Finance & Accounting Terminology Flashcards
retiring a payment of capital gradually over time on a schedule which reflects the benefits the capital provides in each period. An upfront RI payment can be amortized over the useful lifetime (1 or 3 years) of the RI itself. Like depreciation, _____ typically applies to retirement of cash payments, where depreciation tends to apply to physical capital equipment
Amortization
Finance & Accounting Terminology
A statement of financial position of the business on a specific date which indicates the value of all assets and liabilities as of that date, including the retained value of any undepreciated or unamortized capitalizable items. A company purchasing a 3-year RI at the beginning of a year would show that RI with ⅔ of its original value on the ______ on the last day of that year
Balance Sheet
(Finance & Accounting Terminology)
the purchase of a capitalizable asset, such as a building or equipment meant to provide value over a long term and thus to be depreciated or amortized over that term. Purchasing a data center and using it over 30 years is considered a _____ while paying to run a virtual server in the cloud for this month is not
Capital Expenditure (CapEx)
Finance & Accounting Terminology
the ability to treat an investment or outlay as a capital item which will be depreciated or amortized in future periods
Capitalization
(Finance & Accounting Terminology)
In FinOps, the ability to identify and allocate costs to the appropriate cost categories in use by a customer. Ideally direct costs (the cost of resources running in my accounts), amortized costs (the amortization of prepaid costs paid upfront for RIs applied in my accounts), and shared costs (my share of common services accounts run by others on my behalf) can be allocated to individual budgeting categories for a clear view of the entire cost of running my application or workload in the cloud.
Cost Allocation
Finance & Accounting Terminology
retiring the cost of an asset gradually over time on a schedule which reflects the provision of benefits. Often this reflects the decrease in value of an asset over time due to wear and tear, decay or usefulness because of continued use in out periods.
Depreciation
(Finance & Accounting Terminology)
Earnings Before Interest, Taxes, Depreciation, and Amortization, an assessment of the earnings expected when subtracting only the cost of goods sold from the revenue achieved. Tracking the prepaid expense of a 3-year all-upfront Reserved Instance as a cash outlay that can be amortized over 3 years would affect EBITDA differently than if the resources were purchased using cash at on-demand rates.
EBITDA
Finance & Accounting Terminology
A cost which does not change with changes in business volume. The cost of a data center building mortgage is a_____ in that it does not vary regardless of whether there it is supporting 1 web server or 1,000,000 web servers driving the company’s revenue.
Fixed Cost
(Finance & Accounting Terminology)
a statement showing the company’s net profit or loss over a period of time (a month, a quarter, a year, etc.) Also referred to as a P&L, it would show expenses and amortization incurred during the period, so in year two of a 3-year RI, the amortization for the second year would show up as an expense against earnings in the period covered.
Income Statement
Finance & Accounting Terminology
An assessment used to calculate the long-term profitability of a project made by adding together all the revenue it can be expected to achieve over its whole life and deducting all the costs involved, discounting both future costs and revenue at an appropriate rate. In a cloud business case, the NPV of all the cash flows of a no-upfront RI might be compared to the current cash value of the all-upfront RI for determining which is better for the business.
Net Present Value
(Finance & Accounting Terminology)
a category of business expense made in a specific accounting period which provide benefits only in that accounting period. Purchasing on demand cloud services is an example. This requires no long-term tracking of depreciation or amortization but is subtracted from earnings in the period incurred.
Operating Expenditure - OpEx
Finance & Accounting Terminology
the amount of profit from an investment made, usually expressed as a percentage of the original total cost invested. In a cloud rightsizing business case, the ROI might be calculated as the savings in cloud expenditure expected less the engineering and other costs required to take the rightsizing action.
Return on Investment
(Finance & Accounting Terminology)
a cost which varies according to the business volume it supports. A company hosting websites would need to pay for more computers to host more websites, and so that cost per website is an example of this
Variable Cost
Finance & Accounting Terminology
Reserved instances or service reservations in general can typically be purchased with a full upfront payment (All Upfront), a partial upfront payment plus a reduced periodic charge (Partial-upfront) or with no upfront charge (No-Upfront) and may be amortized over the life of the RI. AWS allows all three models for some service reservations and only Partial for others. Azure has historically only offered VM Reservations as All-Upfront, and GCP doesn’t typically require this on reserved discounts. This might be treated as Prepaid Expenses on the Balance Sheet (check with your accountants!)
Upfront Charge
(Finance & Accounting Terminology)
the ability to directly compare my overall cost to the overall business benefit I am creating on a per unit basis. For example, if I understand that the overall cost of running my website infrastructure is $5,000,000 per month and is able to support 10,000,000 paid hosted web pages, then I can track a Webpage/$ metric of “2” which indicates how efficiently I run my service. Any future modifications to my cloud infrastructure can then be expressed in terms of the Webpage/$ metric to determine if they are helping or hurting, and opportunities for cost savings can be expressed in terms of how they impact Webpages/$.
Unit Economics
(Finance & Accounting Terminology)
