationship.
COBRA
A federal law requiring employers with 20+ employees to offer continuation of group health insurance coverage to employees who lose coverage due to qualifying events.
COBRA Continuation
Federal law allowing employees to continue group health coverage after leaving employment by paying full premiums.
COSO Framework
Internal control framework published by the Committee of Sponsoring Organizations used for assessing and improving organizational controls.
Cap Table
A spreadsheet or software record showing all equity ownership in a company, including shares, options, warrants, and convertible instruments.
Capital Asset Pricing Model
Model describing relationship between systematic risk and expected return for assets in equilibrium.
Capital Expenditure
Funds spent acquiring, upgrading, or maintaining long-term physical assets for business operations.
Captive Insurance
Insurance subsidiary created by a company to insure its own risks rather than purchasing coverage externally.
Cash Basis Accounting
An accounting method that records income and expenses only when cash is actually received or paid.
Cash Flow Statement
A financial statement showing all cash inflows and outflows across operating, investing, and financing activities over a period.
Chargeback
A forced reversal of a payment transaction initiated by a customer through their bank, placing the financial liability back on the merchant.
Chart of Accounts
A structured list of all financial accounts used by a business to categorize and record every transaction.
Churn Rate
The percentage of customers or revenue lost within a given period due to cancellations or non-renewals.
Churned MRR
Monthly recurring revenue permanently lost when customers cancel their subscriptions.
Cliff Vesting
A vesting provision where no equity vests until a minimum service period (the cliff) is completed, protecting against early departures.
Co-Sale Rights
Investor right to sell shares alongside a founder in a secondary transaction on the same terms.
Cohort Analysis
Tracking a group of customers acquired in the same period to measure retention and revenue trends over time.
Coinsurance
Percentage of costs the insured shares with the insurer after the deductible is met.
Comparable Company Analysis
Valuing a company using trading multiples from publicly listed peer companies.
Compound Interest
Interest calculated on both the initial principal and previously accumulated interest, enabling exponential growth of savings and investments over time.
Conflict of Interest
Situation where personal interests or competing loyalties may improperly influence professional judgment or decision-making.
Contactless Payment
Payment via tap, NFC, or QR code without requiring physical card insertion or swiping.
Continuous Accounting
An accounting model that distributes close activities throughout the period using automation and real-time data, reducing the month-end close crunch.
Contraction MRR
Monthly recurring revenue lost from existing customers through downgrades or seat reductions.
Contraction Revenue
Recurring revenue lost from existing customers who downgrade their plan or reduce usage without fully canceling.
Contribution Margin
Revenue minus variable costs, showing how much each unit or sale contributes toward fixed costs and profit.
Convertible Note
A short-term debt instrument that converts to equity at a future funding round, typically with an interest rate, maturity date, discount, and valuation cap.
Copayment
Fixed amount the insured pays for a covered health care service at the time of service.
Credit Default Swap
Financial derivative transferring credit risk of a reference entity from protection buyer to protection seller.
Credit Score
A numerical rating (300–850) representing an individual's creditworthiness based on their credit history and behavior.
Cross-Border Payment
Financial transaction where payer and recipient are in different countries, requiring currency conversion or international routing.
Currency Conversion Fee
Fee charged when converting between currencies in a payment transaction, including exchange rate margin.
Current Ratio
A liquidity ratio measuring a company's ability to pay short-term obligations using current assets, calculated as current assets divided by current liabilities.
Customer Acquisition Cost
The total cost of acquiring a new paying customer, including all sales and marketing expenses divided by new customers acquired.
Customer Lifetime Value
The total net revenue a business expects to earn from a customer over the entire duration of their relationship.
D
Daily Active Users
The number of unique users who engage with a product on a given day, measuring habit formation and the depth of daily engagement.
Days Payable Outstanding
The average number of days a company takes to pay its vendors, measuring how efficiently a company manages its accounts payable.
Days Sales Outstanding
The average number of days a company takes to collect payment after a sale, measuring accounts receivable collection efficiency.
