CMA Part 2 key terms

Financial statements in which each line item is expressed as a percentage of a common base, such as total assets or net sales, so statements of different sizes can be compared.

A technique that compares financial statement amounts across successive periods, showing dollar and percentage changes to reveal trends in performance over time.

A liquidity measure that divides quick assets-cash, marketable securities, and receivables-by current liabilities, excluding inventory and prepaids because they may be slow to convert to cash.

The number of times inventory is sold and replaced during a period, calculated as cost of goods sold divided by average inventory; a low ratio suggests excess or obsolete stock.

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

The degree to which reported earnings reflect sustainable, cash-backed operating performance rather than one-time gains, accounting estimates, or aggressive accrual choices.

The weighted average of a firm's after-tax cost of debt and cost of equity, using target capital structure weights; it represents the minimum return new investments must earn.

A model that estimates required return on equity as the risk-free rate plus beta times the market risk premium, linking expected return to systematic risk.

A measure of how much a stock's returns move relative to the overall market; beta above one indicates greater systematic risk than the market.

The use of debt financing to magnify returns to shareholders; it raises expected return on equity but also increases financial risk and volatility of earnings.

The mix of debt and equity a company uses to finance its assets, which affects cost of capital, financial risk, and firm value.

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

A future cost that differs between alternatives and therefore should be considered in a decision; costs that are the same under all options are ignored.

A cost already incurred that cannot be recovered and should not influence future decisions, because it is identical regardless of which alternative is chosen.

The benefit forgone by choosing one alternative over the next best option; it is a relevant cost even when no cash payment is recorded.

Sales revenue minus variable costs; it measures how much each unit or product line contributes toward covering fixed costs and generating profit.

The level of sales, in units or dollars, at which total revenue equals total costs and profit is zero; fixed costs divided by contribution margin per unit.

The amount by which actual or budgeted sales exceed the break-even point, expressed in dollars or percentage, indicating how far sales can fall before losses occur.

A choice between producing a component internally and purchasing it from an outside supplier, based on relevant costs and qualitative factors such as quality and capacity.

The degree to which fixed operating costs magnify the effect of sales changes on operating income; high fixed costs mean profits are more sensitive to volume changes.

A company-wide process for identifying, assessing, and managing risks across all functions, aligning risk appetite with strategy and reporting a portfolio view to senior management.

The amount and type of risk an organization is willing to accept in pursuit of its objectives, often expressed as limits or tolerances set by senior management.

The risk that remains after management has applied controls or risk responses; it is compared with risk tolerance to decide whether further action is needed.

Risk that affects the entire market and cannot be eliminated through diversification, such as interest rate changes or recessions; measured by beta.

A statistical estimate of the maximum loss a portfolio could suffer over a specified time horizon at a given confidence level, widely used to measure market risk.

A customized agreement to buy or sell an asset at a set price on a future date, traded over the counter and used to hedge price or currency risk.

A contract in which two parties exchange interest payment streams, typically fixed for floating, to manage exposure to changes in interest rates.

The present value of expected future cash flows minus the initial investment; a positive NPV means the project is expected to increase shareholder value.

The discount rate that makes a project's net present value equal to zero; it is compared with the hurdle rate to accept or reject an investment.

The time required for cumulative cash inflows to recover the initial investment; it measures liquidity and risk but ignores cash flows after payback and the time value of money.

The present value of a project's future cash flows divided by its initial investment; a value above one indicates a positive net present value.

Projects that compete for the same resources, so accepting one means rejecting the others; ranking should generally use net present value when scales or lives differ.

The value of managerial flexibility to expand, delay, abandon, or alter a project in response to future conditions, which traditional discounted cash flow analysis may understate.

An IMA ethical principle requiring management accountants to maintain the knowledge, skills, and professional judgment needed to perform duties effectively and to provide accurate, timely information.

An IMA ethical principle requiring accountants to keep sensitive employer information private and not disclose it without authorization or legal obligation, while avoiding improper personal use.

An IMA ethical principle requiring honesty, fairness, and avoidance of conflicts of interest or activities that would discredit the profession.

An IMA ethical principle requiring accountants to communicate information fairly and objectively, disclose all relevant information, and report favorable and unfavorable facts alike.

A model explaining fraud as the presence of three conditions: pressure or incentive, opportunity, and rationalization; controls target opportunity especially.

Reporting an employer's illegal or unethical conduct to appropriate internal or external parties, often protected by law when done through proper channels.