Economics

In this blog, I will write down some basic economic terms that I have learned from the internet and I hope to increase my understanding about economics over time.
Equity - value of stocks issued by a company. In real estate, equity = market price - amount still owed by owner.

Gross Income - total personal income before any taxes or deductions. For a company, its a revenue.

Net Income - Net Income = Gross Income - taxes - deductions. For a company, Net Income = Revenue - taxes - deductions - cost of goods sold - other expenses. So it is the profit.

Cost of Goods Sold - Cost for production of goods sold. Includes cost of materials and labor cost etc.

Capital - Financial value of assets such as cash, real estate, factories, machinery, equipment. When capital is sold and a profit is made its called capital profit, if a loss happens, its called capital loss.

Unrealized Gain - profit that is yet to be cashed in.

Asset - anything of value. Capital is a type of asset. But not all assets are capital. Intangible assets such as patents, goodwill or copyrights are assets but not capital.

Liability - debts or obligations. For ex, loans, mortgages, deferred revenues, expenses.

UBTI - Unrelated business taxable income. Income generated by a tax-exempt entity by doing some taxable activities. For ex, hospitals selling some medical instruments.

Liquidity - Liquidity of an asset means the ease with which it can be converted to cash. Cash is the most liquid asset. A house on the other hand is not because it is tough to sell the house quickly and there might be a big difference between the actual selling price vs the price on paper.

Leverage - Leverage is the strategy of borrowing money to generate huge investment returns. Let's say you have $20K to invest. If you buy a car for $20K and sell it for $25K you would earn a profit of $5K. But if you put $1K down on 20 cars and finance the $19K on each car and then sell each car for $25K, you would have a loan of $380K but would have sold everything for $500K. With original $20K and $380K removed you will have a profit of $100K. It is however risky as well as if the cars are not sold, the investor is under a huge debt.







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