Debt-to-Equity Ratio
A leverage ratio comparing total debt to shareholders' equity, measuring how much a company relies on borrowed funds versus owner capital.
Debt-to-Income Ratio
A personal finance metric comparing monthly debt payments to gross monthly income, used by lenders to assess borrowing capacity.
Deductible
Amount the insured must pay out-of-pocket per claim before insurance coverage begins.
Deferred Revenue
Cash received from customers for services not yet delivered, recorded as a liability until the service obligation is fulfilled.
Depreciation
The systematic allocation of a tangible asset's cost over its useful life, reducing its book value on the balance sheet each period.
Differential Privacy
Mathematical framework adding noise to data or model outputs to provide formal privacy guarantees.
Digital Wallet
Software application storing payment credentials and enabling transactions without physical cards.
Dilution
The reduction in existing shareholders' ownership percentage caused by the issuance of new shares to investors, employees, or through conversion of instruments.
Discounted Cash Flow
A valuation method that estimates the present value of a company or investment by discounting projected future cash flows at an appropriate rate.
Dividend Reinvestment
The automatic use of dividend payments to purchase additional shares of the same investment, compounding returns through increased ownership.
Dodd-Frank
U.S. financial reform law enacted in 2010 expanding regulation of financial institutions, derivatives, and consumer protection.
Dollar-Cost Averaging
An investment strategy of investing a fixed dollar amount at regular intervals regardless of price, reducing the impact of market volatility over time.
Double-Entry Bookkeeping
An accounting system where every transaction is recorded as both a debit and a credit across at least two accounts, keeping the books balanced.
Drag-Along Rights
A provision allowing majority shareholders to force minority shareholders to agree to a company sale on the same terms.
Due Diligence
Systematic investigation of a business or investment to verify facts and identify material risks before closing.
Dunning
The process of systematically communicating with customers to collect overdue payments, through a sequence of increasingly urgent reminders.
E
EBITDA
Earnings Before Interest, Taxes, Depreciation, and Amortization — a proxy for operating cash generation used in valuation and financial analysis.
EDD (Enhanced Due Diligence)
More intensive customer due diligence applied to higher-risk customers, including PEPs and high-risk jurisdictions.
EMV Chip
Payment card microprocessor chip generating a unique cryptogram for each transaction, preventing card fraud.
ETF
An Exchange-Traded Fund — a basket of securities that trades on a stock exchange like an individual stock, combining diversification with intraday liquidity.
Early Payment Discount
A price reduction offered by sellers to buyers who pay invoices before the standard due date, improving the seller's cash flow.
Earnings Per Share
Net income attributable to common shareholders divided by weighted average shares outstanding.
Earnout
Contingent payment mechanism tying part of the acquisition price to the target's future financial performance.
Economic Nexus
A sales tax obligation trigger based on the dollar value or number of transactions in a state, regardless of physical presence, established after South Dakota v. Wayfair (2018).
Efficient Frontier
Set of optimal portfolios offering highest expected return for each level of portfolio risk.
Embedded Finance
The integration of financial services — payments, lending, banking, or insurance — directly into non-financial platforms and software products.
Emergency Fund
A dedicated savings reserve covering 3–6 months of living expenses to protect against unexpected financial disruptions.
Employer of Record
A third-party company that legally employs workers on behalf of another business, managing payroll, taxes, and compliance across jurisdictions.
Engagement Score
Composite metric quantifying how actively a customer uses a product, predicting retention and expansion.
Enterprise Value
The total value of a company available to all capital providers — equity holders and debt holders — used as a basis for acquisition pricing and valuation multiples.
Equity Compensation
Non-cash compensation in the form of company ownership interests, including stock options, RSUs, and restricted stock, used to attract and retain talent.
Estate Planning
The process of arranging for the management and distribution of assets during life and after death, minimizing taxes and ensuring wishes are carried out.
Estate Tax
Federal tax on the transfer of assets from a decedent's estate above a statutory exemption threshold.
Estimated Tax
Quarterly tax payments required from self-employed individuals and businesses that expect to owe $1,000 or more in taxes not covered by withholding.
