CGMA flashcards

32 cards. Read the term and the definition here. The deck at the top of this page is optional.

NPV decision rule

Accept an investment when the present value of expected cash inflows, discounted at the cost of capital, exceeds the initial outlay; reject when net present value is negative.

Weighted average cost of capital

The market-value-weighted average of after-tax cost of debt and cost of equity; it is the minimum return a firm must earn on investments of average risk.

Capital asset pricing model

Required equity return equals the risk-free rate plus beta multiplied by the market risk premium: ke = rf + beta × (rm − rf). Only systematic risk is priced.

Internal rate of return

The discount rate at which a project's net present value equals zero. Accept if it exceeds the hurdle rate, but rank mutually exclusive projects by NPV.

Payback period

The time needed for cumulative cash inflows to recover the initial investment. It ignores the time value of money and all cash flows after the cutoff date.

DuPont analysis

Decomposes return on equity into net profit margin multiplied by asset turnover multiplied by the equity multiplier, revealing whether profitability, efficiency, or leverage drives returns.

Cash conversion cycle

Days inventory outstanding plus days sales outstanding minus days payable outstanding; it measures how long cash remains tied up in operating working capital.

Economic value added

NOPAT minus the product of invested capital and WACC. A positive figure means accounting operating profit exceeds the full cost of the capital employed.

Little's Law

In any stable process, average work in process equals throughput rate multiplied by average flow time; knowing two of the three variables yields the third.

Economic order quantity

The order size that minimises the sum of ordering and holding costs, calculated as the square root of 2DS divided by H, where D is annual demand.

Overall equipment effectiveness

Availability multiplied by performance multiplied by quality; it expresses the share of scheduled production time converted into defect-free output.

Takt time

Available production time divided by customer demand rate. It sets the pace every process step must meet to satisfy demand with existing resources.

Six Sigma DMAIC

A five-phase improvement cycle - Define, Measure, Analyze, Improve, Control - used to cut variation and defects in processes that already exist.

Bullwhip effect

Amplification of demand variability as orders move upstream in a supply chain, caused by demand forecasting, batch ordering, price promotions, and shortage rationing.

Capacity utilisation

Actual output divided by maximum possible output over a period. Sustained levels above roughly 85–90% usually signal bottlenecks and lengthening lead times.

Inventory turnover

Cost of goods sold divided by average inventory value; it shows how many times inventory is sold and replaced during a year.

Five forces framework

Porter's test of industry attractiveness using supplier power, buyer power, threat of new entrants, threat of substitutes, and rivalry among existing competitors.

VRIO framework

A resource test asking whether a capability is valuable, rare, costly to imitate, and supported by the organisation; all four must hold for sustained advantage.

BCG growth-share matrix

A portfolio grid of market growth against relative market share, producing stars, cash cows, question marks, and dogs with different cash and investment profiles.

Value chain analysis

Porter's breakdown of the firm into primary and support activities, used to locate where cost advantage or differentiation advantage is actually created.

Ansoff matrix

Growth options arranged by product and market novelty: market penetration, product development, market development, and diversification, each with increasing risk.

Cost leadership strategy

A generic strategy of becoming the lowest-cost producer in an industry through scale, efficiency, and tight cost control while maintaining acceptable quality.

PESTLE analysis

A scan of political, economic, social, technological, legal, and environmental macro factors that shape industry conditions and constrain strategic choices.

Blue ocean strategy

Creating uncontested market space through value innovation, simultaneously lowering cost and raising buyer value instead of fighting rivals in existing markets.

Span of control

The number of subordinates reporting directly to one manager. Wider spans reduce hierarchy levels but demand greater autonomy and standardised processes.

Herzberg two-factor theory

Hygiene factors such as pay and working conditions prevent dissatisfaction but do not motivate; motivators such as achievement, recognition, and responsibility create satisfaction.

Expectancy theory

Motivation equals expectancy multiplied by instrumentality multiplied by valence: effort must lead to performance, performance to outcomes, and outcomes must be valued.

Tuckman stages

The sequence of team development - forming, storming, norming, performing, and adjourning - with performance typically stabilising only after the norming stage.

SMART goals

A goal-setting standard requiring objectives to be specific, measurable, achievable, relevant, and time-bound; specificity and feedback drive performance gains.

Theory X and Y

McGregor's contrasting assumptions: Theory X holds that workers dislike work and need close control; Theory Y holds that they are self-directed and seek responsibility.

Situational leadership

Hersey and Blanchard's model matching telling, selling, participating, or delegating styles to a follower's readiness and competence for the specific task.

Delegation

Assigning a task together with the authority to complete it, while accountability for the outcome stays with the manager; scope, resources, and deadlines must be explicit.