FCFA flashcards
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32 cards. Read the term and the definition here. The deck at the top of this page is optional.
- Accounting equation
- Assets = Liabilities + Equity. Every transaction maintains this balance; revenues increase equity, expenses decrease equity, and owner contributions increase equity.
- Revenue recognition principle
- Recognize revenue when control of goods or services transfers to the customer, in the amount expected to be received, following the five-step IFRS 15 / ASC 606 model.
- FIFO versus LIFO
- FIFO assigns oldest costs to cost of goods sold; LIFO assigns newest. In rising prices, FIFO yields higher ending inventory and higher profit than LIFO.
- Straight-line depreciation
- Annual depreciation = (cost − residual value) / useful life. It produces equal expense each year and is the simplest depreciation method.
- Current ratio
- Current assets divided by current liabilities. It measures short-term liquidity and ability to pay obligations due within one year.
- Time value of money
- A dollar today is worth more than a dollar in the future because it can be invested and earn interest. PV = FV/(1 + r)^n.
- Net present value
- Sum of present values of future cash flows minus initial investment. A positive NPV means the project adds value and should be accepted.
- Internal rate of return
- The discount rate that makes NPV equal to zero. A project is acceptable if its IRR exceeds the required rate of return.
- Coefficient of variation
- Standard deviation divided by mean. It measures risk per unit of expected return and allows comparison of investments with different scales.
- Correlation coefficient
- A measure of linear relationship between two variables ranging from −1 to +1. It equals covariance divided by the product of standard deviations.
- Price elasticity of demand
- Percentage change in quantity demanded divided by percentage change in price. Demand is elastic if the absolute value exceeds one.
- GDP expenditure approach
- Gross domestic product equals consumption plus investment plus government spending plus net exports (exports minus imports).
- Consumer price index
- A measure of inflation using a fixed basket of goods and services purchased by a typical household, comparing current cost to base-year cost.
- Monetary policy
- Central bank actions to control money supply and interest rates. Buying securities expands the money supply; selling contracts it.
- Weighted average cost of capital
- WACC = (E/V) × Re + (D/V) × Rd × (1 − tax rate). It is the minimum return a company must earn on investments.
- Capital asset pricing model
- Expected return = risk-free rate + beta × (market return − risk-free rate). Beta measures sensitivity to market movements.
- Degree of operating leverage
- Percentage change in EBIT divided by percentage change in sales. Higher fixed costs increase operating leverage and business risk.
- Cash conversion cycle
- Days inventory outstanding plus days sales outstanding minus days payables outstanding. It measures how long cash is tied up in operations.
- Gordon growth model
- Stock value = next dividend / (required return − growth rate). It assumes dividends grow at a constant rate forever.
- Price-to-earnings ratio
- Market price per share divided by earnings per share. It shows how much investors pay for each dollar of earnings.
- Enterprise value
- Market value of equity plus market value of debt minus cash and equivalents. It represents the total value of a company's operations.
- Semi-strong efficient market
- A market where prices reflect all publicly available information, so fundamental analysis cannot consistently earn abnormal returns.
- Bond duration
- A measure of a bond's price sensitivity to interest rate changes. Higher duration means greater price volatility for a given yield change.
- Yield to maturity
- The discount rate that equates the present value of a bond's future coupon and principal payments to its current market price.
- Credit spread
- The difference between a bond's yield and the yield on a comparable government bond. It compensates investors for default risk.
- Forward contract
- A customized, private agreement to buy or sell an asset at a specified price on a future date. Both parties are obligated to perform.
- Put-call parity
- For European options on non-dividend-paying stock: call price + present value of strike = put price + stock price.
- Option delta
- The change in an option's price for a one-unit change in the underlying asset price. Call deltas are positive; put deltas are negative.
- Portfolio variance
- For two assets: w1²σ1² + w2²σ2² + 2w1w2ρ12σ1σ2. Lower correlation reduces portfolio risk through diversification.
- Sharpe ratio
- Portfolio return minus risk-free rate, divided by portfolio standard deviation. It measures excess return per unit of total risk.
- Security market line
- A graph of expected return versus beta under CAPM. Assets above the line are undervalued; assets below are overvalued.
- Material nonpublic information
- Information that could affect security price and is not publicly available. Trading on it or causing others to trade violates Standard II(A).