Expansion MRR
Monthly recurring revenue added from existing customers through upsells, cross-sells, or seat additions.
Expansion Revenue
Additional recurring revenue generated from existing customers through upsells, cross-sells, or increased usage.
Explainable AI
AI systems and techniques making model decisions interpretable and transparent to human users.
F
FATF Guidelines
International standards from the Financial Action Task Force setting AML and counter-terrorism financing requirements.
FICO Score
The credit scoring model developed by Fair Isaac Corporation, the most widely used by lenders to evaluate consumer creditworthiness.
FLSA Compliance
Adherence to Fair Labor Standards Act requirements for minimum wage, overtime pay, and recordkeeping.
FMLA
Federal law providing eligible employees up to 12 weeks of unpaid, job-protected leave annually for qualifying family and medical reasons.
FX Hedging
Using financial instruments to reduce currency risk exposure on foreign-denominated revenues or expenses.
Factoring
Selling accounts receivable to a third party at a discount in exchange for immediate cash.
Federal Funds Rate
Interest rate at which banks lend reserves to each other overnight, set by the Federal Reserve.
Federated Learning
Machine learning approach training models across distributed datasets without centralizing raw sensitive data.
Few-Shot Learning
AI technique providing a small number of task examples in the prompt to guide model performance.
Fiduciary Duty
Legal obligation to act in another party's best interest, arising in relationships of trust and confidence.
Financial Modeling
Building quantitative representations of a company's finances to support decision-making and valuation.
Fine-Tuning
Further training a pre-trained AI model on domain-specific data to improve performance on specialized tasks.
Flexible Spending Account
An employer-sponsored account allowing pre-tax contributions for qualified medical or dependent care expenses, with annual use-it-or-lose-it requirements.
Float
The time gap between when a payment is initiated and when funds are actually debited or credited, creating a temporary balance discrepancy.
Foreign Tax Credit
U.S. tax credit for income taxes paid to foreign governments, reducing double taxation on foreign-source income.
Free Cash Flow
Cash generated from operations minus capital expenditures, available for debt, dividends, or reinvestment.
Full Ratchet
Anti-dilution protection resetting preferred stock conversion price to the lowest price of any subsequent share issuance.
G
GDPR Compliance
Adherence to the EU's General Data Protection Regulation, governing how organizations collect, store, process, and transfer personal data of EU residents.
General Ledger
The master record of all financial transactions in a business, organized by account and used to produce financial statements.
Generative AI
AI systems capable of creating new content—text, images, code, or data—based on patterns learned from training.
Gift Tax Exclusion
Annual IRS limit allowing tax-free gifts per recipient without consuming lifetime gift tax exemption.
Goods and Services Tax
A broad-based consumption tax applied to most goods and services, similar to VAT, used in Canada, Australia, India, Singapore, and other countries.
Goodwill
An intangible asset representing the premium paid in an acquisition above the fair market value of the target's identifiable net assets.
Gross Margin
The percentage of revenue remaining after subtracting the direct cost of goods sold, measuring production profitability.
Gross Revenue Retention
The percentage of recurring revenue retained from existing customers excluding any expansion, capped at 100%.
H
Health Savings Account
A tax-advantaged savings account paired with a high-deductible health plan, offering triple tax benefits for qualified medical expenses.
Hobby Loss Rules
IRS rules that disallow deducting losses from activities not engaged in with a profit motive.
I
IBAN
International Bank Account Number standardizing account identification for cross-border transactions.
ISO 20022
Global financial messaging standard enabling richer, more structured payment data across institutions.
Income Statement
A financial statement showing a company's revenues, expenses, and net profit or loss over a specific period.
Indemnification
Contractual obligation by one party to compensate another for losses arising from specified events or breaches.
Index Fund
A passively managed investment fund that tracks a market index like the S&P 500, offering broad diversification at very low cost.
Information Rights
Investor contractual rights to receive regular financial statements and company information.
Intangible Assets
Non-physical assets with economic value including patents, trademarks, copyrights, software, customer relationships, and brand names.
Intelligent Document Processing
AI-powered technology combining OCR, NLP, and machine learning to automatically extract, classify, and process data from complex financial documents.
