BEC Flashcards
1
Q
Residual Risk
A
The risk that an organization incurs after management takes whatever actions are needed to mitigate the adverse impact of a given event
2
Q
Organizational Sustainability
A
Ability of an entity to withstand the impact of large-scale events
3
Q
Pick Ticket
A
A list provided to the warehouse or inventory function detailing the items and quantities that should be picked and packaged and sent to the shipping department for an order. This is a part of the shipping step in the revenue process
4
Q
Put Option
A
Gives its owner the right to sell a specific security at fixed conditions of price and time
5
Q
Default Risk Premium
A
Additional compensation demanded by investors for bearing the risk that the security issuer will fail to pay interest and/or principal due on a timely basis
6
Q
What is the optimal capitalization for a company?
A
The lowest total weighted average cost of capital (WACC)
7
Q
Operating Leverage (Definition)
A
The degree to which a firm uses fixed operating costs, as opposed to variable operating costs
8
Q
Financial Leverage (Definition)
A
The degree to which a company uses debt rather than equity to finance the company
9
Q
Working Capital Management
A
Matches the maturity life of each asset with the length of the financial instrument used to finance that asset
10
Q
Check/Bank Draft
A
Paying by means of a draft (or check) allows the firm to take advantage of the float period; this delays cash disbursements
11
Q
Materials Requirement Planning (MRP)
A
An inventory management technique that projects and plans inventory levels in order to control the usage of raw materials in the production process; primarily applies to work in process and raw materials
12
Q
Float
A
The difference between the balance of checks outstanding, which have not cleared the bank and deposits made but which have not yet cleared the bank
13
Q
Black-Scholes Model
A
Stock options are exercisable only at maturity or as European-style options
inputs to the model include the current price of the underlying stock, the option exercise price, the risk-free interest rate, the time until expiration, and a measure of risk tied to the underlying stock
14
Q
Cox-Russ-Rubinstein Model
A
Can be used with American-style options and used for options that pay periodic dividends without modifying the model
15
Q
Bond will be Issued at a Discount If
A
Market Rate > Coupon Rate
16
Q
Conversion Cost
A
Direct Labor + Manufacturing Overhead
17
Q
Prime Cost
A
Direct Labor + Direct Material
18
Q
Activity-Based Costing
A
A costing system that divides production into activities where costs are accumulated into multiple cost pools and allocated to the product based on the level of activities demanded by the product; Can be used with job order and process costing
Recommended when more than one product is produced and those products do not uniformly consume indirect resources (heterogeneous consumption)
19
Q
Process Costing
A
A cost accounting technique that is used when products are produced in a more-or-less continuous basis and when the products are indistinguishable from each other (homogeneous products/commodity products)
20
Q
Engineered Cost
A
An engineered cost bears an observable and known relationship to a quantifiable activity base
21
Q
GDP
A
The total market value of all final goods and services produced within the borders of a nation in a particular period
22
Q
Porter’s Five Forces
A
- Barriers to market entry
- Market competitiveness
- Existence of substitute products
- Bargaining power of the customers
- Bargaining power of the suppliers
23
Q
Horizontal Combination
A
Between competitors; Creates economies of scale (costs down and profits up)
24
Q
Vertical Combination
A
Combination of companies at different stages of the production process; If manufacturer buys supplier - backward integration; If manufacturer buys distributor - forward integration
25
Circular Combination
Centralized Management, Costs down
When different business units with relatively remote connections come together under a single management to reduce overall administrative and other operational costs
26
Diagonal Combination
When a company that engages in an activity integrates with another company that provides ancillary support for that primary activity ie. shipping
27
Merger
A+B = C (new co)
| Note: A and B are similar size
28
Acquisition
A+B = A
| Note: A is larger than B
29
Tender Offer
a company makes an offer directly to shareholders to buy the outstanding shares of another company
30
Purchase of Assets
occurs when a portion (or all) of the selling company's assets are purchased by the acquiring company (not stock)
31
Sell-Off
Outright sale of a subisidary or product line/division; Generate cash; Focus on core; No potential, get rid of it entirely
32
Spin Off
Creates a new independent company by separating a subsidiary from the parent; No cash inflow and not public; Some potential in the sub; Sub will have more value separately than they did as a part of the larger operation
33
Equity Carve-Out
Subsidiary is made public through an IPO; Cash inflow and controlling interest in IPO; Lots of value
34
3 Ways the Fed Can Increase Money Supply
1. Lower the required reserve ratio
2. Decrease the discount rate
3. Buy government securities in the open market
35
3 Ways the Fed Can Decrease Money Supply
1. Increase the required reserve ratio
2. Increase the discount rate
3. Sell government securities in the open market
36
Discount Rate Set by the Fed (Definition)
Rate established by the Federal Reserve for short-term loans to member banks
37
Expansionary Fiscal Policy
Increasing government purchases and/or decreasing taxes
38
Natural Monopoly
Economic and technical conditions permit only one efficient supplier
39
Dumping
The price charged to foreign customers on exported goods is less than either the price charged in the domestic market or less than the production cost
40
Leading Economic Indicators
Historically predicted economic activity in that they change before the economy begins to follow a trend; Examples include the money supply (M2) and S&P 500 index
