X. Financial Functions

The Expression Calculator allows you to calculate a series of financial functions. Some of the following terminology is used in this section.

• A credit , in economics, is a means by which goods or services are obtained without immediate payment, usually by agreeing to pay interest. The three main forms are consumer credit (usually extended to individuals by retailers), bank credit (such as overdrafts or personal loans), and trade credit (common in the commercial world both within countries and internationally).

• An interest , in finance, is a sum of money paid by a borrower to a lender in return for the loan, usually expressed as a percentage per annum. Simple interest is interest calculated as a straight percentage of the amount loaned or invested. In compound interest, the interest earned over a period of time (for example, per annum) is added to the investment, so that at the end of the next period interest is paid on that total.

• A compound interest is the interest calculated by computing the rate against the original capital plus reinvested interest each time the interest becomes due. When simple interest is calculated, only the interest on the original capital is added.

• An investment , in economics, is the purchase of any asset with the potential to yield future financial benefit to the purchaser (such as a house, a work of art, stocks and shares, or even a private education). More strictly, it denotes expenditure on capital goods with a view to achieving profitable production for consumption at a later date. Fixed investment includes buildings, machinery, and equipment, but excludes stocks of materials used in production. This capital is then used in the production of goods and services for consumption at a later date. Fixed investment, or fixed capital formation, includes buildings, machinery, and equipment but excludes stocks of material used in production. Economists also recognize that spending on education and training is a form of investment which increases the human capital of the economy.

• A loan is a form of borrowing by individuals, businesses, and governments. Individuals and companies usually obtain loans from banks. The loan with interest is typically paid back in fixed monthly installments over a well-defined period, although longer-term loans and different repayment conditions may be negotiated. Debentures and mortgages are specific forms of loan. In business, loans are the second most important way after retained profit in which firms finance their expansion.

• A mortgage is a transfer of property, usually a house, as a security for repayment of a loan. The loan is normally repaid to a bank or building society over a period of years.

• A depreciation , in economics, is the decline of a currency's value in relation to other currencies. Depreciation also describes the fall in value of an asset (such as factory machinery) resulting from age, wear and tear, or other circumstances. It is an important factor in assessing company profits and tax liabilities.

• A cash flow is the input of cash required to cover all expenses of a business, whether revenue or capital. Alternatively, the actual or prospective balance between the various outgoing and incoming movements which are designated in total. Cash flow is positive if receipts are greater than payments; negative if payments are greater than receipts.