Interchange Fee
The fee paid by a merchant's bank to a cardholder's bank for processing a card transaction, forming the largest component of merchant payment processing costs.
Internal Controls
The policies, procedures, and practices designed to safeguard assets, ensure financial accuracy, prevent fraud, and promote operational efficiency.
Inventory Turnover
A ratio measuring how many times a company sells and replenishes its inventory over a period, indicating inventory management efficiency.
Invoice Factoring
A financing arrangement in which a business sells its outstanding invoices to a third party at a discount in exchange for immediate cash.
K
L
LBO Model
Financial model analyzing private equity returns from a leveraged buyout at various exit scenarios.
LIBOR
London Interbank Offered Rate, the formerly dominant global benchmark for short-term interbank lending, now discontinued.
Large Language Model
AI system trained on vast text data to understand and generate human language across many tasks.
Letter of Credit
Bank guarantee ensuring a seller receives payment once specified documentary conditions are met.
Letter of Intent
Preliminary document expressing a party's intent to enter a transaction, outlining key proposed terms.
Like-Kind Exchange
Tax-deferred swap of investment real estate for similar property under IRS Section 1031.
Liquidation Preference
A provision giving preferred stockholders the right to receive their investment back before common shareholders in a company sale or liquidation.
Lockbox
A bank service that collects and processes customer check payments sent to a dedicated PO box, accelerating cash application and reducing float.
Logo Retention
Percentage of customer accounts (logos) that renew over a given period.
M
Machine Learning in Finance
Application of algorithms that learn from financial data to make predictions and automate decisions.
Magic Number
A SaaS sales efficiency metric measuring how much new ARR is generated for every dollar spent on sales and marketing.
Merchant of Record
The legal entity responsible for processing customer payments, managing tax compliance, and handling refunds and chargebacks for digital goods and services sales.
Merger Model
Financial model assessing the accretion or dilution to acquirer EPS resulting from an acquisition.
Mezzanine Financing
Hybrid debt-equity capital subordinated to senior debt, carrying higher yields and often warrant coverage.
Modern Portfolio Theory
Framework for constructing investment portfolios to maximize return for a given level of risk.
Monte Carlo Simulation
Computational technique using random sampling to model probability distributions of financial outcomes.
Monthly Active Users
The number of unique users who engage with a product at least once within a 30-day period, measuring product reach and engagement.
Monthly Recurring Revenue
The normalized monthly value of all active recurring subscriptions, the operational pulse metric for SaaS businesses.
N
Natural Language Processing
AI field enabling computers to understand, interpret, and generate human language from text or speech.
Net Margin
The percentage of revenue remaining as net income after all expenses including interest, taxes, and non-operating items.
Net Revenue Retention
The percentage of recurring revenue retained from existing customers including expansions, showing whether a customer base grows on its own.
Net Worth
The total value of all assets minus all liabilities, representing an individual's or company's overall financial position.
Neural Network
Computational system loosely inspired by brain neurons, capable of learning complex patterns from data.
New MRR
Monthly recurring revenue generated from customers acquired for the first time in a given period.
Non-Participating Preferred
Preferred stock that receives its liquidation preference OR converts to common stock, but not both.
O
OCR in Finance
Optical Character Recognition technology that extracts text from financial documents like invoices and receipts, automating data entry into accounting systems.
Open Banking
A framework enabling third-party applications to access bank account data and initiate payments via APIs, with customer consent, to enable innovative financial services.
Operating Account
The primary business bank account used for daily operational transactions including payroll, vendor payments, and customer receipts.
Operating Expenditure
Day-to-day expenses required to run a business, expensed immediately on the income statement.
Operating Margin
The percentage of revenue remaining after all operating expenses including COGS and overhead, excluding interest and taxes.
Out-of-Pocket Maximum
Annual cap on total cost-sharing required of an insured under a health plan.
P
PCI DSS
The Payment Card Industry Data Security Standard — a set of security requirements for organizations that handle cardholder data, mandated by card networks.
