50 financial terms, GPT-4 3 may 2023 Flashcards

1
Q

Cost of Goods Sold (COGS)

A

The direct costs of producing or acquiring the goods or services that a company sells, including raw materials, labor, and manufacturing overhead.

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2
Q

Gross Profit

A

The difference between a company’s revenue and its cost of goods sold. Represents the profit a company makes after accounting for production costs.

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3
Q

Gross Profit Margin

A

Gross profit expressed as a percentage of revenue. Indicates the efficiency of a company’s production process.

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4
Q

Operating Expenses

A

Costs associated with running a company’s core business operations, such as salaries, rent, utilities, and marketing.

Examples:

Salaries and wages: Compensation paid to employees for their work.
Employee benefits: Costs related to health insurance, retirement plans, and other employee benefits.
Rent: Expenses associated with leasing office space or other facilities for business operations.
Utilities: Costs for electricity, water, gas, and other essential services.
Office supplies: Expenses for items such as paper, ink, and office equipment.
Marketing and advertising: Costs related to promoting the company’s products or services, including online ads, print materials, and public relations efforts.
Insurance: Premiums paid for various types of business insurance, such as property, liability, and workers’ compensation.
Depreciation and amortization: The systematic allocation of the cost of tangible and intangible assets over their useful lives, respectively.
Travel and entertainment: Costs associated with business travel, including transportation, lodging, meals, and other related expenses.
Professional fees: Expenses for services provided by external professionals, such as attorneys, accountants, and consultants.

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5
Q

Operating Income

A

A measure of a company’s profitability from its core business operations, calculated by subtracting total operating expenses from total revenue.

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6
Q

Operating Margin

A

Operating income expressed as a percentage of revenue. Indicates the efficiency of a company’s operations and pricing strategy.

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7
Q

EBITDA

A

A measure of a company’s operating performance that excludes financing decisions, tax policies, and the accounting treatment of tangible and intangible assets.

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8
Q

Net Income

A

The total profit or loss a company generates after accounting for all expenses, including operating expenses, interest, taxes, and one-time gains or losses.

Formula:
Net Income = Total Revenue - Total Expenses

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9
Q

Net Profit Margin

A

Net income expressed as a percentage of revenue. Indicates the overall profitability of a company.

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10
Q

Fixed Costs

A

Costs that do not change with the level of production or sales, such as rent or salaries.

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11
Q

Variable Costs

A

Costs that change with the level of production or sales, such as raw materials or commissions.

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12
Q

Break-Even Point

A

The level of sales at which a company’s total revenue equals its total costs, resulting in neither profit nor loss.

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13
Q

Cash Flow

A

The movement of money in and out of a business, representing the operating, investing, and financing activities of a company.

Cash flow refers to the movement of money into and out of a business over a specific period, reflecting the company’s ability to generate and manage cash. It encompasses all sources of incoming cash, such as sales revenue, investments, and loans, as well as all outgoing cash, including operating expenses, capital expenditures, and debt repayments. For example, a positive cash flow might result from strong sales, successful cost management, or new investment, while a negative cash flow could be due to high expenses, poor sales performance, or large capital investments.

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14
Q

Operating Cash Flow

A

The cash generated from a company’s core business operations, reflecting its ability to generate cash to fund operations, pay debts, and invest in growth.

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15
Q

Free Cash Flow

A

The cash available to a company after accounting for capital expenditures, such as investments in property, plant, and equipment.

____

Free Cash Flow (FCF) is a financial metric that represents the cash a company generates from its operations after accounting for capital expenditures. It indicates how much cash is available for discretionary purposes, such as reinvesting in the business, paying down debt, or distributing dividends to shareholders. FCF is considered a crucial indicator of a company’s financial health and ability to generate value for investors.

The formula for Free Cash Flow is:

Free Cash Flow = Operating Cash Flow - Capital Expenditures

Where:

Operating Cash Flow is the cash generated from a company’s core business operations, as reflected in its cash flow statement.
Capital Expenditures (CapEx) are funds spent by a company to acquire or upgrade physical assets, such as property, plant, and equipment.
Illustrative Example:

Let’s assume Company XYZ has an Operating Cash Flow of $500,000 and Capital Expenditures of $200,000 during a specific period.

Free Cash Flow = $500,000 (Operating Cash Flow) - $200,000 (Capital Expenditures)
Free Cash Flow = $300,000

In this example, Company XYZ generated $300,000 in Free Cash Flow during the period. This means that, after accounting for the necessary investments to maintain or expand its operations, the company has $300,000 available for other purposes, such as paying down debt, distributing dividends to shareholders, or reinvesting in growth opportunities. A positive Free Cash Flow is generally seen as a sign of a healthy, financially stable company

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16
Q

Working Capital

A

The difference between a company’s current assets and current liabilities, representing its ability to meet short-term obligations and fund operations.

