Principal
Candlefocus EditorPrincipal is used in the world of borrowing in two different ways. For borrowers, the principal amount represents the amount of money borrowed from a lender, and must be paid back in full, typically with interest. This amount will usually include fees and other types of charges. When it comes to lenders, the principal is their stake in a loan, which can increase or decrease depending on the performance of the borrower.
In terms of investing, the principal amount is the original sum invested in the asset, independent of any profits or earnings. This can be seen as the base cost of the asset, and will remain the same unless the asset is sold, or the value of money changes. For long-term investments, principal is also used to refer to the investors’ stake in the asset.
The term principal is also central to the concepts of business ownership and management. Business principals are those who own a majority share in a company, or play a major role in running it. These people usually carry a greater amount of authority or responsibility. When it comes to producing contracts and engaging in contractural ventures, principals are the primary parties that are actively involved in the respective transaction.
To sum things up, the principals in finance and business refer to an amount of money (when it comes to loans and investments) as well as to the owners and managers of a company. As this term takes on its various different meanings, understanding its implications in the given context is key. Whether it refers to the amount of money in a loan or investment, or the ownership and leadership of a company, knowing the role and importance of principal is an indispensable part of financial and business literacy.