41
Lagging Economic Indicators
Tend to follow economic activity; in other words, they change after the economic trend has already started. Investors use these as a means of confirming what has already happened and validating the strength of a trend; Examples include average duration of unemployment, and the prime rate charged by banks
42
Coincident Economic Indicators
Change at the same time as the economy, which means they provide information about the current state of the economy; Examples include industrial production and GDP
43
Inelastic
A price change does not cause a substantial change in demand or supply; <1
44
Elastic
A price change causes a substantial change in demand or supply; >1
45
Unit Elastic
A change in price will have no effect on total revenue; price and quanity change at the same rate; =1
46
Perfect Competition
- Many small firms
- No barriers to entry
- No product differentiation
- Perfectly elastic demand
- Zero economic profit
- Strategy: Maintaining market share and responsiveness of sales price to market conditions
47
Monopolistic Competition
- Many small firms
- Low barriers to entry
- Some product differentiation
- Highly elastic but downward sloping demand
- Zero economic profit
- Strategy: Maintaining market share, enhanced product differentiation, and allocation of resources to advertising, marketing, and product research
48
Oligopoly
-Few large firms
-High barriers to entry
-Various differentiated products
-Inelastic demand
-Positive economic profit
-Strategy: Maintaining or enhancing market share, proper spending on advertising, and proper adaptation to price changes and changes in production volume
(Kinked Demand Curve)
49
Monopoly
- One firm
- Insurmountable barriers to entry
- No differentiation
- Inelastic
- Positive economic profit
- Strategy: Ignore market share and focus on profitability from production levels that maximize profits
50
Just-in-Time (JIT) Management
scheduling the deployment of resources just-in-time to meet customer or production requirements
51
Total Quality Management (TQM)
organizational commitment to customer-focused performance that emphasizes both quality and continuous improvement
52
Gap Analysis
Determines the gap, or difference, between industry best practices and the current practices of the organization
53
Lean Manufacturing
Use of only those resources required to meet the requirements of customers
54
Demand Flow
Manages resources using customer demand as the basis for resource allocation (VS sales forecasts or master scheduling)
55
Theory of Constraints (TOC)
Organizations are impeded from achieving objectives by the existence of one or more constraints; Either work around or leverage the constraint; Five Steps:
1) Identification of the Constraint
2) Exploitation of the Constraint
3) Subordinate Everything Else to the Above Decisions
4) Elevate the Constraint
5) Return to the First Step
56
Circuit-Level Gateways
Control traffic by verifying the source of a packet, and meet rules and policies set by the security team
57
Network Address Translation Firewalls
Assign an internal network address to specific, approved external sources
58
Stateful Multilayer Inspection Firewalls
Combine packet-filling and network address translation to control traffic
59
Next-Generation Firewalls
Can assign different firewall rules to different applications as well as users
60
Operational CRM
generate leads and convert those leads into customers
61
Analytical CRM
provide insights to management to aid in the decision-making process
62
Collaborative or Strategic CRM
provide collaboration and sharing of customer information across functions such as sales, marketing, services, and support teams
63
Infrastructure-as-a-Service (IaaS)
outsources any of its servers, storage, hardware, networking services, and networking components to third-party providers and is billed on a per-use basis
64
Platform-as-a-Service (PaaS)
rent tools or solutions remotely that are used to fulfill a specific business purpose
65
Software-as-a-Service (SaaS)
company delivers and hosts subscription-based software services to customers through licensing or service delivery
66
Descriptive Analytics
What happened in historical data
67
Diagnostic Analytics
Why an event happened in historical data
68
Predictive Analytics
Projecting what will happen based on historical data
69
Prescriptive Analytics
How to achieve a desired event by prescribing what the next course of action should be in order to reach that outcome
70
User Access Controls
Identify which users access the system and track their activity while using the system
71
Authentication Controls
A process to verify the individual who is accessing and utilizing the system; examples: passwords, multifactor authentication
72
Access Control Lists
Restricts access and actions of authenticated users based on granted permissions; Create Access, Read Only, Update Access, and/or Delete
73
Network Security
Security in place to protect organization's private network from unauthorized access; Examples of different firewalls: Packet-Filtering Firewall, Application-Based Firewall, and Stateful Inspections
74
Intrusion Detection Systems (IDSs)
devices or software programs that monitor network or system activities for malicious activities or policy violations and alert management of perceived threats
75
Vulnerability Controls
- Hardening (reduce their surface vulnerability by turning off features or functions that are not needed)
- Patch Management (as vulnerabilities are discovered they should be addressed by patches)
- Anti-Malware Program (implement robust procedures around the use of external devices, accessing certain websites, and executing suspicious programs)
76
Data Encryption
Using a password or a digital key to scramble a readable (plaintext) message into an unreadable (ciphertext) message. Recipient of the message than uses another digital key to decrypt or decipher the ciphertext message back into plaintext.
