IFMP Financial Analysts Certification Level 2, Pakistan key terms

The present worth of an asset based on its underlying cash flows, growth, and risk, estimated by the analyst independently of the price quoted in the market.

A method that projects future cash flows and converts them to today's value using a discount rate reflecting time value and risk, then sums them to estimate worth.

Cash generated by operations after taxes and reinvestment that is available to all capital providers, both lenders and shareholders, before any financing payments are made.

Cash remaining for common shareholders after operating expenses, taxes, reinvestment, and net debt payments; discounted at the cost of equity to value shares directly.

The blended required return of a firm's debt and equity, weighted by their market-value proportions, used as the hurdle rate for discounting firm-level cash flows.

A model stating expected return equals the risk-free rate plus beta multiplied by the market risk premium, used to estimate the required return on equity.

A measure of how much a security's returns move relative to the overall market; above one means more volatile than the market, below one means less.

Market-wide risk from factors such as interest rates, inflation, and recessions that cannot be removed by diversification, and which is the risk that beta captures.

The return shareholders require for holding a company's shares, reflecting the risk of their investment; it is not a contractual payment but an opportunity cost.

The return on a default-free government security of matching maturity, used as the base rate in cost-of-capital and valuation models; in Pakistan often proxied by treasury bills.

The estimated value of all cash flows beyond the explicit forecast period, usually computed with a perpetuity growth formula or an exit multiple.

The assumed long-run rate at which free cash flows grow forever in a terminal value calculation; it should not exceed the long-term growth of the overall economy.

The gap between an asset's estimated intrinsic value and its market price, giving the investor a cushion against estimation error and adverse developments.

Estimating an asset's worth by comparing its price multiple with those of similar companies or with its own history, rather than by projecting cash flows.

A company's share price divided by its earnings per share, showing how much investors pay per unit of profit; useful for comparing firms within the same sector.

The total value of a business to all capital providers, calculated as market capitalization plus debt and minority interest minus cash and equivalents.

A profit measure that strips out financing, tax, and non-cash accounting effects, often used as a rough proxy for operating cash generation and as an EV multiple denominator.

Net profit attributable to ordinary shareholders divided by the weighted average number of shares outstanding during the period.

The reduction in existing shareholders' ownership percentage and per-share metrics caused by issuing new shares, for example through options or a rights issue.

A framework that decomposes return on equity into net profit margin, asset turnover, and financial leverage, revealing which driver is producing the return.

Net income divided by average shareholders' equity, measuring how much profit is generated for each unit of owners' capital employed in the business.

The use of borrowed funds to increase the size of an investment or asset base, magnifying both potential returns and potential losses for equity holders.

Earnings before interest and taxes divided by interest expense, indicating how many times operating profit can absorb the firm's financing charges.

Current assets divided by current liabilities, a liquidity measure showing whether short-term resources are sufficient to settle obligations falling due within a year.

Cash, marketable securities, and receivables divided by current liabilities; a stricter liquidity test that excludes inventory because it may be slow to convert into cash.

Current assets minus current liabilities, representing the short-term funds tied up in day-to-day operations and the cushion available to meet near-term obligations.

The number of days between paying suppliers and collecting cash from customers, computed from inventory days plus receivable days minus payable days.

Recording revenue when earned and expenses when incurred, regardless of when cash moves, so that reported profit reflects economic activity rather than receipts and payments.

The degree to which reported profit is backed by sustainable operating cash flows rather than one-off gains, accounting estimates, or aggressive accrual choices.

The rules determining when and how much revenue is recorded, typically when control of goods or services passes to the customer at the agreed transaction price.

The sensitivity of operating profit to changes in sales caused by a high proportion of fixed costs, which widens margins in good times and squeezes them in downturns.

Sales revenue minus variable costs, showing the amount each unit or sale leaves to cover fixed costs and then generate operating profit.

The sales volume or revenue level at which total revenue equals total costs, so the business makes neither profit nor loss.

Spreading investment across assets whose returns do not move together, reducing portfolio risk without necessarily reducing expected return.

A statistic between minus one and plus one describing how closely two return series move together; lower correlation between holdings produces greater diversification benefit.

A measure of the dispersion of returns around their average, commonly used as the basic statistic for total risk or volatility of an investment.

A measure of a bond's price sensitivity to interest rate changes, expressed in years; a higher duration means a larger percentage price move for a given yield shift.

The single discount rate that equates a bond's future coupons and principal repayment to its current market price, assuming the bond is held to maturity.

The difference in yield between a corporate bond and a comparable government security, compensating investors for default and liquidity risk.