Dr. Paul Borosky, DBA, MBA
Business Consultant & Author
Financial Statements Glossary: 63 Terms in Plain English
Every term defined. Every term tied to a real number from Apple’s 10-K.
A 10-K says “accumulated deficit.” Your textbook says “retained earnings.” They are the same line. This glossary translates the words you will meet on an income statement, a balance sheet, and a cash flow statement, plus every major ratio, into plain English. Use it alongside the how to read financial statements guide.
Last Updated: 10/27/2026 · Written by Dr. Paul Borosky, DBA, MBA
Running a small business instead of studying one? The owner versions of these terms live in the accounting and finance glossary.
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10-K
The yearly report every U.S. public company must file with the Securities and Exchange Commission. It holds the full income statement, balance sheet, and cash flow statement, and anyone can read it free on SEC EDGAR.
Apple exampleApple files its 10-K each fall for a fiscal year that ends in September.
See it on Apple’s statements.
A
Accounting Equation
Assets equal liabilities plus equity. It is the rule under every balance sheet: whatever a company owns was paid for either by borrowing or by its owners.
Apple exampleApple, fiscal 2025: $359.2B in assets = $285.5B in liabilities + $73.7B in equity.
Accounts Payable (AP)
Bills a company has received from suppliers but has not paid yet. It is a current liability.
Apple exampleApple owed suppliers $69.9B at the end of fiscal 2025.
Accounts Receivable (AR)
Money customers owe for products or services already delivered. It is a current asset until the cash comes in.
Apple exampleApple’s receivables, counting vendor non-trade receivables, reached $73.0B in 2025.
Owner version: how to get customers to pay on time.
Accrued Expenses
Costs a company has already run up but has not been billed for yet, such as wages earned but not paid or taxes owed. They sit in current liabilities.
Assets
Everything a company owns that has value: cash, receivables, inventory, buildings, equipment, and more.
Apple exampleApple’s total assets: $359.2B in fiscal 2025.
B
Balance Sheet
The statement that shows what a company owns, what it owes, and what is left for the owners on one specific day.
Plain definition: what is a balance sheet.
Basic Earning Power
Operating profit (EBIT) divided by total assets. It shows how much raw profit a company squeezes out of everything it owns, before interest and taxes.
Apple exampleApple: 37.0% in 2025.
C
Capital Expenditures (Capex)
Cash spent on long-term physical assets like buildings, machines, and equipment. It shows up in the investing section of the cash flow statement, not as an expense.
Cash Flow Statement
The statement that tracks real cash moving in and out over a period, split into three parts: operating, investing, and financing.
Apple exampleApple brought in $111.5B from operations in fiscal 2025.
Why profit is not cash: what is cash flow.
Cash Ratio
Cash plus short-term investments divided by current liabilities. It is the toughest liquidity test because it ignores receivables and inventory.
Apple exampleApple: 0.33 in 2025.
Cost of Goods Sold (COGS)
The direct cost of the products a company sold during the period. Revenue minus COGS equals gross profit.
Apple exampleApple’s COGS fell from 58.2% of sales in 2021 to 53.1% in 2025.
Owner version: how to calculate COGS.
Current Assets
Assets a company expects to turn into cash within a year: cash, short-term investments, receivables, and inventory.
Apple exampleApple: $148.0B in 2025.
Current Liabilities
Bills and debts a company must pay within a year.
Apple exampleApple: $165.6B in 2025.
Current Ratio
Current assets divided by current liabilities. Above 1 usually means a company can cover its bills for the next year.
Apple exampleApple: 0.89 in 2025, below 1 and still healthy because of its cash flow.
See it on Apple’s statements.
D
Days Sales Outstanding (DSO)
The average number of days it takes customers to pay. Formula: average receivables divided by daily sales.
Apple exampleApple’s DSO rose from 52 days in 2022 to 61 days in 2025.
Debt Ratio
The share of a company’s assets paid for with debt. Lower means less borrowed money.
Apple exampleApple’s fell from 35.5% in 2021 to 27.5% in 2025.
