Category: Financial Terms

Profit Margin Key takeaways Profit margin is the percentage of revenue a company retains as profit after covering costs. The most commonly used measure is net profit margin, which accounts for all expenses, interest, and taxes. Margins vary by industry; comparisons should be made between similar businesses. High or unusually low margins warrant closer investigation…

Profit Centers A profit center is a division, business unit, product line, or branch within a company that is responsible for generating its own revenue and profits. It is treated like a standalone business for financial analysis, with managers empowered to make pricing and expense decisions aimed at maximizing earnings. Key takeaways Profit centers directly…

Profit Before Tax (PBT): Definition and Guide What is PBT? Profit before tax (PBT), also called earnings before tax (EBT) or pretax profit, is a company’s profit after operating results and interest are accounted for but before income taxes are deducted. It appears on the income statement and shows the amount of profit subject to…

Profit and Loss Statement (P&L) A profit and loss (P&L) statement, also called an income statement, summarizes a company’s revenues, costs, expenses, and profit or loss for a specific period (e.g., a quarter or fiscal year). It shows how effectively a business generates revenue and controls costs, and—along with the balance sheet and cash flow…

Profit Key takeaways Profit is the surplus a company retains after paying its costs and expenses. Gross profit = Revenues − Cost of Goods Sold (COGS). Operating profit (EBIT) subtracts operating expenses, depreciation, and amortization from gross profit. Net profit (the “bottom line”) subtracts interest and taxes from operating profit. Profits can be distributed as…

Productivity Productivity measures how efficiently inputs (labor, capital, materials, energy) are converted into outputs (goods, services, or sales). It’s a central concept for businesses, industries, and national economies because higher productivity enables greater wages, profits, and living standards without increasing inputs. How productivity is calculated At its simplest: – Productivity = Output ÷ Input Explore…

Production Possibility Frontier (PPF) The production possibility frontier (PPF) is a curve that shows the maximum combinations of two goods an economy or firm can produce given fixed resources and technology. It illustrates trade-offs, scarcity, opportunity cost, and productive efficiency. Key points The PPF plots two goods on orthogonal axes; each point on the curve…

Production Efficiency Production efficiency describes a situation where an economy or firm cannot increase the output of one good without reducing the output of another. In other words, resources are being used so that production sits on the production possibility frontier (PPF) — the curve showing the maximum feasible combinations of outputs given available resources…

Production Costs Production costs are the expenses a business incurs to produce goods or deliver services. They are directly tied to generating revenue and play a central role in pricing, profitability, and operational decisions. Key takeaways Production costs include direct materials, direct labor, manufacturing overhead, and other expenses directly linked to producing goods or services…

Product Portfolio: Definition and Why It Matters Key takeaways * A product portfolio is the complete set of products and services a company offers. * Analyzing the portfolio reveals which offerings drive revenue, profit, and growth—and which create risk. * Portfolios differ between mature, diversified firms and smaller, high‑growth companies; this affects volatility and strategy….

Product Line A product line is a group of related products sold under a single brand that share common characteristics such as function, price range, target customer, or quality. Companies use product lines to organize offerings, build brand recognition, and encourage repeat purchases: customers who like one product in a line are likelier to try…

Product Life Cycle The product life cycle describes the stages a product goes through from its market introduction to its withdrawal. It helps managers and marketers decide when to invest in promotion, adjust pricing, expand distribution, redesign the product, or discontinue it. Life cycle management is the continuous process of monitoring and adapting strategies as…

Product Differentiation Product differentiation is a strategic approach that helps a company’s products stand out from competitors by emphasizing unique attributes, benefits, or experiences. Effective differentiation shapes consumer perception, drives preference, and can increase sales and brand loyalty—especially important for smaller firms competing against larger rivals. Key takeaways Differentiation highlights what makes a product distinct—real…

Producer Surplus — Definition and Key Ideas Producer surplus is the benefit producers receive when they sell a good or service at a market price higher than the minimum price they would have accepted. Put simply: it is the difference between the price sellers actually receive and their marginal (or willingness-to-accept) cost. Key points: *…

Producer Price Index (PPI) What the PPI is The Producer Price Index (PPI) measures average changes over time in the selling prices that domestic producers receive for their goods and services. Compiled and published monthly by the U.S. Bureau of Labor Statistics (BLS), the PPI reflects price movement at the wholesale or producer level —…

Procyclic: Overview and Examples in Economics What procyclic means Procyclic describes a situation in which the value or behavior of a good, service, policy, or economic indicator moves in the same direction as the overall economy. When the economy expands, procyclic variables tend to rise; when it contracts, they tend to fall. How it relates…

Procurement: Definition, Process, and Key Concepts Key takeaways * Procurement is the strategic process of sourcing and acquiring goods or services needed by a business or government agency. * It includes steps beyond the purchase transaction—specifying requirements, supplier selection, contract negotiation, delivery, and payment. * Procurement differs from purchasing: procurement is strategic and relationship-focused; purchasing…

Probate Court: What It Is and How It Works Key takeaways * Probate court supervises the legal process for administering a deceased person’s estate: validating wills, paying debts, and distributing assets. * Assets titled solely in the decedent’s name typically must go through probate; accounts with designated beneficiaries, trusts, and certain jointly owned property usually…

Probate: What It Is and How It Works Key takeaways * Probate is the court-supervised process of administering a deceased person’s estate: proving a will (if one exists), paying debts and taxes, and distributing remaining assets. * Probate can proceed with a valid will (testate) or without one (intestate). Rules and thresholds vary by state….

