An Accountant is a qualified professional responsible for collating, recording, and communicating financial information. They prepare analyses for decision-making purposes and must have passed examinations from recognized accountancy bodies and completed required work experience.
The Accounting Rate of Return (ARR) is a financial ratio used to measure the expected profitability of an investment, defined as the ratio of average annual accounting profit to the initial investment cost.
The acid-test ratio, also known as the quick ratio, is a liquidity metric that assesses a company's ability to cover its short-term liabilities with its most liquid assets.
An activity ratio is a key metric in management accounting that compares the actual production achieved during an accounting period with the production level deemed achievable for that period. It provides insights into the efficiency and productivity of an organization.
Administration Cost Variance is the difference between the administration overheads budgeted for in an accounting period and those actually incurred. This variance helps in evaluating and controlling administrative costs in an organization.
In standard costing and budgetary control, adverse variance indicates discrepancies where actual performance falls short of budgeted expectations, impacting the budgeted profit negatively.
A critical tool for analyzing the quality of a company's receivables, the aging schedule classifies trade accounts receivables by their date of sale and reveals patterns of delinquency.
A calculation of net present value made under the assumption that the firm, project, or investment is funded entirely by equity. This method uses the equity discount rate.
A measure of the expected return on a particular share compared to the expected return on shares with a similar beta coefficient, identifying the specific risk associated with a share as opposed to the systematic risk associated with securities of the same class.
An analyst is a professional who studies data and makes recommendations on various courses of business actions. Analysts may specialize in various fields such as budgets, credit, securities, financial patterns, sales, and more.
An annual basis is a statistical technique whereby figures covering a period of less than a year are extended to cover a 12-month period. The procedure, called annualizing, must take seasonal variations (if any) into account to be accurate.
A ratio that provides a measure of the solvency of a company; it consists of its net assets divided by its debt. Those companies with high asset cover are considered more solvent.
Asset valuation involves determining the current worth of an organization's assets, considering various valuation methods including revaluation and present value calculations.
The total value of a company's assets less its liabilities, divided by the number of ordinary shares in issue. This represents the theoretical amount attributable to each share if the company was wound up.
Base-Year Analysis involves examining trends in economic data with parameters anchored in a specified year. This method expresses indices like Gross Domestic Product (GDP) in constant dollars to eliminate inflationary effects and provide a more accurate reflection of economic changes over time.
The term 'Beginning of Year' (BOY) is commonly used in financial analysis and reporting to indicate the start of a fiscal year. In accounting, it acts as a reference point for comparing year-over-year performance and financial statements.
The evaluation of a proposed activity by determining the value of the anticipated benefits compared to the costs incurred, ensuring a financially attractive decision when benefits exceed costs. It’s essential to also consider non-financial factors and the potential disparities in who benefits and bears the costs.
The blended rate refers to the time- and rate-weighted effective billing rate, interest rate, or tax rate, providing an average rate that incorporates varying rates and applied durations.
Break-Even Analysis is a financial analysis that identifies the point at which expenses equal gross revenue, resulting in neither profit nor loss. It is a crucial tool for businesses to determine the minimum sales volume required to avoid losses.
Break-up value represents the asset value assuming an organization discontinues its business operations. Typically calculated for assets sold piecemeal, the break-up value encompasses the asset value per share and can affect financial decision-making.
A budget expenditure head is a method of analyzing a budget and presenting financial statements under major headings, each of which is managed by a particular manager responsible for overseeing the budgeting and control within their area.
Capital gearing refers to the proportion of debt to equity in the capital structure of a company. It is a crucial indicator of financial stability and risk.
Capital investment appraisal is a process used by companies to evaluate and compare potential large-scale investment opportunities to determine their viability and profitability.
Capitalized value represents the value at which an asset is recorded in the balance sheet of a company or organization. It is also the capital equivalent of an asset that yields a regular income, calculated at the prevailing rate of interest.