_____

Working Capital is a financial metric that represents a company’s short-term liquidity and operational efficiency. It measures the difference between a company’s current assets and current liabilities, indicating the resources available to cover day-to-day operations, meet financial obligations, and invest in growth opportunities. A positive working capital suggests that a company has sufficient funds to meet its short-term liabilities, while a negative working capital may indicate potential liquidity issues.

The formula for Working Capital is:

Working Capital = Current Assets - Current Liabilities

Where:

Current Assets are the assets that a company expects to convert into cash or use up within one year, such as cash, accounts receivable, and inventory.
Current Liabilities are the obligations that a company must settle within one year, such as accounts payable, short-term debt, and accrued expenses.
Illustrative Example:

Let’s assume Company ABC has $400,000 in Current Assets and $300,000 in Current Liabilities.

Working Capital = $400,000 (Current Assets) - $300,000 (Current Liabilities)
Working Capital = $100,000

In this example, Company ABC has a Working Capital of $100,000. This means that, after considering its short-term financial obligations, the company has $100,000 available to cover day-to-day operations and invest in growth opportunities. A positive Working Capital is generally seen as an indicator of a healthy, financially stable company with adequate liquidity.

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17
Q

Current Ratio

A

A liquidity ratio that measures a company’s ability to pay short-term liabilities with short-term assets.

likviditetskvot eller kortfristig likviditet

____

Current Ratio is a financial metric that measures a company’s liquidity and ability to meet its short-term financial obligations. It compares a company’s current assets to its current liabilities, providing insights into whether the company has sufficient resources to pay off its short-term debts. A higher current ratio indicates better short-term financial stability, while a lower ratio may signal potential liquidity issues.

The formula for Current Ratio is:

Current Ratio = Current Assets / Current Liabilities

Where:

Current Assets are the assets that a company expects to convert into cash or use up within one year, such as cash, accounts receivable, and inventory.
Current Liabilities are the obligations that a company must settle within one year, such as accounts payable, short-term debt, and accrued expenses.
Illustrative Example:

Let’s assume Company XYZ has $600,000 in Current Assets and $300,000 in Current Liabilities.

Current Ratio = $600,000 (Current Assets) / $300,000 (Current Liabilities)
Current Ratio = 2.0

In this example, Company XYZ has a Current Ratio of 2.0. This means that it has $2 in current assets for every $1 in current liabilities, indicating that the company is in a strong position to meet its short-term financial obligations. Generally, a Current Ratio of 1.0 or higher is considered satisfactory, as it suggests that the company has enough assets to cover its liabilities. However, an excessively high Current Ratio may indicate that the company is not using its assets efficiently to generate revenue and growth.

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18
Q

Quick Ratio

A

A liquidity ratio that measures a company’s ability to pay short-term liabilities using its most liquid assets, excluding inventory.

kassalikviditet

____

Quick Ratio, also known as the Acid-Test Ratio, is a financial metric that measures a company’s short-term liquidity and ability to meet its financial obligations without relying on inventory. It is a more conservative measure than the Current Ratio, as it excludes inventory from current assets, focusing on the most liquid assets that can be easily converted to cash. The Quick Ratio provides insights into whether the company can pay off its short-term debts using only its cash, cash equivalents, and accounts receivable.

The formula for Quick Ratio is:

Quick Ratio = (Cash + Cash Equivalents + Accounts Receivable) / Current Liabilities

Where:

Cash and Cash Equivalents are the most liquid assets, such as physical currency, bank deposits, and short-term investments that can be quickly converted into cash.
Accounts Receivable are amounts owed to the company by customers for goods or services provided on credit.
Current Liabilities are the obligations that a company must settle within one year, such as accounts payable, short-term debt, and accrued expenses.
Illustrative Example:

Let’s assume Company ABC has $100,000 in Cash, $50,000 in Cash Equivalents, $150,000 in Accounts Receivable, and $300,000 in Current Liabilities.

Quick Ratio = ($100,000 + $50,000 + $150,000) / $300,000
Quick Ratio = $300,000 / $300,000
Quick Ratio = 1.0

In this example, Company ABC has a Quick Ratio of 1.0. This means that it has $1 in cash, cash equivalents, and accounts receivable for every $1 in current liabilities, indicating that the company is in a position to meet its short-term financial obligations without relying on its inventory. Generally, a Quick Ratio of 1.0 or higher is considered satisfactory, as it suggests that the company has enough liquid assets to cover its liabilities. However, an ideal Quick Ratio may vary depending on the industry and the company’s specific circumstances.