Participating Preferred
Preferred stock that receives its liquidation preference and also participates in remaining proceeds alongside common stockholders.
Passive Activity Rules
IRS rules limiting deduction of losses from activities in which the taxpayer does not materially participate.
Payback Period
Time required to recover the customer acquisition cost from a customer's gross profit contribution.
Payment Facilitator
Entity that aggregates merchant payment acceptance under a master account, enabling sub-merchant onboarding.
Payment Gateway
Software infrastructure that processes, verifies, and authorizes online and in-person payment transactions between merchants and customers.
Payroll Tax
Taxes levied on wages and salaries, split between employee withholding and employer contributions, funding social programs like Social Security and Medicare.
Per Diem
A fixed daily allowance provided to employees for meals and incidentals while traveling for business, simplifying expense management and IRS compliance.
Performance Bonus
Annual or periodic cash award tied to achieving individual or company performance targets.
Portfolio Rebalancing
The process of realigning a portfolio's asset allocation back to target weights by selling overweight assets and buying underweight assets.
Power of Attorney
A legal document authorizing a designated person to manage financial, legal, or healthcare decisions on behalf of the principal.
Predictive Analytics in Finance
The use of statistical models and machine learning to forecast future financial outcomes including revenue, cash flow, churn, and credit risk.
Premium
Regular payment made by a policyholder to maintain insurance coverage.
Prevailing Wage
Minimum wage rate for construction and service workers on government-funded projects, set by the Department of Labor.
Price-to-Book Ratio
Market capitalization divided by net book value, indicating how much investors pay per dollar of assets.
Price-to-Earnings Ratio
A valuation metric comparing a company's stock price to its earnings per share, indicating how much investors pay for each dollar of earnings.
Priced Round
A funding round in which the company's value is formally determined and investors receive shares at a specific price, establishing a definitive valuation.
Prime Rate
Benchmark lending rate charged by banks to their most creditworthy customers, tracking the federal funds rate.
Pro-Rata Rights
The right of existing investors to participate in future funding rounds proportionally to maintain their current ownership percentage.
Product Qualified Lead
A prospective customer who has demonstrated buying intent through meaningful engagement with a product — such as using a key feature or hitting a usage threshold.
Prompt Engineering
Craft of designing and optimizing inputs to AI language models to reliably produce desired outputs.
Purchase Order
A formal document issued by a buyer to a seller specifying the goods or services, quantities, prices, and delivery terms for a purchase transaction.
Q
Qualified Business Income Deduction
20% deduction for pass-through business income under IRC Section 199A for eligible self-employed taxpayers.
Qualified Opportunity Zone
IRS-designated economically distressed area offering capital gains tax deferral and reduction for long-term investments.
Quarterly Estimated Tax
Prepayment of income and self-employment taxes made four times per year by self-employed individuals and investors.
Quick Ratio
A strict liquidity measure comparing the most liquid assets — cash, investments, and receivables — to current liabilities, excluding inventory.
R
R&D Tax Credit
A federal and state tax incentive allowing businesses to claim a credit for qualifying research and development expenditures.
Ratchet
Mechanism adjusting investor ownership percentage upward if performance targets are missed post-investment.
Real-Time Gross Settlement
Central bank payment system settling large-value transactions individually in real time with immediate finality.
Real-Time Reporting
Financial and operational reporting that reflects current data as of the moment of viewing, rather than end-of-day or end-of-period snapshots.
Redemption Rights
Preferred stockholder right to require the company to repurchase shares after a specified period.
Reinsurance
Insurance purchased by insurance companies to transfer part of their risk to other insurers.
Remittance Advice
A document sent by a payer to a payee specifying which invoices a payment covers, facilitating accurate cash application.
Representations and Warranties
Contractual statements of fact in a purchase agreement that allocate risk between buyer and seller.
Restricted Stock Units
Equity awards that vest over time and convert to actual shares upon vesting, taxed as ordinary income at vesting.
Retention Bonus
One-time payment incentivizing a key employee to remain with the company through a specified date.
Retrieval-Augmented Generation
AI technique grounding language model responses in specific retrieved documents to improve accuracy.