The Cash Flow to Capital Expenditure (CapEx) Ratio analyzes a company's ability to maintain its plant and equipment using cash generated from its operations, excluding dividends, rather than relying on external borrowing.
An important liquidity ratio indicating the extent of a bank's cash reserves relative to its total liabilities. Essential for ensuring a bank's ability to meet short-term obligations.
Cash Throw-Off, often used interchangeably with Cash Flow, refers to the net amount of cash generated and available for use after accounting for cash outflows.
The Chartered Financial Analyst (CFA) designation is a professional credential offered by the CFA Institute. Widely regarded as the gold standard in the field of investment management, the CFA program covers a broad range of topics including equity analysis, fixed-income analysis, portfolio management, and ethical and professional standards.
The Chartered Financial Analyst (CFA) designation is a globally recognized credential granted by the CFA Institute to investment and finance professionals who have demonstrated competence and integrity in their field.
Common size analysis is a standard tool used to compare the financial statements of different companies by converting account groupings to a percentage of the whole, often sales revenues.
Common-size financial statements are a method of analyzing and comparing financial statements by expressing individual elements as percentages of the total. This allows for easier comparison across companies and industries.
Comparative Credit Analysis is a method of company evaluation in which a firm is compared with other similar firms that have a desired credit rating to decide on appropriate accounting ratio targets for the company being analyzed.
Financial statements covering different dates but prepared consistently and therefore lending themselves to comparative analysis, as accounting convention requires.
Compound discount is the difference between the value of an amount in the future and its present discounted value. For example, if £100 in five years' time is worth £88 now, the compound discount will be £12.
Constant dollar is an accounting term used to reflect the value of money after adjusting for inflation, providing a consistent measurement standard across different time periods.
In cost accounting, Contribution Profit Margin is the excess of sales price over variable costs. It provides an amount to offset fixed costs, thus contributing to gross profit.
A cost sheet is a form used in costing to collect and present all the costs associated with a service, product, process, or cost center, often for management analysis or use in a costing system.
CPA can stand for multiple terms including Certified Public Accountant, Critical-Path Analysis, and Customer Profitability Analysis. Each of these has specific implications in fields ranging from accounting to project management and customer relations.
A credit analyst is a professional responsible for evaluating the financial affairs of individuals or corporations to determine their creditworthiness. They assess the risk associated with lending and determine credit ratings.
Cross-footing is a verification process used in spreadsheets where the sums of rows and columns of numbers are compared to ensure accuracy.
Current assets, also known as circulating assets, circulating capital, or floating assets, are the assets of an organization that form part of the working capital and are constantly changing their form as they circulate from cash to goods and back to cash again.
In accounting, current liabilities are obligations of a company that are expected to be settled within one year or within the operating cycle, whichever is longer. Current liabilities are used to gauge a company’s short-term liquidity and are listed on the balance sheet.
Days' Sales in Inventory (DSI) is a crucial efficiency metric that indicates the number of days a company's current inventory will last, based on its average daily cost of sales. It's used to measure how efficiently a company manages its inventory.
Days' Sales in Receivables is a financial metric that indicates the average number of days it takes a company to collect payment after a sale has been made. This ratio helps businesses understand the efficiency of their credit and collection processes.
Degression refers to a tendency to descend or decrease; it implies a progressive decline in an item, such as value, over time. An example includes the deterioration in a company’s market share for its product line.
In a standard costing system, a variance arising as part of the direct labour total cost variance. It compares the actual rate paid to direct labour for an activity with the standard rate of pay allowed for that activity for the actual hours worked. The resultant adverse or favourable variance is the amount by which the budgeted profit is affected by differences in direct labour rates of pay.
Direct wages refer to the payments made to laborers who are directly involved in the production process of a good or service. These wages are part of the direct labor costs and play a crucial role in cost accounting and financial analysis.
Discounted Cash Flow (DCF) is a valuation method used to estimate the attractiveness of an investment opportunity. DCF analysis uses future free cash flow projections and discounts them to arrive at a present value estimate, which is then used to evaluate the potential for investment.
