Financial Terms 54 terms to master e-commerce finance

e-commerce Financial Terms Glossary

A comprehensive reference for understanding the financial metrics, concepts, and terminology used in e-commerce inventory management and capital allocation.

Each term includes its definition, why it matters, and how it connects to capital efficiency.

A

4 terms

ABC Analysis

ABC Analysis classifies SKUs based on their relative contribution to sales, revenue, or profit, grouping them into A (highest impact), B (medium impact), and C (lowest impact).

ABC-XYZ Analysis

ABC-XYZ Analysis combines sales, revenue, or profitability classification (ABC) with demand variability classification (XYZ).

Allocation of Capital

Allocation of capital is the process of deciding how limited working capital is deployed across competing investment options.

Annualized Return

Annualized return converts profit from one inventory cycle into a yearly rate, allowing direct comparison between products.

C

10 terms

Capital Constraints

Capital constraints refer to limits on how much money can be invested in inventory at a given time.

Capital Efficiency

Capital efficiency describes how effectively invested working capital generates profit.

Capital Lock

Capital lock is the period during which money invested into inventory is unavailable for other uses.

Cash Flow Forecast

A cash flow forecast estimates expected inflows and outflows of cash based on projected sales and payments.

Cash Net Proceeds

Cash net proceeds represent the actual cash received from each sale after all adjustments.

CCC (Cash Conversion Cycle)

The Cash Conversion Cycle measures the days between paying for inventory and receiving cash from sales.

COGS (Cost of Goods Sold)

COGS is the direct cost of purchasing or producing goods sold during a period.

Contribution Margin

Contribution margin is contribution profit expressed as a percentage of revenue.

Contribution Profit

Contribution profit is the profit remaining after subtracting all variable costs tied to each sale.

Cost of Capital

Cost of capital is the minimum return required to justify investing money into inventory.

Cycle Time

Inventory cycle time is the duration from placing a purchase order until the inventory is sold.

D

6 terms

Days of Supply (DOS)

Days of Supply indicates how many days existing inventory will last at the current sales rate.

Demand Forecast

A demand forecast estimates how much customers want to buy during a given period.

DIO (Days Inventory Outstanding)

DIO measures how long, on average, inventory stays in the business before being sold.

DPO (Days Payable Outstanding)

DPO measures how many days pass between receiving goods and paying suppliers.

DSO (Days Sales Outstanding)

DSO measures the time between selling a product and receiving the cash.

E

1 term

Expected Return On Investment (ROI)

Expected ROI is the return a company expects to earn from investing into working capital.

F

4 terms

FBA (Fulfillment by Amazon)

FBA is a service in which Amazon stores inventory and handles fulfillment on behalf of sellers.

Feasible Solution

The feasible solution is the set of all order combinations that satisfy constraints.

Forecast Granularity

Forecast granularity refers to the time interval used in forecasting (daily, weekly, monthly).

Forecast Horizon

The forecast horizon is the length of time into the future a forecast attempts to predict.

G

4 terms

GMV (Gross Merchandise Value)

GMV represents the total value of all items sold at their full listed price.

Gross Margin (GM%)

Gross margin is gross profit expressed as a percentage of revenue.

Gross Profit (GP)

Gross profit is the revenue remaining after deducting the cost of goods sold.

GPM (Gross Profit Margin)

A synonym for gross margin, representing gross profit as a percentage of revenue.

I

2 terms

Inventory Age

Inventory age measures how long individual units of inventory have been in stock.

Inventory Turnover

Inventory turnover measures how many times inventory is sold and replaced during a period.

L

3 terms

Lead Time

Lead time is the total duration from placing a purchase order until inventory is available for sale.

Liquidity

Liquidity is the availability of cash or assets quickly convertible to cash.

Liquidity Forecast / Cash Gap

A liquidity forecast evaluates whether available cash will be sufficient to meet obligations.

M

2 terms

Margin

Margin generally refers to gross margin — the percentage of revenue remaining after COGS.

Markup

Markup measures how much the net selling price exceeds the unit cost.

N

2 terms

Net Margin

Net margin is net profit expressed as a percentage of revenue.

Net Profit

Net profit is the profit remaining after subtracting all variable and fixed costs from revenue.

O

3 terms

Objective Function

The objective function defines what an optimization model is trying to maximize or minimize.

Opportunity Cost

Opportunity cost is the return you give up by investing capital in one SKU instead of another.

Optimization Problem

An optimization problem is finding the best possible outcome under a set of constraints.

P

1 term

Payment Terms

Payment terms specify when and how a seller must pay a supplier.

R

4 terms

Replenishment / Restock

Replenishment is the process of deciding when to order and how much inventory to purchase.

Replenishment / Restock Tools

Systems that generate restock recommendations using rules, forecasts, or heuristics.

Revenue

Revenue is the amount earned from product sales excluding VAT.

ROWC (Return on Working Capital)

ROWC measures how effectively a company generates profit relative to working capital.

S

6 terms

Sales Forecast

A sales forecast predicts how many units the business will actually sell.

Sales Velocity

Sales velocity measures the rate at which a SKU sells over time.

Seasonality

Seasonality reflects predictable, recurring fluctuations in demand.

Sell-through Rate

Sell-through measures the proportion of inventory sold during a given period.

Settlement Cycle

Settlement cycle is the time between a sale and when the marketplace releases cash.

SKU (Stock Keeping Unit)

A SKU is a unique product identifier used to track inventory and sales.

Stockouts

A stockout occurs when demand cannot be fulfilled due to insufficient inventory.

W

1 term

Working Capital

Working capital is the capital tied in the operating cycle — from purchasing to collecting cash.

If a term is missing, you'd like it explained, or you have suggestions for improvement — we'd love to hear from you. Contact Us →