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19
Q

Debt-to-Equity Ratio

A

A financial leverage ratio that compares a company’s total debt to its total equity, indicating the proportion of debt and equity used to finance its assets.

Skuldsättningsgrad

____

Debt-to-Equity Ratio is a financial metric that measures a company’s financial leverage by comparing its total debt to its total equity. This ratio indicates the proportion of debt used to finance the company’s assets relative to the amount of equity contributed by shareholders. A higher Debt-to-Equity Ratio suggests that the company relies more on borrowed money to finance its operations, which can be riskier, while a lower ratio implies that the company has a more conservative capital structure with less debt.

The formula for Debt-to-Equity Ratio is:

Debt-to-Equity Ratio = Total Debt / Total Equity

Where:

Total Debt represents the sum of a company’s short-term and long-term borrowings.
Total Equity represents the shareholders’ ownership interest in the company, calculated as the difference between total assets and total liabilities.
Illustrative Example:

Let’s assume Company ABC has $500,000 in Total Debt and $1,000,000 in Total Equity.

Debt-to-Equity Ratio = $500,000 (Total Debt) / $1,000,000 (Total Equity)
Debt-to-Equity Ratio = 0.5

In this example, Company ABC has a Debt-to-Equity Ratio of 0.5. This means that the company has $0.5 in debt for every $1 in equity, indicating a moderate level of financial leverage. An appropriate Debt-to-Equity Ratio may vary depending on the industry and the company’s specific circumstances, but a lower ratio is generally considered less risky.

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20
Q

Return on Equity (ROE)

A

A profitability ratio that measures the amount of net income generated for each dollar of equity invested in a company.

The Swedish term for Return on Equity is “avkastning på eget kapital” or “ROE” for short.
____

Return on Equity (ROE) is a financial metric that measures how effectively a company generates profit relative to the capital that owners (shareholders) have invested. ROE is often used by investors to compare the profitability of different companies and to evaluate management’s ability to create value for shareholders. A high ROE value indicates that the company is more profitable and efficient in using its resources to generate profit.

The formula for calculating ROE is:

ROE = Net Income / Shareholders’ Equity

Where:

Net Income is the company’s total revenue minus expenses, taxes, and interest costs over a specific period (usually a year).
Shareholders’ Equity, or “Eget kapital” in Swedish, is the remaining value for the company’s owners (shareholders) after all debts and obligations have been paid. It represents the shareholders’ net worth in the company.
Illustrative Example:

Let’s assume Company ABC has a Net Income of $200,000 and Shareholders’ Equity of $1,000,000.

ROE = $200,000 (Net Income) / $1,000,000 (Shareholders’ Equity)
ROE = 0.2 or 20%

In this example, Company ABC has an ROE of 20%. This means that the company generates $0.20 in profit for every $1 of shareholders’ equity, indicating a relatively strong level of profitability. Comparing ROE values across companies within the same industry can help investors identify more profitable and well-managed companies.

21
Q

Return on Assets (ROA)

A

A profitability ratio that measures the amount of net income generated for each dollar of assets a company owns.

22
Q

Price-to-Earnings Ratio (P/E)

A

A valuation ratio that compares a company’s stock price to its earnings per share, indicating how much investors are willing to pay for each dollar of earnings.

23
Q

Price-to-Sales Ratio (P/S)

A

A valuation ratio that compares a company’s stock price to its revenue per share, indicating how much investors are willing to pay for each dollar of sales.

24
Q

Market Capitalization

A

The total market value of a company’s outstanding shares of stock, calculated by multiplying the stock price

25
Q

Earnings Per Share (EPS)

A

The portion of a company’s profit allocated to each outstanding share of common stock, calculated by dividing net income by the number of outstanding shares.

26
Q

Dividend

A

A payment made by a corporation to its shareholders, usually in the form of cash or additional shares of stock.

27
Q

Dividend Yield

A

The annual dividend payment per share, expressed as a percentage of the stock’s current market price.

28
Q

Retained Earnings

A

The portion of a company’s net income that is not distributed as dividends but is reinvested in the business or used to pay off debt.

29
Q

Book Value

A

The net asset value of a company, calculated by subtracting total liabilities from total assets.

30
Q

Price-to-Book Ratio (P/B)

A

A valuation ratio that compares a company’s stock price to its book value per share, indicating how much investors are willing to pay for each dollar of net assets.

31
Q

Inventory Turnover

A

The number of times a company sells and replaces its inventory during a specified period, reflecting the efficiency of its inventory management.

32
Q

Accounts Receivable

A

Money owed to a company by its customers for goods or services provided on credit.

