FCFA cheat sheet

Accounting equation: Assets = Liabilities + Equity; every transaction preserves it.

Revenue recognition (IFRS 15 / ASC 606): identify contract, performance obligations, transaction price, allocate price, recognize when control transfers.

Capitalizing vs expensing: capitalizing an expenditure increases assets and current profit but lowers future profit via depreciation/amortization.

Inventory: FIFO in rising prices yields higher ending inventory, lower COGS, higher gross profit than LIFO; LIFO liquidation inflates profit.

Depreciation methods: straight-line = (cost − residual)/useful life; double-declining = 2 × straight-line rate × beginning book value; units-of-production = (cost − residual) × units used / total units.

Impairment: IFRS uses recoverable amount (higher of fair value less costs to sell and value in use); US GAAP uses undiscounted cash flows to test, then fair value to measure.

Cash flow classification: interest paid (IFRS: operating or financing; US GAAP: operating), dividends paid (IFRS: financing or operating; US GAAP: financing), interest/dividends received (IFRS: investing or operating; US GAAP: operating).

Financial ratios: current ratio = current assets/current liabilities; quick ratio = (cash + marketable securities + receivables)/current liabilities; debt-to-equity = total debt/total equity.

Time value of money: PV = FV/(1 + r)^n; FV = PV(1 + r)^n; annuity PV = PMT × [1 − (1 + r)^−n]/r.

Effective annual rate: EAR = (1 + periodic rate)^m − 1, where m = compounding periods per year.

Net present value: NPV = Σ CF_t/(1 + r)^t − initial outlay; accept if NPV > 0.

Internal rate of return: IRR is the discount rate making NPV = 0; accept if IRR > required return.

Descriptive statistics: mean = ΣX/n; sample variance = Σ(X − mean)^2/(n − 1); standard deviation = square root of variance.

Coefficient of variation: CV = standard deviation/mean; lower CV indicates less risk per unit of return.

Correlation: ρ = covariance/(σ_X σ_Y); ranges from −1 to +1; measures linear relationship only.

Regression: slope = covariance(X,Y)/variance(X); intercept = mean(Y) − slope × mean(X); R² = proportion of variance explained.

Price elasticity of demand = %Δ quantity demanded / %Δ price; elastic if absolute value > 1, inelastic if < 1.

Income elasticity: positive for normal goods, negative for inferior goods; cross-price elasticity positive for substitutes, negative for complements.

Market structures: perfect competition (many firms, homogeneous product, price taker), monopoly (single seller, price maker), monopolistic competition (differentiated products), oligopoly (few firms, interdependence).

GDP expenditure approach: GDP = C + I + G + (X − M).

Inflation measures: CPI uses fixed basket; GDP deflator = nominal GDP/real GDP × 100; PPI measures producer prices.

Business cycle: expansion, peak, contraction (recession), trough; leading indicators anticipate, coincident move with, lagging follow the cycle.

Monetary policy: central bank buys securities to increase money supply and lower rates; sells to decrease money supply and raise rates.

Fiscal policy: government spending increases and tax cuts are expansionary; spending cuts and tax increases are contractionary.

Exchange rates: appreciation makes exports more expensive and imports cheaper; depreciation does the opposite.

Net present value rule: accept projects with NPV > 0; NPV = PV of cash inflows − initial investment.

Weighted average cost of capital: WACC = (E/V) × Re + (D/V) × Rd × (1 − tax rate).

Cost of equity (CAPM): Re = Rf + β × (Rm − Rf).

Cost of debt: after-tax cost = pre-tax interest rate × (1 − tax rate).

Capital budgeting: payback period ignores time value; discounted payback accounts for it; profitability index = PV of inflows/initial investment.

Leverage: degree of operating leverage = %Δ EBIT/%Δ sales; degree of financial leverage = %Δ EPS/%Δ EBIT; total leverage = DOL × DFL.

Dividend policy: residual dividend model pays dividends from earnings remaining after funding positive-NPV projects with target capital structure.

Working capital: current ratio = current assets/current liabilities; quick ratio excludes inventory; cash conversion cycle = days inventory + days receivables − days payables.

