Study guide for D076 Finance Skills for Managers

Accounting Definition  The system of recording, reporting, and summarizing past financial information and transactions. Activity Ratios  A category of ratios that measure how well a company uses its assets to generate sales or cash, showing the firm’s operational efficiency and profitability.  AR Turnover: An activity ratio found by credit sales divided by accounts receivable.  ACP: An activity ratio found by the number of days in a year (365) divided by AR turnover.  FAT: An activity ratio found by sales divided by fixed assets.  OIROI: An activity ratio found by operating income divided by total assets.  TAT: An activity ratio found by sales divided by total assets.  Inventory Turnover: An activity ratio found by COGS divided by inventory. Additional Funds Needed (AFN)  Another name for the discretionary financing needed or external financing needed. It represents the additional financing needed given a firm’s expectations for future growth. Affirmative Covenants  A bond covenant that describes things the company pledges itself to do in order to protect bondholders. Agency Costs  Costs that are incurred when management does not act in the best interest of shareholders. Agency Problem  When the agent (the management) does not act in the best interest of the principal (the owners). Aggressive Assets  Companies or securities with beta greater than 1. Annual Percentage Rate  The annual interest rate that is charged for borrowing money or that is earned through investment. Annuity  A stream of cash flows of an equal amount paid every consecutive period. Annuity Due  A series of equal payments made at the beginning of consecutive periods. Asset Pricing  The process of valuing assets. Auction Market  A secondary market with a physical location and where prices are determined by investors’ willingness to pay. Average Collection Period (ACP)  An activity ratio found by the number of days in a year (365) divided by AR turnover. Balance Sheet Forecasting  Using sales growth and the profit forecast to construct a pro forma balance sheet to understand the future implications of the sources and uses of finances. Banks and Credit Unions  Receive deposits and extend loans to individuals and businesses. Benchmarking  The process of completing a financial analysis to compare a firm’s financial performance to that of other similar firms. Beta  A variable that describes how the price of a security varies with the market. Bid-ask Spread