1. Inflation:
This is a rise in the general level of prices of goods and services in an
economy over a period of time. When the
general price level rises, each unit of currency buys fewer goods, hence reducing
the purchasing power per unit of money.
2. Time
value of money: This is the value of money with a given amount of interest
earned or inflation accrued over a given amount of time. The ultimate principle suggests that a certain
amount of money today will have a different buying power from the same amount
of money in the future. This notion
exists because there is an opportunity to earn interest on the money and
because inflation will drive price up, hence changing the value of the money. For
example N100 of today’s money will not have the same worth if there’s inflation
in the country. If inflation is at 10%, it
means that N100 will be able to buy a N90 worth of items in a year‘s time. This can only be managed by ensuring that your
unspent money is earning income that is at least equal to the rate of
inflation.
3. Investment:
This can be seen as putting money into something with an expectation of
gain, usually over a period of time this may or may not be backed by research
or analysis. Most or all forms of
investment involve some form of risk. Putting
money into something with the hope of a short term gain, with or with analysis
is called speculation.
4. Insurance:
This is the equitable transfer of the risk of a loss for one entity to another in
exchange for payment. It is a form of
risk management primarily used to hedge against the risk of a contingent/uncertain
loss. An insurer is the company selling the insurance, the insured or policy
holder is the person buying the insurance policy. The money to be charged for a certain amount
of insurance coverage is called the premium.
5. Recession:
This is a general slowdown in the economic activity. This usually occurs
when there is a widespread drop in spending. It can be simply interpreted as when the
purchasing power is lower and lower by two consecutive quarters (six months),
then your economy is in recession. It is the responsibility of the government to
do something about it.
6. Depreciation:
This is the cost of ‘wear and tear’ that occurs as a result of the usage of an
asset. Most times the ‘wear and tear’ of
an item appears to be unnoticed but it is occurs slowly. So you are expected to make provision for
this.
7. Assets and liability: Assets are economic
resources. Anything that is capable of been owned or controlled to produce
value and is held to have positive economic value is considered an asset. Simply stated, assets represent value of
ownership that can be converted into cash. It can be tangible and intangible.
While liability is defined as an obligation
of an entity arising from past transactions or events, the settlement of which
may result in the transfer or use of assets, provision of services or other
yielding of economic benefit in the future.
8. Profit
and loss: Profit is the difference between the purchase price and the cost
of bringing it to the market. The
purchase price most be higher than the cost, otherwise it will become a loss. This appears very simple, yet it is one of the
most difficult questions to find an answer to. Identifying all the cost that makes up the
cost price is very technical, so the help of a professional is usually required.
9. Stock
and dividend: Stock of an incorporated business constitutes the equity
stake of its owners. That is, the
ownership of a business is broken into bits and these bits are given value based
on the worth of the business. Then, investors are made to pay for the shares
and a value is agreed, thus the investor becomes a part owner of the business. At the end of the accounting year, the profit
is equally shared to the owners according to the number of bits they have
acquired. This share of profit is called ‘dividend’. At times, the owners can agree not to share
the whole profit, they can decide to put some back into the business. This is also acceptable by law.
10. Liquidity:
This is a measure of the ability of a debtor to pay his debts as at when due. It is the ability to pay short term
obligations. There are lots of people who have assets, but these assets are not
yet liquid, and as such they are not able to meet their obligations. This is because their assets are not easily
converted into cash. This is very
important when making a decision.
Idowu
Okungbowa is the Managing Consultant of ‘Fredericks International’, a Human
Capital Development and Marketing Consulting Firm. He is a public speaker and
he has a great interest in youth development and entertainment. Email:
idowuokungbowa@yahoo.com.
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