33
Q

Accounts Payable

A

Money owed by a company to its suppliers for goods or services received on credit.

34
Q

Days Sales Outstanding (DSO)

A

The average number of days it takes a company to collect payment after a sale has been made, reflecting the efficiency of its accounts receivable management.

35
Q

Days Payable Outstanding (DPO)

A

The average number of days it takes a company to pay its suppliers after receiving goods or services, reflecting the efficiency of its accounts payable management.

36
Q

Capital Expenditures (CapEx)

A

Funds spent by a company to acquire or upgrade physical assets, such as property, plant, and equipment.

37
Q

Depreciation

A

The systematic allocation of the cost of a tangible asset over its useful life, representing the decrease in value due to wear and tear.

38
Q

Amortization

A

The systematic allocation of the cost of an intangible asset, such as a patent or trademark, over its useful life.

39
Q

Financial Leverage

A

The use of debt to finance a company’s operations, with the goal of increasing its potential return on equity.

40
Q

Burn Rate

A

The rate at which a company consumes its cash reserves or capital, typically used to assess the financial health of startups.

41
Q

Internal Rate of Return (IRR)

A

The annualized rate of return at which the net present value of an investment’s cash flows becomes zero, used to evaluate the attractiveness of an investment.

42
Q

Net Present Value (NPV)

A

The difference between the present value of cash inflows and the present value of cash outflows for an investment, used to determine the profitability of an investment.

43
Q

Discount Rate

A

The interest rate used to determine the present value of future cash flows, reflecting the time value of money and the risk associated with an investment.

44
Q

Discount Rate

A

The interest rate used to determine the present value of future cash flows, reflecting the time value of money and the risk associated with an investment.

45
Q

Capital Asset Pricing Model (CAPM)

A

A model used to determine the expected return on an investment, based on the risk-free rate, the investment’s beta, and the expected market return.

46
Q

Beta

A

A measure of an investment’s volatility relative to the overall market, indicating the level of systematic risk associated with an investment.

47
Q

Weighted Average Cost of Capital (WACC)

A

The average rate of return a company must earn on its existing assets to satisfy its investors, including both debt and equity holders.

48
Q

Dilution

A

The reduction in the ownership percentage of existing shareholders due to the issuance of new shares, such as in a stock offering or through the exercise of stock options.

49
Q

Equity - svenska

A

“Equity” kan vara något mångtydigt på svenska, eftersom det kan översättas till både “aktier” och “eget kapital”. Det är viktigt att förstå sammanhanget där termen används för att kunna tolka dess innebörd korrekt. Här följer en förklaring av de två olika betydelserna på svenska:

Aktier (engelska: shares or stocks): När “equity” används för att beskriva ägarandelar i ett företag, så refererar det vanligtvis till aktier. Aktier representerar ägarnas (aktieägarnas) andel i företaget och ger dem rätt till en del av företagets vinst och tillgångar. I detta sammanhang kan “equity” översättas till “aktier”.

Eget kapital (engelska: equity or owners’ equity): När “equity” används för att beskriva det värde som återstår för företagets ägare efter att alla skulder och förpliktelser har betalats, så refererar det till företagets eget kapital. Eget kapital representerar ägarnas (aktieägarnas) nettovärde i företaget och beräknas som företagets totala tillgångar minus totala skulder. I detta sammanhang kan “equity” översättas till “eget kapital”.
För att förstå hur man som svensk ska tolka begreppet “equity”, är det viktigt att vara uppmärksam på kontexten där termen används. Om sammanhanget handlar om ägarandelar i företaget, så är den svenska motsvarigheten “aktier”. Om det istället handlar om företagets finansiella hälsa och nettovärde, så är den svenska motsvarigheten “eget kapital”.

Eget kapital kan beräknas enligt följande formel:

Eget kapital = Totala tillgångar - Totala skulder

Där:

Totala tillgångar är summan av alla resurser som ägs av företaget, såsom fastigheter, maskiner, lager och fordringar.
Totala skulder är summan av alla finansiella förpliktelser och skulder som företaget har, såsom lån, leverantörsskulder och andra skulder.

Eget kapital är viktigt eftersom det ger insikt i företagets finansiella hälsa och dess förmåga att skapa värde för ägarna. Ett positivt eget kapital innebär att företaget har tillräckligt med tillgångar för att täcka sina skulder, medan ett negativt eget kapital kan tyda på att företaget är insolvent eller har svårigheter att uppfylla sina finansiella åtaganden. Företagets kapitalstruktur, som inkluderar eget kapital och skulder, påverkar också dess risknivå och förmåga att attrahera investeringar.