D076 Finance Skills for Managers WGU GUIDE VERIFIED

Real Return - Rate of growth in purchasing power of goods and services Holding Period Return - Return over the entire period that an investor owns a financial security Beta - A measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole. standard deviation - Used to measure the total risk of securities annuity due - an annuity whose payments occur at the beginning of each period, consecutively Par Bond - When the bond's coupon rate equals the market yield; Bonds are typically issued near par value Pi - Profitability index. At 1, the PI means a internal return rate equal to the cost of capital Irr - Internal rate of return (IRR) is a discount rate at which the net present value (NPV) of an investment is equal to zero. If the IRR is higher than the cost of borrowing to fund the investment, the investment should be profitable. Always shown as percentage. Net Present Value (NPV) - A method of ranking investment proposals using the NPV, which is equal to the present value of the project's free cash flows discounted at the cost of capital. Shown as dollar amount.. At $0 it means it will neither add nor subtract value. Inventory Turnover - An activity ratio found by COGS divided by inventory dividends in arrears - Feature of preferred stock specifying that if a company ignores preferred stock dividends it cannot pay anything to it's common stockholders Agency Problem - the possibility of conflict of interest between the owners and management of a firm Resolved by aligning interests, example giving shares to manangement Operating Margin - A profitability ratio found by EBIT profit divided by sales Capital Structure - the mixture of debt and equity maintained by a firm Defensive Assets - Companies or securities with betas less than 1. Variable Expenditure - an expense that you have direct control over and that can change from period to period Price Risk - Potential for the decline in the price of a financial security or an asset relative to the market efficient market - a market in which prices fully reflect all the available information about a specific security trend analysis - Comparing a firms ratio across time