CA Sri Lanka Strategic Level Exam key terms

The extra amount a buyer pays above the market value of a company's shares in order to obtain a controlling interest, reflecting expected synergies and the power to direct the business.

A reduction applied to the pro-rata value of a shareholding that does not carry control, reflecting the limited influence such an investor has over decisions and cash flows.

The additional value created when two businesses combine, arising from cost savings, revenue gains or improved capital efficiency that neither party could achieve alone.

A valuation method that estimates an asset's worth by projecting future cash flows and converting them to present value using a risk-adjusted discount rate.

The blended required return on a firm's debt and equity, weighted by their share of total capital, used as the hurdle rate for investment appraisal.

The estimated value of a business beyond the explicit forecast period, often calculated using a perpetuity growth formula or an exit multiple, and usually a large part of total DCF value.

The mix of debt and equity a company uses to finance its assets and operations, which affects its cost of capital, financial risk and flexibility.

The use of borrowed funds to increase the potential return to shareholders, which also magnifies losses and raises the risk of financial distress.

A ratio of earnings before interest and tax to interest expense, showing how many times operating profit can absorb finance costs and indicating debt-servicing safety.

A condition written into a loan agreement that requires the borrower to maintain specified financial ratios or limits, with breach allowing the lender to demand early repayment.

Taking an offsetting position in a financial instrument or contract to reduce exposure to movements in interest rates, exchange rates or commodity prices.

A private agreement to buy or sell an asset at a fixed price on a future date, customised to the parties' needs but carrying counterparty risk.

A financial instrument whose value derives from an underlying asset, rate or index, used for hedging or speculation and recognised on balance sheet under reporting standards.

The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

A reduction in the carrying amount of an asset to its recoverable amount when the asset's value in use and fair value less costs of disposal fall below book value.

An intangible asset recognised on acquisition representing the excess of consideration transferred over the fair value of identifiable net assets acquired, tested annually for impairment.

The process of combining the financial statements of a parent and its controlled subsidiaries into a single set, eliminating intra-group balances and transactions.

The portion of a subsidiary's net assets and profit attributable to shareholders other than the parent, presented separately within consolidated equity and profit.

The accounting rules determining when and how much income from contracts with customers is reported, based on transfer of promised goods or services to the customer.

Accounting that records income and expenses when they are earned or incurred, regardless of when cash changes hands, matching costs with related revenues.

A tax balance arising from temporary differences between accounting carrying amounts and tax bases of assets and liabilities, recognised as a liability or asset.

The amount attributed to an asset or liability for tax purposes, used to measure temporary differences that give rise to deferred tax balances.

The setting of prices for transactions between related entities in different jurisdictions, which must be on arm's length terms to satisfy tax authorities.

A situation where a company is financed mainly by debt from related parties, prompting tax rules that limit interest deductions to prevent profit shifting.

Arranging affairs within the letter of the law to reduce tax liability, which may be challenged under general anti-avoidance rules where the arrangement lacks commercial substance.

The illegal non-payment or underpayment of tax through concealment, false statements or deliberate failure to declare income, exposing the taxpayer to criminal penalties.

An indirect tax charged on the supply of goods and services at each stage of production, with registered businesses recovering input tax and remitting output tax collected.

The VAT paid on purchases that a registered business may set off against VAT charged on its sales, subject to conditions on eligibility and documentation.

The conflict of interest that arises when managers, acting as agents for shareholders, pursue their own objectives rather than maximising owner wealth.

A arrangement in which one party, the principal, delegates decision-making authority to another, the agent, creating scope for divergent interests and monitoring costs.

The system of rules, practices and processes by which a company is directed and controlled, balancing the interests of shareholders, management and other stakeholders.

The extent to which directors, particularly non-executive directors, are free from relationships or interests that could compromise objective judgement of management.

A subcommittee of the board made up mainly of independent non-executive directors, overseeing financial reporting, internal control and the relationship with external auditors.

The requirement that an auditor avoid circumstances a reasonable informed third party would perceive as compromising objectivity, even where actual objectivity is intact.

An attitude of questioning and critical assessment of evidence, alert to possible misstatement, bias or fraud rather than accepting information at face value.

A situation where a professional's personal, financial or other interest could improperly influence judgement in performing duties for a client or employer.

The disclosure by an employee or member of an organisation of suspected wrongdoing, protected by law and policy where made in good faith to an appropriate authority.

A framework scanning political, economic, social, technological, environmental and legal factors in the external environment that may affect an organisation's strategy.

A model assessing industry attractiveness through the threat of new entrants, bargaining power of buyers and suppliers, threat of substitutes and rivalry among existing competitors.

A structured summary of an organisation's internal strengths and weaknesses and external opportunities and threats, used to inform strategic choices.

A characteristic or capability that allows a firm to outperform rivals, typically through lower costs or differentiated offerings that customers value and rivals cannot easily copy.

The sequence of primary and support activities through which an organisation creates and delivers value, analysed to identify sources of cost or differentiation advantage.

A performance measurement system that translates strategy into objectives and measures across financial, customer, internal process and learning and growth perspectives.

A quantifiable measure selected to track progress towards a critical strategic or operational objective, ideally specific, measurable and linked to accountability.

The process of identifying parties affected by or able to affect an organisation and classifying them by power and interest to plan appropriate engagement.