FSA Flashcards
Accelerated methods
Depreciation methods that allocate a relatively large proportion of the cost of an asset to the early years of the asset’s useful life.
Accounting profit
Income as reported on the income statement in accordance with prevailing accounting standards before the provisions for income tax expense.
Accounts payable
Amounts that a business owes to its vendors for goods and services that were purchased from them but which have not yet been paid.
Accrued expenses
Liabilities related to expenses that have been incurred but not yet paid as of the end of an accounting period—an example of an accrued expense is rent that has been incurred but not yet paid resulting in a liability “rent payable.”
Acquisition method
A method of accounting for a business combination where the acquirer is required to measure each identifiable asset and liability at fair value. This method was the result of a joint project of the IASB and FASB aiming at convergence in standards for the accounting of business combinations.
Activity ratios
Ratios that measure how efficiently a company performs day-to-day tasks such as the collection of receivables and management of inventory.
Amortisation
The process of allocating the cost of intangible long-term assets having a finite useful life to accounting periods; the allocation of the amount of a bond premium or discount to the periods remaining until bond maturity.
Amortised cost
The historical cost (initially recognised cost) of an asset adjusted for amortisation and impairment.
Antidilutive
With reference to a transaction or a security one that would increase earnings per share (EPS) or result in EPS higher than the company’s basic EPS— antidilutive securities are not included in the calculation of diluted EPS.
Asset utilization ratios
Ratios that measure how efficiently a company performs day-to-day tasks such as the collection of receivables and management of inventory.
Assets
Resources controlled by an enterprise as a result of past events and from which future economic benefits to the enterprise are expected to flow.
Available-for-sale
Under US GAAP debt securities not classified as either held-to-maturity or held-for-trading securities. The investor is willing to sell but not actively planning to sell. In general available-for-sale debt securities are reported at fair value on the balance sheet with unrealized gains included as a component of other comprehensive income.
Back-testing
With reference to portfolio strategies the application of a strategy’s portfolio selection rules to historical data to assess what would have been the strategy’s historical performance.
Balance sheet
The financial statement that presents an entity’s current financial position by disclosing resources the entity controls (its assets) and the claims on those resources (its liabilities and equity claims) as of a particular point in time (the date of the balance sheet).
Balance sheet ratios
Financial ratios involving balance sheet items only.
Basic EPS
Net earnings available to common shareholders (i.e. net income minus preferred dividends) divided by the weighted average number of common shares outstanding.
Bottom-up analysis
An investment selection approach that focuses on company-specific circumstances rather than emphasizing economic cycles or industry analysis.
Capital structure
The mix of debt and equity that a company uses to finance its business; a company’s specific mixture of long-term financing.
Carrying amount
The amount at which an asset or liability is valued according to accounting principles.
Cash conversion cycle
A financial metric that measures the length of time required for a company to convert cash invested in its operations to cash received as a result of its operations; equal to days of inventory on hand + days of sales outstanding – number of days of payables.
Cash flow from operating activities
The net amount of cash provided from operating activities.
Cash flow from operations
The net amount of cash provided from operating activities.
Classified balance sheet
A balance sheet organized so as to group together the various assets and liabilities into subcategories (e.g. current and noncurrent).
Common shares
A type of security that represent an ownership interest in a company.
Common stock
A type of security that represent an ownership interest in a company.
Common-size analysis
The restatement of financial statement items using a common denominator or reference item that allows one to identify trends and major differences; an example is an income statement in which all items are expressed as a percent of revenue.
Comprehensive income
The change in equity of a business enterprise during a period from nonowner sources; includes all changes in equity during a period except those resulting from investments by owners and distributions to owners; comprehensive income equals net income plus other comprehensive income.
Contra account
An account that offsets another account.
Coupon rate
The interest rate promised in a contract; this is the rate used to calculate the periodic interest payments.
Credit analysis
The evaluation of credit risk; the evaluation of the creditworthiness of a borrower or counterparty.
Credit risk
The risk of loss caused by a counterparty’s or debtor’s failure to make a promised payment.
Cross-sectional analysis
Analysis that involves comparisons across individuals in a group over a given time period or at a given point in time.
Current assets
Assets that are expected to be consumed or converted into cash in the near future typically one year or less.
Current cost
With reference to assets the amount of cash or cash equivalents that would have to be paid to buy the same or an equivalent asset today; with reference to liabilities the undiscounted amount of cash or cash equivalents that would be required to settle the obligation today.
Current liabilities
Short-term obligations such as accounts payable wages payable or accrued liabilities that are expected to be settled in the near future typically one year or less.
Days of inventory on hand
An activity ratio equal to the number of days in the period divided by inventory turnover over the period.
Dealing securities
Securities held by banks or other financial intermediaries for trading purposes.
Debt-to-assets ratio
A solvency ratio calculated as total debt divided by total assets.