Dividend discount model: V0 = D1/(r − g) for constant growth; g = retention ratio × ROE.

Gordon growth assumptions: constant growth rate, required return greater than growth rate, dividends grow forever.

Price multiples: P/E = price/earnings; P/B = price/book value; P/S = price/sales; P/CF = price/cash flow.

Enterprise value = market value of equity + market value of debt − cash and equivalents.

EV/EBITDA is capital-structure neutral and useful for comparing firms with different leverage.

Efficient market hypothesis: weak form (prices reflect past prices), semi-strong (public information), strong (all information including private).

Industry life cycle: embryonic, growth, mature, decline; growth phase typically shows high price competition and rising sales.

Equity risk premium = expected market return − risk-free rate; used in CAPM to estimate required return.

Bond price and yield move inversely; longer maturity and lower coupon increase price sensitivity to yield changes.

Macaulay duration = weighted average time to cash flows; modified duration = Macaulay duration/(1 + yield/k).

Price change approximation: %Δ price ≈ −modified duration × Δ yield + 0.5 × convexity × (Δ yield)^2.

Yield to maturity equates present value of coupon and principal payments to bond price.

Spot rate: rate for a single future cash flow; forward rate: rate for a future period implied by spot rates.

Credit spreads widen when default risk rises; spread = bond yield − benchmark Treasury yield.

Bond features: callable bonds benefit issuer (yield higher), putable bonds benefit investor (yield lower), convertible bonds allow conversion to equity.

Duration gap: assets and liabilities with matched durations reduce interest rate risk for institutions.

Forward contract: customized, private, obligation to buy/sell at a set price on a future date; counterparty credit risk exists.

Futures contract: standardized, exchange-traded, marked to market daily; clearinghouse reduces counterparty risk.

Option payoff: call buyer payoff = max(0, S − K); put buyer payoff = max(0, K − S); premium paid upfront.

Put-call parity: C + PV(K) = P + S for European options on non-dividend-paying stock.

Intrinsic value: call = max(0, S − K); put = max(0, K − S); time value = option price − intrinsic value.

Swap: agreement to exchange cash flows; interest rate swap exchanges fixed for floating payments.

Hedging with derivatives: long futures hedge protects against price increases; short futures hedge protects against price decreases.

Option Greeks: delta measures price sensitivity to underlying; gamma measures change in delta; theta measures time decay; vega measures volatility sensitivity.

Portfolio expected return = weighted average of individual asset expected returns.

Portfolio variance = w1²σ1² + w2²σ2² + 2w1w2ρ12σ1σ2 for two assets.

Diversification reduces risk when assets are not perfectly positively correlated; maximum benefit when ρ = −1.

Capital allocation line: expected return = Rf + [(E(Rp) − Rf)/σp] × σ; slope is Sharpe ratio.

Sharpe ratio = (portfolio return − risk-free rate)/portfolio standard deviation; higher is better.

CAPM: E(Ri) = Rf + βi × [E(Rm) − Rf]; beta measures systematic risk.

Security market line plots expected return vs beta; assets above SML are undervalued, below are overvalued.

Active portfolio management: security selection and asset allocation; tracking error measures deviation from benchmark.

Code of Ethics: act with integrity, competence, diligence, respect, and in an ethical manner with the public, clients, prospects, employers, employees, and colleagues.

Standard I(A) Knowledge of the Law: understand and comply with applicable laws; if conflict, follow the stricter law or standard.

Standard I(B) Independence and Objectivity: avoid gifts or benefits that could compromise judgment; disclose conflicts.

Standard II(A) Material Nonpublic Information: do not trade or cause others to trade on material nonpublic information.

Standard III(A) Loyalty, Prudence, and Care: act for the benefit of clients and place client interests before employer or personal interests.

Standard III(B) Fair Dealing: treat all clients fairly when disseminating investment recommendations or taking investment action.

Standard IV(A) Loyalty to Employer: act for the benefit of employer; no independent practice that harms employer.

Standard V(A) Diligence and Reasonable Basis: exercise diligence, independence, and thoroughness in analysis and recommendations.

Standard VI(A) Disclosure of Conflicts: disclose all matters that could impair independence or objectivity.