Discounted Payback Method is a method of capital budgeting in which managers calculate the time required for the forecasted discounted cash inflows from an investment to equal the initial investment expenditure, considering the time value of money.
An estimate of an investment's potential decline in value, considering the entire range of factors that could affect market price.
A comprehensive financial analysis method used to break down return on investment (ROI) into component parts: margin and turnover. This formula helps identify key drivers of a company's profitability.
Earnings Before Taxes (EBT) measures a company's profitability, calculated as sales revenues minus cost of sales, operating expenses, and interest expenses, before taxes have been deducted.
Earnings Per Share (EPS) is a commonly used metric in financial analysis to measure the profitability of a company by dividing its net income by the number of outstanding shares of common stock.
A financial ratio indicating the ability of a company to pay dividends to its ordinary shareholders out of its distributable profits. A higher ratio suggests stronger dividend-paying capacity and financial health.
Expected Monetary Value (EMV) is a statistical technique in risk management used to quantify the potential outcomes of various scenarios based on their probabilities and respective monetary values.
Expenditure variance measures the difference between actual spending and budgeted spending. This metric can help businesses understand financial discrepancies, control costs, and improve budgeting processes.
A computer application used to solve problems within a specific area of knowledge by storing, organizing, and retrieving extensive amounts of information and making decisions similar to those of a human expert in the field.
Financial analysis involves evaluating businesses, projects, budgets, and other financial entities to determine their performance and suitability. This analysis is used to gauge a company’s financial health and operational efficiency.
The financial position of a firm reflects the status of its assets, liabilities, and equity accounts as of a certain time. This is depicted on its financial statement and is also known as financial condition.
A financial ratio is a comparative figure that helps in analyzing the financial health, performance, and viability of a company. Very often, they are used to make informed business and investment decisions.
The Fixed-Asset to Equity-Capital Ratio is a financial metric used to assess a business's ability to satisfy long-term debt by comparing the value of its fixed assets to its equity capital.
A ratio that measures an organization's activity over a period by calculating the number of times the sales are a multiple of the balance-sheet value of the fixed assets.
The Fixed-Charge Coverage Ratio measures a firm's ability to meet its fixed financial obligations, including interest payments on long-term debt and other contractual commitments, relative to its earnings before interest and taxes.
A term with multiple definitions, spanning real estate, finance, bond trading, and general business contexts. The nuanced meanings can significantly impact various industries.
A funds flow statement provides a detailed analysis of the changes in a company's working capital during a specific period, detailing the sources and applications of funds.
Gross margin represents the percentage of total sales revenue that a company retains after incurring the direct costs associated with producing the goods and services it sells. It is a critical metric for assessing a company's financial health and operational efficiency.
Headline Earnings Per Share (HEPS) is a financial metric provided by the Chartered Financial Analyst Society to give a clearer picture of a company's earnings by including specific trading profits and losses while excluding certain non-recurring events.
High credit refers to the maximum amount of credit that has been extended to a customer or a company within a specific time frame. This can apply both to banking loans and trade credit from suppliers in different financial contexts.
The term 'highest and best use' in real estate appraisal refers to the financially, legally, and physically possible use that, at the time of appraisal, is most likely to produce the greatest net return to the land or buildings over a given period.
Horizontal Analysis is a time series analysis of financial statements that covers more than one accounting period to examine the percentage change in an account over time.
The if-converted method is a technique used in the USA for determining the dilution of convertible securities that are not common stock equivalents in the calculation of fully diluted earnings per share. The assumption is made that the securities are converted at the beginning of the year or the issue date if later.
An in-depth look at incremental cash flow, its significance in differential analysis, how it impacts decision-making, and real-life applications.
Information intermediaries are individuals and groups tasked with obtaining, analyzing, and interpreting information to inform others, often helping clients make significant financial decisions.
The initial yield represents the gross initial annual income generated by an asset divided by the initial cost of that asset. It is commonly used in real estate and investment analysis to measure the initial return on investment.