Return on Assets
A profitability ratio measuring how efficiently a company generates net income from its total assets.
Return on Equity
A profitability ratio measuring how much net income a company generates per dollar of shareholders' equity.
Return on Investment
A measure of the gain or loss generated on an investment relative to its cost, expressed as a percentage.
Revenue Recognition
The accounting principle determining when and how much revenue can be recorded on the income statement under GAAP.
Revolving Credit Facility
Flexible bank credit line allowing repeated borrowing and repayment up to an approved limit.
Right of First Refusal
Investor right to purchase shares before a stockholder transfers them to a third party.
Robotic Process Automation
Software robots that automate repetitive, rule-based digital tasks in financial processes by mimicking human interaction with systems and applications.
Rolling Forecast
Continuously updated financial forecast extending a fixed period ahead, replacing point-in-time annual budgets.
Roth IRA
An individual retirement account funded with after-tax dollars, offering tax-free growth and tax-free withdrawals in retirement.
Rule of 40
A SaaS benchmark stating that a company's revenue growth rate plus profit margin should sum to 40% or more.
Runway
The number of months a company can operate at its current burn rate before exhausting its cash reserves.
S
SAFE Note
A Simple Agreement for Future Equity — a startup financing instrument that converts to equity at a future priced round, without accruing interest or setting a maturity date.
SAR (Suspicious Activity Report)
Confidential report filed by financial institutions with FinCEN when they detect potentially illegal activity.
SEPA
Single Euro Payments Area enabling standardized electronic payments across 36 European countries.
SOC 2
A security audit standard developed by the AICPA assessing a service company's data security, availability, processing integrity, confidentiality, and privacy controls.
SOFR
Secured Overnight Financing Rate, the primary U.S. replacement for LIBOR, based on overnight Treasury repo transactions.
SOX Compliance
Adherence to the Sarbanes-Oxley Act requirements for financial reporting controls and auditor independence for public companies.
SWIFT Code
Unique identifier (BIC) for financial institutions used in international wire transfers.
SaaS Quick Ratio
A metric measuring SaaS revenue growth quality by comparing new and expansion MRR gained to churned and contracted MRR lost.
Sales Qualified Lead
A prospect that has been reviewed and confirmed by the sales team as meeting target criteria, ready for direct sales engagement.
Sales Tax Nexus
The level of connection between a business and a state sufficient to require the business to collect and remit sales tax in that state.
Sanctions Screening
Process of checking customers, counterparties, and transactions against government sanctions lists to prevent prohibited activity.
Scenario Planning
Developing multiple coherent narratives about future business conditions to prepare strategic responses.
Section 179 Deduction
Immediate expensing of qualifying business property rather than depreciating it over multiple years.
Segregation of Duties
An internal control principle requiring different people to handle different stages of a transaction to prevent fraud and errors.
Self-Employment Tax
Social Security and Medicare taxes paid by self-employed individuals on net self-employment income.
Self-Insured Retention
Amount a company pays out-of-pocket per loss before excess insurance coverage begins.
Sensitivity Analysis
Testing how a financial model's outputs change when individual input assumptions are varied.
Severance Pay
Compensation paid to employees upon involuntary termination, beyond their final paycheck.
Sharpe Ratio
Risk-adjusted return metric measuring excess return earned per unit of total volatility.
Sortino Ratio
Risk-adjusted return metric using only downside deviation rather than total standard deviation.
Standby Letter of Credit
Bank guarantee drawn only if an obligor fails to fulfill a contractual or financial obligation.
Step-Up in Basis
Tax rule resetting an inherited asset's cost basis to fair market value at the decedent's date of death.
Stock Options
Rights to purchase company shares at a fixed price (strike price) within a specified exercise window.
Subordinated Debt
Debt that ranks below senior obligations in payment priority in the event of default or liquidation.
Sweep Account
A bank account that automatically transfers excess funds into an interest-bearing investment at the end of each business day, maximizing returns on idle cash.
Syndicated Loan
Large loan provided jointly by a group of lenders to a single borrower, arranged by a lead bank.
