A quick guide to the key finance terms every manager needs
Stepping into a management role is exciting but it also brings new responsibilities. One of the biggest challenges for many new managers is learning the finance terms to know to make sound business decisions. Without understanding basic finance terms, decisions can turn into guesswork and opportunities to improve performance may be missed.
At Celemi, we’ve helped more than a million people worldwide build financial confidence through our Apples & Oranges™ business simulation. Here are 10 financial terms every manager should know, explained simply and with practical examples.
Revenue is the money a business earns from sales of products or services.
1. Revenue
Why it matters: Revenue reflects how much value customers are willing to pay for. Without revenue, nothing else matters.
Example: A bakery sells 1,000 loaves at $2 each. Revenue = $2,000.
2. Cost of Goods Sold (COGS)
COGS are the direct costs of producing your product or service, typically materials and direct labor.
Why it matters: It shows the baseline cost of delivering value to customers. Managers who reduce waste here directly improve profitability.
Example: Flour, butter, yeast, and bakers’ wages are COGS for bread.
3. Gross Profit
Gross profit = Revenue – COGS.
Why it matters: Gross profit tells you how much is left to cover overhead and eventually turn into net profit.
Example: Revenue $2,000 – COGS $1,200 = Gross profit $800.
4. Overhead Costs
Overhead are the fixed costs that keep the business running: rent, utilities, administration, marketing, IT.
Why it matters: Even if sales fluctuate, overhead stays. Understanding it helps managers see why “selling more” isn’t always enough.
Example: The bakery pays $500 in rent each month regardless of sales volume.
5. Depreciation
Depreciation spreads the cost of an asset (like machinery) over its useful life.
Why it matters: It ensures investments are reflected realistically in yearly accounts. It’s a cost that doesn’t involve cash, which confuses many managers.
Example: A $6,000 oven expected to last 5 years depreciates at $100 per month.
6. Operating Profit (EBIT)
EBIT = Earnings before interest and taxes.
Why it matters: EBIT is the key measure of operational performance, showing how well managers control costs relative to sales.
Example: $2,000 revenue – $1,200 COGS – $500 overhead – $100 depreciation = EBIT $200.
7. Cash Flow
Cash flow is the actual movement of money in and out of the business.
Why it matters: A company can be profitable on paper but still fail if it runs out of cash. As the saying goes: profit is an opinion, cash flow is a fact.
Example: Buying a $6,000 oven doesn’t reduce this month’s profit by $6,000, but you still need the cash today.
8. Assets
Assets are everything the company owns that has value: cash, buildings, equipment, inventory, patents.
Why it matters: Assets show the resources you can use to generate future value. Managers should understand what’s tied up in inventory, equipment, or receivables.
Example: The bakery’s ovens, delivery van, and cash register are assets.
9. Liabilities
Liabilities are what the company owes: loans, supplier invoices, taxes.
Why it matters: Liabilities represent commitments and risks. Managers who understand them can better manage timing and negotiations with suppliers or lenders.
Example: If the bakery owes $1,000 to its flour supplier, that’s a liability.
10. Equity
Equity = Assets – Liabilities. It’s the value left for owners after debts are paid.
Why it matters: Equity shows the true long-term worth of the company. It grows with retained profit, so every manager contributes to it.
Example: The bakery has $10,000 in assets and $6,000 in liabilities → equity = $4,000.
Beyond the list
Knowing these finance terms is a great start. But to truly manage with confidence, you need to see how they connect across the three financial statements:
- Profit & Loss (revenues, costs, profit)
- Balance Sheet (assets, liabilities, equity)
- Cash Flow Statement (the actual movement of money)
A list like this gives you vocabulary. What really changes your perspective is seeing how these pieces move together how a single decision in one area ripples across the entire business.
And here’s our confession: we know a blog post won’t make you financially fluent. Reading about finance is like reading the rules of tennis, it helps, but it won’t win you a match. The real learning happens when you get on the court.
That’s why at Celemi we believe in learning by doing. Our simulations like Apples & Oranges™ give managers the chance to run a business, make decisions, and see the financial consequences, all in a safe, engaging environment.
So yes, read the list of our top finance terms. But if you really want your managers to get it, let them play the game of business.
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For more finance terms to know check out:Investopedia’s Financial Terms Dictionary offers more detailed definitions and a wealth of other terms.