CIFHA flashcards
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33 cards. Read the term and the definition here. The deck at the top of this page is optional.
- Accounting Equation
- Assets equal liabilities plus equity. Every recorded transaction preserves this equality, so the balance sheet always balances after each entry.
- Accrual Accounting
- Revenue is recognized when earned and expenses when incurred, regardless of cash timing. This creates accruals and deferrals on the balance sheet.
- Common-Size Statements
- A technique expressing each line as a percentage of a base: revenue for the income statement and total assets for the balance sheet, enabling cross-company comparison.
- Horizontal Analysis
- Comparison of the same financial statement item across multiple periods, usually expressed as a percentage change from a base year.
- Goodwill Impairment Test
- Goodwill is not amortized; instead it is tested at least annually for impairment by comparing carrying amount with recoverable or fair value.
- Current Ratio
- Current assets divided by current liabilities. It measures whether short-term assets cover obligations due within one year; below 1.0 indicates a funding gap.
- Quick Ratio
- Cash, marketable securities, and receivables divided by current liabilities. It excludes inventory and prepaid items, giving a stricter liquidity test than the current ratio.
- Cash Ratio
- Cash and cash equivalents divided by current liabilities. It is the most conservative liquidity measure, showing coverage using only the most liquid assets.
- Interest Coverage Ratio
- EBIT divided by interest expense. It shows how many times operating earnings cover interest obligations; lower values indicate greater default risk.
- Debt-to-Equity Ratio
- Total liabilities divided by total equity. It measures financial leverage and the relative claim of creditors versus owners on the business.
- Altman Z-Score
- A weighted combination of five financial ratios used to estimate bankruptcy risk. Scores below 1.81 indicate the distress zone for public manufacturers.
- Net Debt
- Total debt minus cash and cash equivalents. It reflects the true borrowing burden after netting liquid assets, often compared to EBITDA for leverage.
- DuPont Analysis
- Decomposes return on equity into net profit margin, asset turnover, and equity multiplier, revealing which driver generates shareholder returns.
- Asset Turnover
- Revenue divided by average total assets. It measures how efficiently a company uses its asset base to generate sales.
- Days Sales Outstanding
- Accounts receivable divided by revenue, multiplied by 365. It estimates the average number of days needed to collect receivables after a sale.
- Cash Conversion Cycle
- Days inventory outstanding plus days sales outstanding minus days payable outstanding. A shorter cycle means less cash is tied up in operations.
- Gross Margin Trend
- Gross profit divided by revenue, tracked over time. A declining trend can signal pricing pressure, rising input costs, or product mix shifts.
- Operating Cash Flow
- Under the indirect method, net income adjusted for non-cash items and changes in working capital. It reflects cash generated by core operations.
- Free Cash Flow
- Operating cash flow minus capital expenditures. It represents cash available for debt repayment, dividends, buybacks, or reinvestment.
- Cash Flow Adequacy Ratio
- Operating cash flow divided by the sum of capital expenditures, dividends, and debt repayments. Values below 1.0 indicate reliance on external financing.
- Investing Cash Flows
- Cash movements from acquisition or disposal of long-term assets and investments, including capital expenditures and proceeds from asset sales.
- Financing Cash Flows
- Cash movements related to capital structure: debt issuance and repayment, equity issuance, and dividend payments to shareholders.
- Five Cs of Credit
- A framework for credit assessment: Character, Capacity, Capital, Collateral, and Conditions, evaluating borrower reliability and repayment ability.
- Expected Loss
- Probability of default multiplied by loss given default multiplied by exposure at default. It quantifies anticipated credit loss on an exposure.
- Maintenance Covenant
- A loan covenant tested periodically against specified financial thresholds, such as a maximum leverage ratio or minimum interest coverage, throughout the loan term.
- Incurrence Covenant
- A covenant tested only when a specific action occurs, such as taking on new debt or paying dividends, rather than at regular intervals.
- Liquidity Risk
- The risk that an entity cannot meet obligations as they fall due without incurring unacceptable losses or needing emergency funding.
- Stress Testing
- Applying adverse but plausible scenarios to a portfolio or institution to assess whether capital and liquidity remain adequate under strain.
- Percentage-of-Sales Method
- A forecasting approach where spontaneous balance sheet items such as receivables and payables are projected as a constant percentage of forecast revenue.
- External Financing Need
- Projected asset increase minus spontaneous liability increase minus addition to retained earnings. It estimates the funding gap requiring debt or equity.
- Sustainable Growth Rate
- Return on equity multiplied by the retention ratio (one minus dividend payout). It is the growth rate achievable without issuing new external equity.
- Scenario Analysis
- Forecasting technique that varies several related assumptions together to produce coherent best-case, base-case, and worst-case financial projections.
- Degree of Operating Leverage
- Percentage change in EBIT divided by percentage change in sales. Higher values mean operating income is more sensitive to revenue fluctuations.