T
T&E (Travel and Entertainment)
Employee spending on business travel, meals, and client entertainment, managed through expense reports and corporate policies.
Tag-Along Rights
A right allowing minority shareholders to sell their shares alongside a majority shareholder on the same terms in a proposed sale.
Tax Loss Harvesting
An investment strategy of selling assets at a loss to offset capital gains or ordinary income, reducing current tax liability while maintaining portfolio exposure.
Tax Treaty
Bilateral agreement between countries to reduce double taxation on income earned across borders.
Tax Withholding
The process by which employers deduct income taxes from employees' paychecks and remit them directly to tax authorities on the employee's behalf.
Term Sheet
Non-binding document outlining the key terms of a proposed investment or acquisition deal.
Three-Statement Model
Integrated financial model linking the income statement, balance sheet, and cash flow statement.
Three-Way Matching
An accounts payable control process that verifies a vendor invoice against the corresponding purchase order and goods receipt before approving payment.
Tokenization
Replacing sensitive payment data with a non-sensitive substitute token that has no exploitable value.
Total Compensation
Complete value of all monetary and non-monetary benefits provided to an employee in exchange for their work.
Total Contract Value
Full committed revenue from a customer contract over its entire term, including all fees.
Traditional IRA
An individual retirement account funded with pre-tax or after-tax dollars, offering potential tax deductions now and tax-deferred growth until withdrawal.
Transfer Pricing
The pricing of goods, services, and intellectual property exchanged between related entities within a multinational company, governed by the arm's length principle.
Treasury Management
The organizational function responsible for managing a company's liquidity, cash flow, investments, debt, and financial risk.
Trial Balance
A report listing all general ledger account balances to verify that total debits equal total credits at a given date.
U
Underwriting
Process of evaluating, pricing, and accepting or rejecting insurance risk based on applicant characteristics.
Unemployment Insurance
State-federal program providing temporary income replacement to workers who lose jobs through no fault of their own.
V
Value Added Tax
A consumption tax levied at each stage of production and distribution, collected by businesses on behalf of the government throughout the supply chain.
Value at Risk
Statistical estimate of maximum potential loss over a time period at a given confidence level.
Variable Pay
Performance-contingent compensation including bonuses and commissions that fluctuates based on results.
Variance Analysis
Systematic comparison of actual financial results to budgeted or prior period figures to identify and explain differences.
Vesting Schedule
The timeline over which an employee earns the right to exercise stock options or receive equity grants, typically over four years.
Virality Coefficient
Average number of new users each existing user generates through referrals or organic sharing.
W
W-2 Employee
A traditional full-time or part-time employee whose taxes are withheld by the employer, documented annually on IRS Form W-2.
Weighted Average Anti-Dilution
Anti-dilution adjustment formula balancing down-round share price with the volume of new shares issued.
Weighted Average Cost of Capital
The blended rate of return required by all of a company's capital providers — debt and equity — weighted by their proportions, used as the discount rate in valuation.
Whistleblower Protection
Legal safeguards and financial awards for employees who report corporate fraud or securities violations.
Wire Transfer
An electronic transfer of funds between banks processed directly and irrevocably, used for large, time-sensitive, or international payments.
Workers' Compensation
State-mandated insurance providing medical and wage benefits to employees injured or ill due to work.
Working Capital
The difference between current assets and current liabilities, measuring a company's short-term liquidity and operational efficiency.
Working Capital Management
Optimizing the balance between current assets and current liabilities to sustain daily operations and cash flow.
Y
Z
Zero-Based Budgeting
Budgeting approach requiring all expenses to be justified from zero each period rather than incremented from prior year.
Zero-Shot Learning
AI capability to perform tasks on categories or domains not seen during training, using semantic knowledge.
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1099 Contractor
A self-employed independent contractor who provides services to a business without being classified as an employee.
401(k) Matching
An employer contribution to employees' 401(k) retirement accounts, typically matching a percentage of employee contributions up to a salary limit.
529 Plan
A tax-advantaged education savings account allowing after-tax contributions to grow tax-free and be withdrawn tax-free for qualified education expenses.