IFMP Financial Analysts Certification Level 1, Pakistan flashcards
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32 cards. Read the term and the definition here. The deck at the top of this page is optional.
- Net present value
- The sum of present values of all cash inflows minus the initial investment, discounted at the required rate of return; a positive NPV indicates value creation.
- Internal rate of return
- The discount rate that makes the net present value of a project equal to zero; compare IRR to the required rate of return to accept or reject.
- Capital asset pricing model
- A model that prices an asset based on its systematic risk: expected return equals the risk-free rate plus beta times the market risk premium.
- Beta coefficient
- A measure of a stock's sensitivity to market movements; beta greater than 1 indicates higher volatility than the market, beta less than 1 indicates lower volatility.
- Weighted average cost of capital
- The average rate a company is expected to pay to finance its assets, calculated as the market-value-weighted average of after-tax cost of debt and cost of equity.
- Dividend growth model
- A valuation method that values a stock as the present value of expected future dividends growing at a constant rate: price equals next dividend divided by required return minus growth rate.
- Sustainable growth rate
- The maximum rate at which a company can grow using internally generated funds without issuing new equity; calculated as return on equity times the retention ratio.
- DuPont analysis
- A framework that decomposes return on equity into net profit margin, asset turnover, and equity multiplier to identify drivers of profitability.
- Current ratio
- A liquidity measure calculated as current assets divided by current liabilities; a ratio above 1 indicates the company can cover short-term obligations.
- Quick ratio
- A stringent liquidity measure that excludes inventory from current assets and divides the remainder by current liabilities, focusing on the most liquid assets.
- Interest coverage ratio
- Earnings before interest and taxes divided by interest expense; measures how many times a company can cover its interest payments from operating earnings.
- Bond duration
- The weighted average time until a bond's cash flows are received; also used to estimate the percentage price change for a given change in yield.
- Yield to maturity
- The total return anticipated on a bond if held until maturity, assuming all coupon payments are reinvested at the same rate; it equates the present value of cash flows to the bond price.
- Efficient market hypothesis
- A theory stating that asset prices reflect all available information; in its weak form, past prices are reflected; semi-strong includes public information; strong includes all information.
- Systematic risk
- Risk that affects the entire market and cannot be diversified away, such as changes in interest rates or economic recessions; measured by beta.
- Unsystematic risk
- Firm-specific risk that can be eliminated through diversification, such as management decisions or industry-specific events; not priced in equilibrium.
- Capital budgeting
- The process of evaluating and selecting long-term investments; common techniques include net present value, internal rate of return, payback period, and profitability index.
- Payback period
- The time required to recover the initial investment from cash inflows; it ignores the time value of money and cash flows beyond the payback point.
- Profitability index
- The ratio of the present value of future cash flows to the initial investment; a value greater than 1 indicates an acceptable project.
- Return on equity
- Net income divided by shareholders' equity; measures the return generated on equity capital and can be decomposed using the DuPont framework.
- Return on assets
- Net income divided by total assets; indicates how efficiently a company uses its assets to generate profits, independent of financing decisions.
- Gross profit margin
- Gross profit divided by revenue; shows the percentage of revenue remaining after covering the cost of goods sold, reflecting pricing and production efficiency.
- Operating profit margin
- Operating income divided by revenue; measures profitability from core operations before interest and taxes, excluding non-operating items.
- Inventory turnover
- Cost of goods sold divided by average inventory; indicates how many times inventory is sold and replaced over a period, reflecting inventory management efficiency.
- Receivables turnover
- Net credit sales divided by average accounts receivable; measures how efficiently a company collects its credit sales; higher turnover implies faster collection.
- Debt-to-equity ratio
- Total liabilities divided by shareholders' equity; a leverage measure indicating the relative proportion of debt and equity used to finance assets.
- Free cash flow
- Operating cash flow minus capital expenditures; represents cash available for distribution to investors or for reinvestment after maintaining asset base.
- Working capital
- Current assets minus current liabilities; a measure of short-term liquidity and operational efficiency, indicating ability to meet near-term obligations.
- Present value
- The current worth of a future sum of money or stream of cash flows given a specified rate of return; calculated by discounting future cash flows.
- Future value
- The value of a current asset or cash flow at a future date, based on an assumed rate of growth or interest; calculated by compounding.
- Annuity
- A series of equal payments made at regular intervals; ordinary annuities have payments at period end, while annuities due have payments at period beginning.
- Perpetuity
- A stream of equal cash flows that continues forever; present value equals the cash flow divided by the discount rate.