FPAC Part II key terms

The process of comparing actual financial results with planned or budgeted amounts to identify the size, cause, and significance of differences, so managers can decide whether corrective action is needed.

A budget that is recalculated at the actual volume of activity achieved, allowing costs to be compared with what they should have been at that level rather than at the originally planned level.

A budget prepared for one planned level of activity and not adjusted afterward, useful as a baseline but misleading for cost control when actual volume differs from the plan.

A difference between actual and expected results that increases operating income relative to the plan, such as actual revenue above budget or actual cost below budget.

A difference between actual and expected results that reduces operating income relative to the plan, such as actual revenue below budget or actual cost above budget.

Sales revenue minus all variable costs, representing the amount left to cover fixed costs and then generate profit; it is often expressed per unit or as a percentage of sales.

The level of sales volume or revenue at which total revenues equal total costs, so the business earns neither profit nor loss; fixed costs divided by contribution margin per unit gives the unit figure.

The amount by which actual or forecast sales exceed the break-even level, indicating how much sales could fall before the business incurs a loss; it can be stated in units, dollars, or percent.

A measure of how sensitive operating income is to changes in sales, driven by the mix of fixed and variable costs; higher fixed costs raise leverage and amplify both gains and losses.

A cost that stays essentially constant in total over a relevant range of activity and time period, regardless of changes in volume, such as rent or salaried staff expense.

A cost that changes in total in direct proportion to changes in activity volume while remaining roughly constant per unit, such as raw materials or sales commissions.

A cost that differs between decision alternatives and will be incurred in the future, making it appropriate to include in a decision; past costs and costs identical across options are excluded.

A cost already incurred that cannot be recovered or changed by any current or future decision, so it should be ignored when evaluating alternatives.

The benefit forgone by choosing one alternative over the next best option, representing the value of what is given up and relevant to resource-allocation decisions.

Current assets minus current liabilities, measuring the short-term liquidity cushion available to fund day-to-day operations and meet obligations as they come due.

Current assets divided by current liabilities, a liquidity measure showing how many dollars of short-term resources are available to cover each dollar of short-term obligations.

Cash, marketable securities, and receivables divided by current liabilities, a stricter liquidity test that excludes inventory because inventory may be slow to convert into cash.

The number of days from paying suppliers for inventory to collecting cash from customers, calculated as days inventory outstanding plus days sales outstanding minus days payable outstanding.

Average accounts receivable divided by revenue, multiplied by the number of days in the period, estimating how long it takes on average to collect cash from credit customers.

A framework that decomposes return on equity into profit margin, asset turnover, and financial leverage, showing which driver is responsible for changes in shareholder returns.

Net income divided by average shareholders' equity, measuring the profit generated for each dollar of equity invested by owners over a period.

Net income divided by average total assets, indicating how efficiently a company uses its asset base to generate profit, independent of how the assets are financed.

Revenue divided by average total assets, measuring how many dollars of sales are generated for each dollar invested in assets during a period.

A statement in which every line item is expressed as a percentage of a common base, such as total assets or revenue, to compare companies of different sizes or track trends over time.

A technique comparing financial statement line items across successive periods, showing dollar and percentage changes to reveal growth patterns and emerging trends.

The practice of computing and interpreting relationships among financial statement items to assess liquidity, solvency, profitability, and efficiency, ideally benchmarked against peers or history.

The set of policies, roles, and processes that define who is accountable for data quality, access, and use, ensuring data is accurate, secure, and fit for decision-making.

Documentation tracing the origin, movement, and transformation of data from source systems through reports, allowing analysts to verify accuracy and diagnose errors in outputs.

The core reference information shared across systems and processes, such as customer, vendor, product, and account records, which must be consistent for reliable reporting and analysis.

The degree to which data is accurate, complete, timely, consistent, and valid for its intended use; poor quality undermines forecasts, models, and management reports.

Extract, transform, and load: a process that pulls data from source systems, cleans and reformats it, and loads it into a warehouse or reporting environment for analysis.

A centralized repository that consolidates data from multiple operational systems, structured for querying and reporting rather than for transaction processing.

A storage environment holding large volumes of raw structured and unstructured data in native formats, typically queried by analysts and data scientists rather than used for standard reporting.

The use of historical data, dashboards, and summaries to explain what has happened in the business, forming the foundation for more advanced diagnostic, predictive, and prescriptive analysis.

Techniques that use historical data and statistical or machine-learning models to estimate future outcomes such as demand, revenue, or default risk, always carrying uncertainty.

A visual display consolidating key performance indicators and trends into a single view, enabling managers to monitor results and spot exceptions quickly.

A quantifiable measure tied to a strategic objective that management tracks to gauge performance, ideally limited in number, clearly defined, and linked to action.

A performance management framework that measures results across financial, customer, internal process, and learning perspectives to balance short-term results with long-term capability building.

Software bots that mimic repetitive, rule-based human tasks such as data entry, invoice matching, or report assembly, freeing staff for judgment-based work.

The use of technology to execute recurring business workflows with minimal manual intervention, improving speed and consistency while reducing error rates and labor cost.

The policies, procedures, and system safeguards designed to protect assets, ensure reliable reporting, and support compliance with laws and regulations.

A control principle assigning incompatible tasks, such as authorizing a transaction, recording it, and safeguarding the related asset, to different people to reduce fraud and error risk.

A planning technique that models outcomes under several plausible sets of assumptions, such as base, upside, and downside cases, to understand risk and range of possible results.

A technique that changes one input at a time to measure how much a result, such as profit or valuation, responds to that variable, highlighting the most influential assumptions.