CMA Inter Paper 11 (FMDA) key terms

The financial objective of increasing the long-run value of the owners' investment, measured by the market price of the firm's shares rather than by a single year's accounting profit.

An objective that treats a period's accounting profit as the decision criterion; it ignores the timing and risk of cash flows and the capital employed, so modern finance regards it as an incomplete goal.

Owners' funds raised by issuing shares that carry voting rights and a residual claim on profits and assets; dividends are discretionary and the capital is repaid last if the company winds up.

Hybrid capital carrying a stated dividend that ranks ahead of equity dividends and ahead of equity on winding up, usually with limited voting rights, so it has features of both debt and equity.

A debt instrument issued by a company acknowledging a long-term loan, on which stated interest is paid at fixed intervals and which is usually secured by a charge on the company's assets.

Profits kept in the business rather than distributed as dividends; an internal equity source whose cost is the return shareholders could have earned by investing those funds elsewhere.

Current assets divided by current liabilities, showing how many rupees of short-term resources cover each rupee of obligations falling due within a year; a rough test of solvency.

Current assets excluding inventory and prepaid expenses, divided by current liabilities; a stricter liquidity measure because it counts only assets that can be turned into cash quickly.

Debt divided by shareholders' funds, showing how much borrowed money supports the business relative to owners' money, and therefore how exposed the firm is to fixed interest obligations.

Earnings before interest and tax divided by capital employed, expressed as a percentage; it measures how productively the long-term funds of the business are used, before the effect of financing.

A technique that splits return on equity into net profit margin, asset turnover and the equity multiplier, showing whether profitability, operating efficiency or borrowing explains a change in shareholder returns.

The after-tax rate a firm effectively pays on borrowed funds, usually the interest rate less the tax saving on interest; it is normally the cheapest component of capital for a taxable firm.

The minimum return shareholders require for investing in the firm's shares, estimated from models such as the capital asset pricing model or the dividend growth model rather than observed directly.

The average cost of the firm's sources of finance, each weighted by its share of total capital at market value; it is the discount rate for projects of average business risk.

The responsiveness of operating profit to changes in sales, driven by the share of fixed operating costs in the cost structure; high fixed costs make profit swing more widely than sales.

The responsiveness of earnings per share to changes in operating profit, caused by fixed financial charges such as interest; it magnifies returns to shareholders in good years and losses in bad years.

The product of operating leverage and financial leverage, equal to the percentage change in earnings per share for a one per cent change in sales; it measures total risk passed to shareholders.

The level of operating profit at which earnings per share is nil because it is just enough to cover interest and preference dividends; below this level equity holders receive nothing.

The present value of a project's expected cash inflows less the present value of its outflows, discounted at the cost of capital; a positive figure means the project adds wealth.

The discount rate that makes a project's net present value zero; the project is acceptable if this rate exceeds the required return, though the method can mislead on unusual cash flow patterns.

The time a project takes to recover its initial investment from cumulative cash inflows; simple and useful as a risk screen, but it ignores cash flows after the cut-off and the time value of money.

A limit on the funds or management capacity available for investment, so that not every positive net present value project can be accepted and projects must be ranked and combined.

Dividends per share divided by earnings per share, showing the share of profit distributed; a high ratio returns cash to owners while a low ratio keeps funds inside the business for growth.

A policy that pays dividends only out of earnings left after all acceptable investments have been financed from retained profits, so the dividend varies from year to year.

The argument that, in perfect markets without taxes or transaction costs, the split between dividends and retained earnings does not change firm value, which depends only on investment decisions.

The period from paying suppliers for materials to collecting cash from customers, calculated as inventory days plus receivable days less payable days; it determines the working capital a business needs.

The order quantity at which the annual cost of ordering inventory and the annual cost of holding it are equal and total inventory cost is lowest; it assumes steady demand and known costs.

A forecast of expected cash receipts and payments over a period, with opening and closing balances, so that the firm can arrange finance for deficits or plan investment of surpluses.

The use of data, statistical methods and models to describe what has happened in a business, explain why it happened, and support better operating and strategic decisions.

Methods that use past data and statistical or machine-learning models to estimate the likelihood of future outcomes such as demand, customer churn or loan default.

The stage of analytics that recommends a course of action, applying optimisation, simulation or decision rules to predictions in order to choose the best option within given constraints.

Checking a dataset for missing values, duplicates, inconsistent formats and impossible entries, and correcting or removing them, because analysis is only as reliable as the data behind it.

A value that lies unusually far from the rest of the observations; it may be a data-entry error to be fixed or a genuine extreme case that distorts averages and correlations.

The square root of variance, measuring the typical distance of observations from their mean; in finance it is the standard measure of the volatility of returns.

Data held in a fixed tabular format of rows and columns, such as an accounting ledger or sales register, which can be sorted, queried and analysed directly by standard tools.

A spreadsheet tool that summarises a large table by grouping rows and columns and aggregating the values, allowing quick cross-tabulation without writing separate formulas for each view.

An open-source Python library built around the DataFrame, used to read, clean, reshape and summarise tabular data; it is the usual starting point for analysis in Python.

A single screen combining charts and headline figures that refresh from a data source, letting managers monitor performance at a glance and move from summary to detail.

Grouping customers with similar buying behaviour, value or demographics through data analysis, so that marketing effort, pricing and service can be targeted instead of spread evenly.

Applying rules, anomaly scoring and machine-learning models to transaction data to flag unusual patterns that may indicate fraudulent payments, claims or accounting entries.