Debt-to-Equity Ratio
Debt divided by shareholder equity. It compares what a company borrowed to what its owners put in, and it measures leverage.
Apple exampleApple: 134% in 2025. Microsoft: 12%.
Depreciation
Spreading the cost of a long-lived asset, like a machine, over the years it gets used, instead of expensing it all at once.
Dividend Payout Ratio
The share of net income a company pays to shareholders as dividends.
Apple exampleApple paid $15.4B in dividends in fiscal 2025.
Dividends
Cash a company pays out to its shareholders. Dividends show up in the financing section of the cash flow statement.
Apple exampleApple: about $15B a year, 2021 to 2025.
DuPont Method
A way to split return on equity into three parts: profit margin, asset turnover, and leverage. It shows what is really driving the return.
Apple exampleApple 2025: 26.9% margin x 1.16 turnover x 4.87 equity multiplier = about 152% ROE.
See it on Apple’s statements.
E
Earnings Before Interest and Taxes (EBIT)
Profit from running the business, before interest and taxes come out. Also called operating income.
Apple exampleApple: $133.1B in 2025.
Earnings Before Taxes (EBT)
Profit after interest and other income or expense, but before income taxes.
Apple exampleApple: $132.7B in 2025.
Effective Tax Rate
Income tax expense divided by earnings before taxes. It is the share of pre-tax profit a company actually paid in tax.
Apple exampleApple: 15.6% in 2025, after a one-time spike to 24.1% in 2024.
Equity
What would be left for the owners if a company sold everything it owns and paid off everything it owes. Also called shareholders’ equity.
Apple exampleApple: $73.7B. Microsoft: $343B.
Equity Multiplier
Total assets divided by equity. The higher it is, the more a company leans on borrowed money. It is the leverage piece of the DuPont method.
Apple exampleApple: 4.87 in 2025.
F
Fixed Asset Turnover
Sales divided by property, plant, and equipment. It shows how many sales dollars each dollar of physical assets produces.
Apple exampleApple: 8.35 in 2025.
Free Cash Flow
Operating cash flow minus capital expenditures. It is the cash left after running the business and reinvesting in it.
Apple exampleApple: about $99B in 2025.
See it on Apple’s statements.
G
Gross Profit
Revenue minus cost of goods sold. It is the money left to pay for everything else: overhead, research, interest, and taxes.
Gross Profit Margin
Gross profit divided by revenue, as a percentage.
Apple exampleApple: 46.9% in 2025. Microsoft: 69%.
Owner version: gross margin vs. net margin.
I
Income Statement
The statement that shows what a company earned and spent over a period, ending with its profit. Also called the statement of operations or the profit and loss (P&L).
Apple exampleApple: $416.2B revenue, $112.0B net income in fiscal 2025.
Plain definition: what is an income statement.
Inventory
Products a company has on hand and plans to sell.
Apple exampleApple: $5.7B in 2025, tiny next to $416B in sales.
Inventory Turnover
How many times a year a company sells through and restocks its inventory.
Apple exampleApple: about 34 times a year (using COGS).
L
Liabilities
Everything a company owes to others: supplier bills, wages, taxes, and loans.
Apple exampleApple: $285.5B in 2025.
Liquidity
A company’s ability to pay what it owes in the next year using what it can turn into cash in the next year.
Long-Term Debt
Borrowed money that is not due within the next 12 months.
Apple exampleApple cut it from $109.1B in 2021 to $78.3B in 2025.
N
Net Income
Final profit after every expense, interest, and tax. The bottom line.
Apple exampleApple: a record $112.0B in 2025.
Net Profit Margin
Net income divided by revenue, as a percentage.
Apple exampleApple: 26.9% in 2025. Microsoft: 36%.
Net Working Capital
Current assets minus current liabilities. It is the short-term cushion left after covering short-term bills.
Apple exampleApple: negative $17.7B in 2025.
NOPAT
Net operating profit after taxes: operating profit with taxes taken out, before the effect of borrowing. It is the profit used in ROIC.