Probability Distribution: Definition, Types, and Uses in Investing A probability distribution describes the likelihood of every possible outcome for a random variable. It assigns probabilities to outcomes (discrete case) or describes their density over a range of values (continuous case). Distributions are used across science, engineering and finance to summarize uncertainty and to make probabilistic…

Probability Density Function (PDF) Definition A probability density function (PDF) describes how likely different outcomes of a continuous random variable are. For any two values a and b, the probability that the variable falls between a and b equals the area under the PDF curve from a to b. Key properties A PDF is non-negative…

Pro Rata Definition Pro rata (Latin: “in proportion”) describes allocating a whole into parts based on each recipient’s share. It is commonly used in finance, insurance, payroll, and subscriptions to ensure each party receives a fair, proportional amount. Key takeaways Pro rata means proportional allocation — each party gets a share corresponding to their fraction…

Pro Forma Invoice Key takeaways * A pro forma invoice is a preliminary sales document that confirms the terms of a proposed sale but is not a demand for payment. * It estimates prices, shipping, taxes and other fees and helps prevent misunderstandings before delivery. * For international shipments it can be used by Customs…

What is Pro Forma? Pro forma financial statements are hypothetical or “what-if” financial reports that project the effects of future events or strategic decisions. The term literally means “for the sake of form.” Companies use pro forma statements for planning, budgeting, evaluating transactions (like mergers or divestitures), and communicating projected performance to stakeholders. These statements…

Privileged Communication Key takeaways * Privileged communication is a legal protection that keeps certain communications confidential between specific relationships (for example, attorney–client and doctor–patient). * The privilege is held by the client, patient, or penitent and can be waived if the protected information is shared with unauthorized third parties. * Common exceptions include threats or…

Privatization: Process, Benefits, and Examples Privatization is the transfer of ownership or management of a government-operated business, service, or asset to private entities. It also refers to when a publicly traded company becomes privately held. Both aims typically emphasize greater efficiency, reduced bureaucratic overhead, and improved financial performance by applying private-sector incentives. Key takeaways Privatization…

Understanding the Private Sector Definition The private sector is the part of the economy owned and operated by private individuals, groups, or corporations with the primary goal of earning profit. It is distinct from the public sector, which is government-controlled and funded by taxes. How the Private Sector Operates Driven by profit and competition: businesses…

Private Placement: Definition, How It Works, Pros & Cons What is a private placement? A private placement is the sale of securities (equity or debt) directly to a limited group of pre-selected investors instead of through a public offering on an exchange. It’s a common way for startups and early-stage companies to raise capital while…

Private Investment in Public Equity (PIPE) What is a PIPE? A Private Investment in Public Equity (PIPE) is a financing arrangement in which accredited or institutional investors buy shares directly from a publicly traded company at a price below the prevailing market value. PIPEs let public companies raise capital quickly by selling securities in a…

Private Investment Fund: Non‑public Investment Vehicles A private investment fund is an investment company that does not solicit capital from the general public. These funds rely on exemptions from the Investment Company Act of 1940—most commonly sections 3(c)(1) and 3(c)(7)—which allow them to avoid many of the regulatory, reporting, and public‑disclosure requirements that govern publicly…

Private Goods Private goods are tangible items or services that are both rivalrous and excludable: one person’s consumption reduces what’s available to others, and access can be restricted to those who pay. Most everyday market goods—meals, electronics, and personal services—fit this category. Key characteristics Rivalrous: Use by one person diminishes the quantity or utility available…

Private Finance Initiatives (PFIs): Overview, How They Work, Pros and Cons What is a Private Finance Initiative (PFI)? A Private Finance Initiative (PFI) is a procurement model in which private firms finance, build, and often operate public-sector projects. Instead of the government paying large up-front capital costs, the private partner provides initial funding and is…

Understanding Private Equity Real Estate: Investment and Returns Explained Key takeaways Private equity real estate (PERE) is an alternative investment class that acquires, finances, and manages real estate through privately managed funds. It is typically accessible to institutional investors and high‑net‑worth individuals due to high minimums, long lock‑ups, and limited liquidity. Expected long‑term returns vary…

Private Equity: Overview and Key Takeaways Private equity (PE) is an investment class in which firms raise capital to acquire, manage, and ultimately sell entire companies or business units for a profit. These investments are typically long-term, illiquid, and involve substantial capital commitments from institutional and accredited investors. Key takeaways: * PE firms buy and…

Understanding Private Companies: Ownership, Types, and Characteristics Key takeaways * A private company is owned by individuals, families, or a small group and does not trade shares on public stock exchanges. * Private firms face fewer public reporting requirements and greater owner control but often have more limited access to capital. * Common forms include…