A measure of the deviation between actual profits of a company and trend profit. The higher the index, the greater the instability of a company's profitability.
Interfirm comparison is a process used to evaluate the performance of similar organizations by analyzing their accounts and statistical data through ratio analysis.
Interim financial statements are financial reports covering a period of less than one full fiscal year, typically used by companies to provide updated information to stakeholders between annual reports.
An investment analyst helps in making informed decisions about investments in securities, commodities, and more, typically employed by financial institutions.
Leverage ratios are financial metrics that evaluate the level of debt a business is using compared to its equity and assets. These ratios are crucial for analyzing the financial health and sustainability of companies.
The Liquidity Index measures a company's liquidity by calculating the number of days it would take for current assets to be converted into cash, providing insights into financial stability and operational efficiency.
In the USA, the section in the annual report to stockholders and in Form 10-K that is required by the Securities and Exchange Commission. The purpose of the MD&A is to assist investors to understand the impact of changes in accounting and business activity that have affected comparisons with the results of previous years.
Marketing Cost Variance refers to the difference between the budgeted marketing costs and the actual marketing costs incurred during a specific period. This metric helps evaluate the efficiency of marketing expenditure and can be either favorable or unfavorable.
Mix variances are a set of accounting metrics that assess the financial impact of differences between actual and standard input combinations used in production or sales. These measures help identify inefficiencies or deviations that may affect profitability.
Momentum refers to the rate of acceleration of an economic, price, or volume movement. It signifies the strength and likelihood of continued growth in these areas.
Mutually exclusive projects refer to a set of project alternatives where the selection of one project precludes the inclusion of the others due to constraints such as land or resources. For instance, using a parcel of land to build a factory means it cannot be used for an office block.
A negative yield curve, also referred to as an inverted yield curve, occurs when long-term debt instruments have a lower yield than short-term debt instruments of the same credit quality, often indicating an imminent economic recession.
Net cash flow refers to the difference between the cash that enters (cash inflows) and exits (cash outflows) an organization during a specific financial period. It can either be positive, signifying a cash surplus, or negative, indicating a cash deficit.
The net margin ratio, also known as the net profit percentage, measures how much of each dollar of revenue earned by a company translates into actual profit after all expenses are deducted.
Net Profit Margin is a financial metric that indicates the percentage of profit a company makes for every dollar of revenue after accounting for all expenses, including taxes.
A foundation used to calculate a company's earnings per share (EPS) focusing only on the constant elements in the company's tax charge; often contrasted with net basis.
Nominal dollars are monetary amounts that have not been adjusted for inflation, representing value in the original terms of the transaction or accounting period.
A ratio that measures the average number of days an organization's stock is held before it is sold or used in production.
The Operating and Financial Review (OFR) provides a comprehensive overview of a company’s performance, financial condition, and future prospects, offering stakeholders detailed insights beyond standard financial statements.
Operating Leverage is a financial concept that measures the proportion of fixed costs in a company's cost structure and how these fixed costs amplify the effect of changes in sales on operating income.
Operating performance ratios are financial analysis tools that measure a company's ability to generate profit from its operations during an accounting period. Higher ratios indicate greater profitability.
The Payback Period Method is a capital budgeting technique that calculates the time required for projected cash inflows to equal initial investment expenditure, often used to gauge project risk.
Planning variance refers to the difference between what was originally planned and what was actually achieved in a project or financial projection. It often serves as an indicator of the effectiveness of the planning process and helps identify areas for improvement.
Primary Earnings Per Share (EPS) is a commonly used metric in financial analysis that measures the profitability of a company by indicating how much profit has been allocated per outstanding share of common stock.
A metric used to measure the relationship between profit and sales volume, commonly referred to as the Contribution Margin Ratio, which indicates how much revenue from sales contributes to covering the fixed costs and generating profit.
Profitability and profitability ratios are essential metrics used to measure the efficiency and success of a business in generating earnings relative to various financial aspects like sales, assets, and equity.
