D076 WGU STUDY GUIDE FINANCE SKILLS FOR
MANAGERS
Real Return - Answer -Rate of growth in purchasing power of goods and services
Holding Period Return - Answer -Return over the entire period that an investor owns a
financial security
Beta - Answer -A measure of the volatility, or systematic risk, of a security or a portfolio
in comparison to the market as a whole.
standard deviation - Answer -Used to measure the total risk of securities
annuity due - Answer -an annuity whose payments occur at the beginning of each
period, consecutively
Par Bond - Answer -When the bond's coupon rate equals the market yield;
Bonds are typically issued near par value
Pi - Answer -Profitability index. At 1, the PI means a internal return rate equal to the
cost of capital
Irr - Answer -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) - Answer -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 - Answer -An activity ratio found by COGS divided by inventory
dividends in arrears - Answer -Feature of preferred stock specifying that if a company
ignores preferred stock dividends it cannot pay anything to it's common stockholders
Agency Problem - Answer -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 - Answer -A profitability ratio found by EBIT profit divided by sales
Capital Structure - Answer -the mixture of debt and equity maintained by a firm
, Defensive Assets - Answer -Companies or securities with betas less than 1.
Variable Expenditure - Answer -an expense that you have direct control over and that
can change from period to period
Price Risk - Answer -Potential for the decline in the price of a financial security or an
asset relative to the market
efficient market - Answer -a market in which prices fully reflect all the available
information about a specific security
trend analysis - Answer -Comparing a firms ratio across time
Coupon Yield - Answer -The stated interest rate of a bond; also known as coupon rate
syndicate - Answer -a group of intermediaries that is used to oversee the issuance of
stocks and/or bonds
premium bond - Answer -A bond whose price is above it's par value
Upside value - Answer -The unlimited earnings potential of equity ownership
Treasury Notes - Answer -A note issued by the US government as a financial security
with a fixed interest rate and a short maturity between 1 and 10 years; abbreviated T-
note.
discount bond - Answer -A bond whose price is below it's par value
Fixed Asset Turnover FAT - Answer -An activity ratio found by sales divided by fixed
assets
Fixed means property, plant and equipment.
Operating income Return on Investment (OIROI) - Answer -Operating income (EBIT)
over total assets.
Before any finance or taxes.
Activity Ratios - Answer -A category of ratios that measure how well a company uses
its assets to generate sales or cash, showing the firms operational efficiency and
profitability.
Example: AR ( accts receivable) turnover: credit sales over accounts receivable.
If number is 12 that means we collect once per month.
MANAGERS
Real Return - Answer -Rate of growth in purchasing power of goods and services
Holding Period Return - Answer -Return over the entire period that an investor owns a
financial security
Beta - Answer -A measure of the volatility, or systematic risk, of a security or a portfolio
in comparison to the market as a whole.
standard deviation - Answer -Used to measure the total risk of securities
annuity due - Answer -an annuity whose payments occur at the beginning of each
period, consecutively
Par Bond - Answer -When the bond's coupon rate equals the market yield;
Bonds are typically issued near par value
Pi - Answer -Profitability index. At 1, the PI means a internal return rate equal to the
cost of capital
Irr - Answer -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) - Answer -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 - Answer -An activity ratio found by COGS divided by inventory
dividends in arrears - Answer -Feature of preferred stock specifying that if a company
ignores preferred stock dividends it cannot pay anything to it's common stockholders
Agency Problem - Answer -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 - Answer -A profitability ratio found by EBIT profit divided by sales
Capital Structure - Answer -the mixture of debt and equity maintained by a firm
, Defensive Assets - Answer -Companies or securities with betas less than 1.
Variable Expenditure - Answer -an expense that you have direct control over and that
can change from period to period
Price Risk - Answer -Potential for the decline in the price of a financial security or an
asset relative to the market
efficient market - Answer -a market in which prices fully reflect all the available
information about a specific security
trend analysis - Answer -Comparing a firms ratio across time
Coupon Yield - Answer -The stated interest rate of a bond; also known as coupon rate
syndicate - Answer -a group of intermediaries that is used to oversee the issuance of
stocks and/or bonds
premium bond - Answer -A bond whose price is above it's par value
Upside value - Answer -The unlimited earnings potential of equity ownership
Treasury Notes - Answer -A note issued by the US government as a financial security
with a fixed interest rate and a short maturity between 1 and 10 years; abbreviated T-
note.
discount bond - Answer -A bond whose price is below it's par value
Fixed Asset Turnover FAT - Answer -An activity ratio found by sales divided by fixed
assets
Fixed means property, plant and equipment.
Operating income Return on Investment (OIROI) - Answer -Operating income (EBIT)
over total assets.
Before any finance or taxes.
Activity Ratios - Answer -A category of ratios that measure how well a company uses
its assets to generate sales or cash, showing the firms operational efficiency and
profitability.
Example: AR ( accts receivable) turnover: credit sales over accounts receivable.
If number is 12 that means we collect once per month.