Symmetric Encryption - sender and recipient use same key
Asymmetric Encryption - uses two keys, one which is public and one which is private
77
Digital Certificates
Certify the identity of the owners of a particular public key; digital certificate contains the party's public key
78
Public Key Infrastructure (PKI)
The system and processes used to issue and manage asymmetric keys and digital certificates
79
Critical Information
Any information that is vital for the organization to perform its essential functions and achieve its strategic objectives
80
Business Resiliency
The integration of system availability controls, crisis management, disaster recovery plans, and business continuity plans into a central set of procedures to ensure that a business can continue to operate or quickly return to operations without irreparable harm to its people, information or asssets
81
System Availability Controls
Activities to prevent system disruptions and loss of information as well as procedures to continue operations or provide quick recovery from an incident. Examples: physical controls and IT infrastructure controls (uninterrupted power supply (UPS), redundancy, backup files)
82
Disaster Recovery Plan
1. Assess the risks
2. Identify mission-critical applications and data
3. Develop a plan for handling the mission-critical applications
4. Determine the responsibilities of the personnel involved
5. Test the disaster recovery plan
83
Alternate Processing Facilities
1. Cold Site - has all the electrical connections and other physical requirements for data processing, but it does not have the actual equipment; Cheapest / Slowest
2. Hot Site - equipped to take over the company's data processing as these locations are not only pre-wired for use but also include the necessary hardware and office equipment; Expensive / Quickest
3. Warm Site - already has hardware installed but will fall short of the processing capabilities typically found in a hot site or at the actual business during normal operations
84
Five Components of Internal Control
CRIME
1. Control Environment
2. Risk assessment
3. Information + Communication
4. Monitoring
5. Existing Control Activities
85
Call Option
Allows, but doesn't require, the purchaser of the call to acquire the foreign currency for a specified price at or before a specified time in the future
86
Control Environment
Includes the standards, processes, and structures needed for an effective internal control system. The control environment sets the "tone at the top" for the organization. 5 principles:
1) Commitment to Ethics and Integrity
2) Board Independence and Oversight
3) Organizational Structure
4) Commitment to Competence
5) Accountability
An effective control environment serves as the foundation for the other four components.
87
Risk Assessment
Risk assessment captures how an entity identifies and analyzes risks that may impact the achievement of its objectives. 4 principles:
1) Specify Objectives
2) Identify and Analyze Risks
3) Consider the potential for fraud
4) Identify and Assess Changes
88
Information and Communication
Entails obtaining and using the information to support internal control functioning. This information should be shared both within the entity (internal communications) and outside of the entity (external communications).
89
Monitoring
The monitoring component involves evaluating the quality of internal controls by assessing system designs and operations and taking necessary corrective actions. Ongoing and separate evaluations, as well as communicating deficiencies to parties that can take corrective actions, are the key principles within the monitoring component.
90
Control Activities (Existing)
Set forth by an entity's policies and procedures to ensure that the directives initiated by management to mitigate risks are performed. 3 Principles:
1) Select and Develop Control Activities
2) Select and Develop Technology Controls
3) Deployment of Policies and Procedures
91
Letter of Credit
A third-party guarantee of financial obligations incurred by a company. Lowers the cost of borrowing; Represent an external credit enhancement
92
Debenture
Unsecured bond
93
Executive Information System (EIS)
An EIS helps executives monitor business conditions in general and assists in strategic planning to control and operate the company.
94
Short-Term Financing
Rates are lower; Decreases working capital; Increased interest rate risk
95
Long-Term Financing
Rates are higher; Increases financial leverage; Decreased interest rate risk
96
Roles of Items in a Computer Network
Routers manage traffic, switches connect other devices, gateways act as intermediaries, servers provide computing power for other machines on the network
97
Change Control System
To authorize and monitor changes related to information technology, including software implementation, development, application programs, database administration, etc.
98
Imputed Interest Rate
Target Return on Investment set by Management
99
Positive Pay with the Bank
A tool used for fraud detection that matches key attributes associated with a check to an inventory of authorized checks issued by a company
100
Learning Curve
As cumulative quantities double, average cost per unit decreases by a specified percent of the previous cost
101
Kaizen
Continuous improvement efforts that improve the efficiency and effectiveness of organizations through greater operational control
102
Conformance Costs
Made up of prevention and appraisal costs
Prevention - incurred to prevent the production of defective units, ie. employee training, preventative maintenance
Appraisal - incurred to discover and remove defective parts before they are shipped to the customer or next department, ie. statistical quality checks, testing, inspection
103
Nonconformance Costs
Made up of internal and external costs
Internal Failure Costs - costs to cure a defect discovered before the product is sent to the customer, i.e. rework costs, scrap, tooling changes, costs to dispose
External Failure Costs - costs to cure a defect discovered after the product is sent to the customer, i.e. warranty costs, liability claims, lost customers, reengineering an external failure
104
Concentration Banking
A payment collection procedure in which payments are made to regionally disbursed collection centers. Checks are collected at these centers several times a day and deposited in local banks for quick clearing.
