CMA Inter Paper 11 (FMDA) flashcards
CMA Inter Paper 11 (FMDA) · Build recall with a focused review session.
32 cards. Read the term and the definition here. The deck at the top of this page is optional.
- Wealth maximization objective
- Wealth maximization seeks to increase the present value of shareholders' expected future cash flows, explicitly considering timing, risk, and the capital invested.
- Agency problem
- A conflict arises when managers act in their own interest rather than shareholders' interest; monitoring, performance incentives, and strong corporate governance can reduce this conflict.
- Equity share capital
- Equity shares represent permanent ownership capital with residual claims on profits and assets, voting rights, and dividends that are discretionary rather than contractual.
- Preference share features
- Preference shares typically carry a fixed dividend, priority over equity for dividends and liquidation, limited voting rights, and may be cumulative, participating, convertible, or redeemable.
- Finance lease
- A finance lease transfers substantially all risks and rewards of asset ownership to the lessee; the lessee records the asset and lease liability.
- Current ratio formula
- Current ratio equals current assets divided by current liabilities; it indicates short-term liquidity but can be distorted by inventory and window dressing.
- DuPont ROE identity
- Return on equity equals net profit margin times total asset turnover times equity multiplier, separating profitability, efficiency, and financial leverage effects.
- Interest coverage ratio
- Interest coverage equals earnings before interest and tax divided by interest expense; a lower ratio indicates weaker ability to meet fixed interest obligations.
- WACC formula
- Weighted average cost of capital is the sum of each source's weight multiplied by its after-tax cost, using market-value weights where available.
- CAPM cost of equity
- The capital asset pricing model estimates cost of equity as risk-free rate plus beta multiplied by the market risk premium.
- Marginal cost of capital
- Marginal cost of capital is the cost of raising one additional rupee of funds; it rises as larger amounts are raised because investors demand higher returns.
- Degree of operating leverage
- Degree of operating leverage equals contribution divided by EBIT, or percentage change in EBIT divided by percentage change in sales.
- EBIT-EPS indifference point
- The EBIT level at which earnings per share are equal under two financing alternatives, found by equating their EPS equations and solving for EBIT.
- Net present value rule
- Accept a project if net present value is positive; for mutually exclusive projects, choose the alternative with the highest positive net present value.
- Internal rate of return
- The discount rate that makes a project's net present value zero; accept if it exceeds the required return, but multiple IRRs can arise with non-conventional cash flows.
- Profitability index
- Profitability index equals present value of future cash flows divided by initial investment; accept independent projects with index greater than one.
- Residual dividend policy
- A firm pays dividends only from earnings remaining after funding positive-NPV projects at its target capital structure, minimizing external equity needs.
- Stock split effect
- A stock split increases the number of shares and reduces face value per share without changing reserves or total shareholders' equity.
- Economic order quantity
- EOQ is the order size minimizing total ordering and holding costs, calculated as square root of twice annual demand times order cost divided by holding cost per unit.
- Cash conversion cycle
- Cash conversion cycle equals days inventory outstanding plus days sales outstanding minus days payables outstanding; it measures the time cash is tied up in operations.
- Safety stock purpose
- Safety stock is extra inventory held to absorb uncertainty in demand or lead time and reduce the risk of stockouts.
- Descriptive analytics
- Descriptive analytics summarizes historical data using measures, trends, and dashboards to show what happened in a business process.
- Prescriptive analytics
- Prescriptive analytics recommends actions using optimization, simulation, and decision models, often subject to business constraints and human judgment.
- Nominal scale data
- Nominal data are categorical labels with no order or numerical meaning, such as payment mode or product category; only frequency counts are valid.
- Data cleaning
- Data cleaning detects and corrects missing values, duplicates, outliers, inconsistent formats, and invalid entries before analysis to improve reliability.
- Median vs mean
- The mean is the arithmetic average and is sensitive to outliers; the median is the middle value and is more robust for skewed data.
- Pandas DataFrame
- A pandas DataFrame is a two-dimensional labeled table in Python used for filtering, grouping, joining, and summarizing structured data.
- Pivot table use
- A pivot table groups spreadsheet data by rows and columns and aggregates values, enabling quick cross-tabulation and summary analysis.
- Misleading axis risk
- Truncated or inconsistent chart axes can exaggerate differences; clear labels, honest scales, and appropriate chart types reduce misinterpretation.
- Churn prediction
- Churn prediction uses historical customer behavior to estimate the probability that a customer will stop using a product or service.
- Fraud detection analytics
- Fraud detection analytics applies rules, anomaly detection, and models to transactions to flag unusual patterns for investigation.
- Model drift
- Model drift occurs when relationships learned from historical data change, reducing prediction accuracy; monitoring and retraining restore performance.