FCFA key terms

A method that records revenue when it is earned and expenses when they are incurred, regardless of when cash changes hands, better matching economic activity to the period it affects.

The rule that expenses are recognized in the same period as the revenues they helped generate, so profit reflects the cost of earning that period's income rather than the timing of payments.

Income already earned but not yet billed or collected, recorded as a receivable and as revenue in the current period, then reversed or settled when cash is eventually received.

Cash received from a customer before the good or service is delivered, carried as a liability until the performance obligation is satisfied and the amount is recognized as revenue.

A cost paid in advance of the benefit it provides, held as an asset such as prepaid rent or insurance and expensed over the periods that consume the benefit.

Current assets divided by current liabilities, indicating whether short-term resources cover obligations due within a year; a value below one signals potential liquidity strain.

Cash, marketable securities, and receivables divided by current liabilities, excluding inventory and prepaids, giving a stricter test of immediate liquidity than the current ratio.

Current assets minus current liabilities, the net short-term investment tied up in operations and a measure of the cushion available to fund day-to-day activity.

Days of inventory plus days of receivables minus days of payables, estimating how long cash is tied up between paying suppliers and collecting from customers.

Cash available to all capital providers after operating expenses and reinvestment, computed as after-tax operating cash flow less capital expenditures and increases in working capital.

Cash remaining for common shareholders after reinvestment, debt service, and net borrowing, often derived from cash flow from operations less capital expenditures plus net debt issuance.

The principle that a sum received today is worth more than the same sum received later, because money can be invested to earn a return over the intervening period.

The current worth of a future cash flow or stream, found by discounting each payment at an appropriate rate over the number of periods until receipt.

The process by which interest earns interest, growing a balance faster than simple interest as each period's return is added to the principal base.

The annualized return that accounts for compounding within the year, calculated by raising one plus the periodic rate to the number of periods per year and subtracting one.

A quoted annual rate that multiplies the periodic rate by the number of periods per year without accounting for intra-year compounding, so it understates the true annual cost.

The sum of discounted expected cash inflows minus the initial outlay; a positive result means the project is expected to add value at the chosen discount rate.

The discount rate that makes a project's net present value equal to zero, used as a hurdle comparison against the cost of capital when ranking independent investments.

The blended required return on a firm's debt and equity, weighted by their market-value proportions and adjusted for the tax deductibility of interest.

The return shareholders require for holding a firm's stock, commonly estimated with the capital asset pricing model or a dividend growth approach.

A model pricing risky assets as the risk-free rate plus beta times the market risk premium, implying investors are compensated only for non-diversifiable systematic risk.

A measure of how much an asset's returns move with the overall market; values above one indicate greater sensitivity to market swings, below one less sensitivity.

Risk from economy-wide factors such as interest rates, inflation, or recessions that cannot be eliminated by holding many securities, so markets price it.

Combining assets whose returns are not perfectly correlated to reduce portfolio variability without necessarily lowering expected return, removing firm-specific risk.

A number between minus one and plus one describing the strength and direction of the linear relationship between two return series; lower values produce larger diversification benefits.

The square root of variance, expressing the typical dispersion of returns around their mean in the same units as the returns themselves; a common measure of total risk.

Standard deviation divided by expected return, measuring risk per unit of reward and allowing comparison of dispersion across investments with different average returns.

Excess portfolio return over the risk-free rate divided by portfolio standard deviation, quantifying reward per unit of total risk taken.

A schedule showing the quantity of a good buyers will purchase at each price, typically downward sloping because higher prices discourage consumption and encourage substitution.

A schedule showing the quantity producers will offer at each price, generally upward sloping because higher prices cover rising marginal costs and attract more output.

The price at which quantity demanded equals quantity supplied, clearing the market; above it a surplus pushes price down, below it a shortage pushes price up.

The percentage change in quantity demanded divided by the percentage change in price; values above one in absolute terms indicate elastic, price-sensitive demand.

The market value of all final goods and services produced within a country's borders in a period, a headline measure of economic output and activity.

A sustained rise in the general price level that erodes purchasing power, usually measured by changes in a consumer or producer price index.

The recurring pattern of expansion and contraction in economy-wide activity, marked by shifts in output, employment, and inflation that affect asset returns.

The short-term interest rate a monetary authority sets or targets to influence borrowing costs, credit growth, inflation, and economic activity.

The present value of expected future cash flows an asset is judged to generate, used as the estimate against which market price is compared for an investment decision.

The gap between an asset's estimated intrinsic value and its market price, giving a buffer against estimation error and adverse developments.

A valuation approach pricing a share as the present value of expected future dividends, with the Gordon growth form assuming dividends grow at a constant rate forever.

Share price divided by earnings per share, showing how much investors pay per unit of profit and useful for relative comparison across peers or against history.

Market value of equity plus debt and preferred stock minus cash, representing the total price of a business to all capital providers and a cleaner takeover comparison than equity value.

A measure of a bond's price sensitivity to interest rate changes, approximately the percentage price move for a one percentage point shift in yield.

The curvature in the price-yield relationship beyond what duration captures; positive convexity means prices rise more when yields fall than they drop when yields rise.

The single discount rate that equates a bond's promised cash flows to its current price, assuming the bond is held to maturity and all payments are reinvested at that rate.

The yield difference between a risky bond and a comparable government security, compensating investors for default risk, liquidity, and other issuer-specific factors.

A private, customizable agreement to buy or sell an asset at a set price on a future date, carrying counterparty risk and typically settled at expiration rather than daily.

An exchange-traded, standardized agreement to trade an asset at a future date, marked to market daily through a clearinghouse that manages counterparty default risk.

A right, not an obligation, to buy or sell an underlying asset at a specified strike price before or on an expiration date, purchased for a premium.

A no-arbitrage relationship linking a call, a put, the underlying asset, and a risk-free bond with the same strike and expiry, used to price and check relative values.

Buying and selling equivalent assets at different prices to lock in a riskless profit, an activity whose pursuit drives mispriced markets back toward consistent prices.

The idea that identical assets or cash flow streams should trade at the same price in competitive markets; deviations create arbitrage opportunities that tend to be corrected.

The rate used to convert future cash flows to present value, reflecting the time value of money plus compensation for the risk of the cash flows.

The average squared deviation of returns from their mean, a measure of dispersion whose square root gives standard deviation and whose units are squared.

The profession's statement of core principles, such as integrity, objectivity, and client loyalty, that guides conduct and underpins public trust in the industry.

Detailed rules that translate broad ethical principles into specific required and prohibited conduct, including duties around diligence, disclosure, and fair dealing.

The obligation to act in another party's best interest, placing the client's interests ahead of one's own and requiring disclosure or avoidance of conflicting incentives.

Situations where personal, financial, or firm interests could bias professional judgment; they must be disclosed, managed, or avoided to preserve objectivity and trust.

Significant information not yet publicly available that could move a security's price; trading or tipping on it violates fair-dealing and insider-trading rules.