O
Operating Cash Flow
Cash generated by running the core business, before capital spending or payments to shareholders.
Apple exampleApple: between $104B and $122B a year, 2021 to 2025.
Operating Expenses
The costs of running the business, such as research and development and selling, general, and administrative expenses.
Apple exampleApple: 14.9% of sales in 2025.
Operating Profit Margin
Operating income (EBIT) divided by sales, as a percentage.
Apple exampleApple: 32.0% in 2025. Microsoft: 46%.
P
Property, Plant, and Equipment (PP&E)
Long-lived physical assets like buildings, machinery, and equipment, shown after depreciation.
Apple exampleApple: $49.8B in 2025.
Q
Quick Ratio
The current ratio with inventory taken out. A stricter test of whether a company can pay its short-term bills.
Apple exampleApple: 0.86 in 2025.
R
Ratio
One number divided by another so you can compare companies of different sizes, or the same company across years.
Research and Development (R&D)
Spending on new products and technology. It is an operating expense, reported below gross profit.
Apple exampleApple: $34.6B in 2025, up from $21.9B in 2021.
Retained Earnings
The running total of profit a company has kept over its life instead of paying it out. The 10-K may call it accumulated deficit when it is negative.
Apple exampleApple: negative $14.3B in 2025, because of buybacks, not losses.
See it on Apple’s statements.
Return on Assets (ROA)
Net income divided by total assets. How much profit a company earns from everything it owns.
Apple exampleApple: 31.2% in 2025. Microsoft: 17%.
Return on Capital Employed (ROCE)
Operating profit (EBIT) divided by capital employed, which is total assets minus current liabilities.
Return on Equity (ROE)
Net income divided by shareholder equity. How much profit a company earns on the owners’ money.
Apple exampleApple: 152% in 2025, inflated by buybacks. Microsoft: 30%.
See it on Apple’s statements.
Return on Invested Capital (ROIC)
After-tax operating profit (NOPAT) divided by all the money invested in the business, both debt and equity.
Revenue
Total money a company brings in from selling its products and services. Also called sales or net sales. The 10-K may say total net sales.
Apple exampleApple: $416.2B in fiscal 2025.
S
SG&A
Selling, general, and administrative expenses: overhead not directly tied to making the product, like marketing, salaries, and rent.
Apple exampleApple: 6.6% of sales in 2025.
Short-Term Debt
Borrowed money due within a year, including commercial paper and the part of long-term debt coming due this year.
Apple exampleApple: $20.3B in 2025.
Short-Term Investments
Securities a company can sell within a year. They count as current assets, and analysts often add them to cash.
Apple exampleApple’s cash plus short-term investments: about $55B.
Stock Buyback
When a company buys its own shares back from the market. It is a financing outflow, it lowers the share count, and it shrinks equity.
Apple exampleApple: $78B to $95B a year, 2021 to 2025.
T
Times Interest Earned (TIE)
Operating profit divided by interest expense. How many times over a company can pay its interest bill.
Apple exampleApple: 29 to 41 times, 2021 to 2023 (the last years it reported interest separately).
Total Asset Turnover
Sales divided by total assets. How many sales dollars each dollar of assets produces.
Apple exampleApple: 1.16 in 2025.
Treasury Stock
Shares a company bought back and kept instead of canceling. It reduces equity. Companies that retire bought-back shares show zero here.
Apple exampleApple’s treasury line reads zero all five years.
W
Working Capital Turnover
Sales divided by net working capital. It stops meaning much when working capital is negative.
Apple exampleApple’s is negative, so the book marks it N/A.
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Common Questions About Financial Statement Terms
What are the most important financial statement terms for beginners?
What is the difference between profit and cash flow?
What does it mean when retained earnings are negative?
Where can I see these terms used on a real company?
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This page is for general educational purposes only. It is not investment, financial, tax, accounting, or legal advice. Apple and Microsoft figures come from their public filings as analyzed in the book by Dr. Paul Borosky. Apple and Microsoft are trademarks of their respective owners, and this page is not affiliated with or endorsed by either company.