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 profit...
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
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