Glossary of common finance terms

Use these common finance terms when your team is creating a cloud migration business case. These terms can help when you share your business case with a finance team.

Terms

Amortization: An expense tied to a typically intangible asset that reflects the economic usage of that asset in a particular time period. For example if you purchase a license worth $100, you would capitalize that on your balance sheet. If you amortized it over five years, you would annually recognize an expense of $20 per year on your income statement.

Balance sheet: A balance sheet is a financial statement that reports a company's assets, liabilities, and shareholders' equity as of a specific date.

Capital Expense (CAPEX): The upfront investment in equipment. This equipment is capitalized as an asset and put on your balance sheet.

Cash flow statement: A cash flow statement is a financial statement that summarizes the amount of cash and cash equivalents entering and leaving a company during a given period.

Cloud economics: An understanding of the benefits and costs of the cloud, and the financial impact when you start a migration from on-premises to cloud computing.

Depreciation: An expense tied to a capitalized asset, that reflects the economic usage of that asset in a particular time period. For example if you purchase a server worth $100, you would capitalize that on your balance sheet. If you depreciated it over five years, you would annually recognize an expense of $20 per year on your income statement.

Double mortgage period: A period when you have two sets of costs at the same time. For example, when you have both on-premises and cloud costs.

Earnings before interest, taxes, depreciation, and amortization (EBITDA): A performance indicator of the profitability of a business. This starts from operating income, which is the income from your ongoing business operations (ignoring things like taxes or interest expense), and then adds back depreciation and amortization. While EBITDA is useful for comparability, it's often viewed in conjunction with metrics like capital expenditure to enable a fuller understanding of a company's ability to generate free cash flow.

Net Present Value (NPV): An assessment of the financial value of a business investment. This metric looks at cash flows, timing, and the required interest rate.

Operating Expense (OPEX): The ongoing expenses for a business. For example, a maintenance payment or periodic bill for Azure services.

Profit and Loss (P&L): A financial statement that summarizes the revenues, costs, and expenses incurred over a specified period, usually a fiscal quarter, or year. It is also referred to as the income statement.

Return on Investment (ROI): Return on investment (ROI) is a metric used to understand the profitability of an investment. ROI compares how much you paid for an investment to how much you earned to evaluate its efficiency.

Next steps

Learn more about the most common cloud accounting models for IT.

Understand cloud accounting