Acronyms

Question 1

CAPM

Answer 1

Capital Assets Pricing Model: model to find appropriate required rate of return of an asset to make diversification decisions in a portfolio

Question 2

D/E

Answer 2

Debt-to-Equity Ratio: proportion of equity and debt a company is using to finance its assets; D/E ratio = total liabilities / total shareholders’ equity

Question 3

EBIT

Answer 3

Earnings Before Interest and Taxes: indicator of company’s profitability; EBIT = Revenue-cost of goods sold- operating expenses

Question 4

EBITDA

Answer 4

Earnings Before Interest Taxes Depreciation and Amortization: metric to evaluate a company’s operating perf; Net Profit+ Interest + Taxes + D + A

Question 5

EPS

Answer 5

Earnings Per Share: company’s profit / outstanding shares of common stock

Question 6

ESG

Answer 6

Environmental and Social Governance: criteria for a company’s operations that socially conscious investors look for

Question 7

ETF

Answer 7

Exchange-Traded Fund: collection of securities that tracks an underlying index; ex: SPDR S&P500

Question 8

FCFE

Answer 8

Free cash flow to equity: measures how much cash is available to equity shareholders after all expenses, reinvestment and debt are paid; Cash from operations - Capex +Net Debt Issued

Question 9

FCFF

Answer 9

Free cash flow to the firm: Amount of cash flow from operations available for distribution after depreciation expenses, taxes, working capital and investments are paid; Net Income + Non-Cash Charges + (Income x (2-Tax Rate)) - Long Term Investments - Investments in Working Capital

Question 10

FIFO

Answer 10

First in, first out: oldest inventory items are sold first

Question 11

GDP

Answer 11

Gross Domestic Product: monetary value of all the finished goods and services produced in a country within a specific time; broad measure of a country’s overall economic activity;

Question 12

GNP

Answer 12

Gross National Product: estimate of total value of all final products and services turned out in a specific period of time by the means of production owned by country residents

Question 13

IFRS

Answer 13

International Financial Reporting Standards: global language for businesses so accounts are understandable and comparable internationally

Question 14

IPO

Answer 14

Initial Public Offering: offering shares of a private company to the public in new stock issuance

Question 15

IIR

Answer 15

Internal Rate of Return: discount rate that makes the NPV of all cash flows zero; estimates profitability of potential investments

Question 16

Libor

Answer 16

London Interbank Offer Rate: average interest rate at which banks borrow funds from other banks

Question 17

LIFO

Answer 17

Last in, First Out: the newest inventory is sold first

Question 18

NAV

Answer 18

Net Asset Value: (Asset Liabilities) / Total Number of Outstanding Shares; represents the per share/ unit price of the fund on a specific date

Question 19

NPV

Answer 19

Net Present Value: Today’s Value of Expected Cash Inflows - Today’s Value of Invested Cash; difference between present value of cash inflows and the present value of cash outflows in a specific time period

Question 20

P/B

Answer 20

Price-to-book Ratio: Market Price Per Share / Book Value Per Share; compares a firm’s market to book value by dividing price per share by book value of assets

Question 21

P/CF

Answer 21

Price-to-Cash Flow Ratio:Share Price / Operating Cash Flow per Share; stock valuation indicator; measures stock value to its operating cash flows per share

Question 22

P/E

Answer 22

Price to Earnings Ratio: Market Value per Share / EPS; ratio for valuing a company that measures its current share price relative to its EPS

Question 23

PP and E

Answer 23

Property, Plant and Equipment: Net PPE = Gross PPE + Capital Expenditures - Accumulated Depreciation; long term assets vital to business operations and not easily converted to cash

Question 24

REIT

Answer 24

Real Estate Investment Trust: allows individual investors to buy shares in commercial real estate portfolios

Question 25

ROA

Answer 25

Return on Assets: Net Income / Total Assets; how efficiently a company is using its assets to generate returns

Question 26

ROE

Answer 26

Return on Equity: Net Income / Shareholders’ Equity; measure of efficiency in using assets to create profits

Question 27

US GAAP

Answer 27

U.S. Generally Accepted Accounting Principles

Question 28

WACC

Answer 28

Weighted Average Cost of Capital: calculation of a firm’s cost of capital where each category of capital is proportionally weighted