Debt-to-capital ratio
A solvency ratio calculated as total debt divided by total debt plus total shareholders’ equity.
Debt-to-equity ratio
A solvency ratio calculated as total debt divided by total shareholders’ equity.
Deductible temporary differences
Temporary differences that result in a reduction of or deduction from taxable income in a future period when the balance sheet item is recovered or settled.
Defensive interval ratio
A liquidity ratio that estimates the number of days that an entity could meet cash needs from liquid assets; calculated as (cash + short-term marketable investments + receivables) divided by daily cash expenditures.
Deferred income
A liability account for money that has been collected for goods or services that have not yet been delivered; payment received in advance of providing a good or service.
Deferred revenue
A liability account for money that has been collected for goods or services that have not yet been delivered; payment received in advance of providing a good or service.
Deferred tax assets
A balance sheet asset that arises when an excess amount is paid for income taxes relative to accounting profit. The taxable income is higher than accounting profit and income tax payable exceeds tax expense. The company expects to recover the difference during the course of future operations when tax expense exceeds income tax payable.
Deferred tax liabilities
A balance sheet liability that arises when a deficit amount is paid for income taxes relative to accounting profit. The taxable income is less than the accounting profit and income tax payable is less than tax expense. The company expects to eliminate the liability over the course of future operations when income tax payable exceeds tax expense.
Defined benefit pension plans
Plans in which the company promises to pay a certain annual amount (defined benefit) to the employee after retirement. The company bears the investment risk of the plan assets.
Defined contribution pension plans
Individual accounts to which an employee and typically the employer makes contributions during their working years and expect to draw on the accumulated funds at retirement. The employee bears the investment and inflation risk of the plan assets.
Depreciation
The process of systematically allocating the cost of long-lived (tangible) assets to the periods during which the assets are expected to provide economic benefits.
Derivatives
A financial instrument whose value depends on the value of some underlying asset or factor (e.g. a stock price an interest rate or exchange rate).
Diluted EPS
The EPS that would result if all dilutive securities were converted into common shares.
Diluted shares
The number of shares that would be outstanding if all potentially dilutive claims on common shares (e.g. convertible debt convertible preferred stock and employee stock options) were exercised.
Diminishing balance method
An accelerated depreciation method i.e. one that allocates a relatively large proportion of the cost of an asset to the early years of the asset’s useful life.
Direct financing leases
Under US GAAP a type of finance lease from a lessor perspective where the present value of the lease payments (lease receivable) equals the carrying value of the leased asset. No selling profit is recognized at lease inception. The revenues earned by the lessor are financing in nature.
Direct format
With reference to the cash flow statement a format for the presentation of the statement in which cash flow from operating activities is shown as operating cash receipts less operating cash disbursements.
Direct method
With reference to the cash flow statement a format for the presentation of the statement in which cash flow from operating activities is shown as operating cash receipts less operating cash disbursements.
Direct write-off method
An approach to recognizing credit losses on customer receivables in which the company waits until such time as a customer has defaulted and only then recognizes the loss.
Dividend payout ratio
The ratio of cash dividends paid to earnings for a period.
Double declining balance depreciation
An accelerated depreciation method that involves depreciating the asset at double the straight-line rate. This rate is multiplied by the book value of the asset at the beginning of the period (a declining balance) to calculate depreciation expense.
DuPont analysis
An approach to decomposing return on investment e.g. return on equity as the product of other financial ratios.
Earnings per share
The amount of income earned during a period per share of common stock.
Effective interest rate
The borrowing rate or market rate that a company incurs at the time of issuance of a bond.
Equity
Assets less liabilities; the residual interest in the assets after subtracting the liabilities.
Expenses
Outflows of economic resources or increases in liabilities that result in decreases in equity (other than decreases because of distributions to owners); reductions in net assets associated with the creation of revenues.
Fair value
The amount at which an asset could be exchanged or a liability settled between knowledgeable willing parties in an arm’s-length transaction; the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.
FIFO method
The first in first out method of accounting for inventory which matches sales against the costs of items of inventory in the order in which they were placed in inventory.
Finance lease
From the lessee perspective under US GAAP a type of lease which is more akin to the purchase of an asset by the lessee. From the lessor perspective under IFRS a lease which “transfers substantially all the risks and rewards incidental to ownership of an underlying asset.”
Financial flexibility
The ability to react and adapt to financial adversity and opportunities.
Financial leverage
The extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income; also, short for the financial leverage ratio.
Financial leverage ratio
A measure of financial leverage calculated as average total assets divided by average total equity.
Financing activities
Activities related to obtaining or repaying capital to be used in the business (e.g., equity and long-term debt).
Fixed charge coverage
A solvency ratio measuring the number of times interest and lease payments are covered by operating income, calculated as (EBIT + lease payments) divided by (interest payments + lease payments).
Fixed costs
Costs that remain at the same level regardless of a company’s level of production and sales.
