A sole trader is a business owned by a single individual.

A partnership is a business jointly owned by two or more people, sharing the profits and jointly responsible for any losses.

A company is an organization legally allowed to produce and trade.

Shareholders of a company have limited liability. The most they can lose is the money they spent buying shares.

Stocks are measured at a point in time; flows are corresponding measures during a period of time.

Revenue is what the firm earns from selling goods or services in a given period, cost is the expense incurred in production in that period and profit is revenue minus cost.

A firm’s cash flow is the net amount of money actually received during the period.

Physical capital is machinery, equipment and buildings used in production.

Depreciation is the loss in value of a capital good during the period.

Inventories are goods held in stock by the firm for future sales.

A firm’s net worth is the assets it owns minus the liabilities it owes.

Retained earnings are the part of after-tax profits ploughed back into the business.

Opportunity cost is the amount lost by not using a resource (labour, capital) in its best alternative use.

Supernormal profit is pure economic profit and measures all economic costs properly.

Corporate finance refers to how firms finance their activities.

Corporate control refers to who controls the firm in different situations.

A principal or owner may delegate decisions to an agent. If it is costly for the principal to monitor the agent, the agent has inside information about its own performance, causing a principal–agent problem.

Marginal cost is the rise in total cost when output increases by 1 unit. Marginal revenue is the rise in total revenue when output increases by 1 unit.