FPAC flashcards

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

Gross profit margin

Gross profit (revenue minus cost of goods sold) divided by revenue. It measures pricing power and production efficiency before operating expenses, interest, and taxes are deducted.

Operating margin

Operating income (EBIT) divided by revenue. It captures profitability from core operations after operating expenses but before interest and taxes, enabling comparison across differently leveraged firms.

Net profit margin

Net income divided by revenue. It reflects the bottom line after all expenses, interest, and taxes, and is the most comprehensive profitability ratio for comparing companies in the same industry.

DuPont analysis

Decomposes return on equity into net profit margin times total asset turnover times the equity multiplier. It shows whether ROE is driven by profitability, asset efficiency, or financial leverage.

Current ratio

Current assets divided by current liabilities. It gauges short-term liquidity, indicating whether a firm can cover obligations due within one year using assets convertible to cash within that period.

Quick ratio

Cash, marketable securities, and receivables divided by current liabilities, excluding inventory and prepaids. It is a stricter liquidity test because inventory may be slow to convert to cash.

Cash conversion cycle

Days inventory outstanding plus days sales outstanding minus days payables outstanding. It measures how long cash is tied up in operations; a shorter cycle frees working capital.

Net present value

The sum of discounted future cash flows minus the initial investment, using the cost of capital. A positive NPV means the project adds value; it is the preferred capital budgeting criterion.

Internal rate of return

The discount rate at which a project's net present value equals zero. Accept projects whose IRR exceeds the hurdle rate, but beware multiple IRRs with unconventional cash flows.

Payback period

The time required for cumulative cash inflows to recover the initial investment. It is simple and liquidity-focused but ignores cash flows after payback and the time value of money.

Free cash flow

Operating cash flow minus capital expenditures. It represents cash available for debt repayment, dividends, buybacks, or reinvestment, and is harder to manipulate than reported earnings.

Debt-to-equity ratio

Total liabilities or total debt divided by shareholders' equity. It measures financial leverage; higher values increase return volatility and default risk, especially when interest coverage is thin.

Interest coverage ratio

EBIT divided by interest expense. It indicates how many times operating earnings can cover interest obligations; a low ratio signals elevated default risk and limited borrowing capacity.

Horizontal analysis

Compares financial statement line items across successive periods, often indexing a base year to 100. It reveals growth trends and unusual fluctuations over time.

Vertical analysis

Expresses each line item as a percentage of a common base, such as revenue on the income statement or total assets on the balance sheet, enabling comparison across firms of different sizes.

Earnings quality

The degree to which reported earnings reflect sustainable operating cash flows rather than one-off items or accounting accruals. High accruals relative to cash flow suggest lower quality.

Working capital

Current assets minus current liabilities. Positive working capital indicates short-term liquidity; persistent negative working capital may signal distress unless the business model collects cash upfront.

Common-size balance sheet

A balance sheet where every item is stated as a percentage of total assets. It highlights capital structure and asset composition and supports comparisons across companies of different sizes.

Operating leverage

The proportion of fixed versus variable costs in a firm's cost structure. High operating leverage magnifies profit changes as revenue moves, raising both upside and downside risk.

Contribution margin

Revenue minus variable costs, expressed per unit or as a ratio. It shows how much each sale contributes to covering fixed costs and generating profit after the break-even point.

Time value of money

The principle that a dollar today is worth more than a dollar in the future because it can earn a return. Future cash flows are discounted to present value for comparison.

Data warehouse

A centralized repository of structured, cleaned, schema-on-write data optimized for reporting and OLAP queries. It typically holds historical, integrated data from multiple source systems.

Data lake

A storage repository holding raw structured, semi-structured, and unstructured data in native formats with schema-on-read. It supports advanced analytics but requires governance to avoid becoming a data swamp.

ETL versus ELT

ETL transforms data before loading into the target; ELT loads raw data first and transforms it inside the warehouse. ELT suits cloud warehouses and preserves raw data for reprocessing.

Star schema

A dimensional model with a central fact table of measures and foreign keys surrounded by denormalized dimension tables. It simplifies queries and speeds aggregation for analytics.

Primary key

A column or set of columns that uniquely identifies each row in a table and cannot contain nulls. It enforces entity integrity and is often referenced by foreign keys.

Foreign key

A column referencing a primary key in another table, enforcing referential integrity. It prevents orphan records and defines relationships between fact and dimension or parent and child tables.

SQL WHERE vs HAVING

WHERE filters individual rows before grouping and aggregation; HAVING filters aggregated groups after GROUP BY. Using WHERE for aggregate conditions causes errors in standard SQL.

Inner versus outer join

An inner join returns only rows matching in both tables. A left, right, or full outer join retains unmatched rows from one or both sides, filling missing columns with nulls.

Data quality dimensions

Standard dimensions include accuracy, completeness, consistency, timeliness, uniqueness, and validity. Each dataset should have defined thresholds and owners for monitoring these dimensions.

Data governance

The policies, roles, and processes that define data ownership, stewardship, quality standards, access controls, and lifecycle management. It ensures data is trustworthy, compliant, and usable.

Encryption at rest

Protects stored data, such as databases and backups, by encoding it so it is unreadable without the correct key. It mitigates risk from lost media or unauthorized storage access.

Tokenization

Replaces sensitive data such as card numbers with non-sensitive tokens mapped in a secure vault. It reduces regulatory scope because the token itself has no exploitable value.