Brainscape's Knowledge GenomeTM


Top Flashcards (Certified)
All Flashcards

CTP > Part III Chapter 9 > Flashcards

Part III Chapter 9 Flashcards

1
Q

capital budgeting

A

The process by which proposed large-dollar

investments in long-term assets are evaluated.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

cash conversion efficiency

A

An efficiency/asset management ratio that measures
how effectively a company has converted sales (or
revenues) into cash

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

common-size financial statement

A

A financial statement that expresses every line item
on the statement as a percentage of revenue or as a
percentage of total assets.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

coverage ratio

A

A type of financial ratio concerned primarily with
measuring a company’s ability to make payments on
(i.e., service) its debt.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

current asset turnover ratio

A

An efficiency/asset management ratio that measures
how many times the firm has turned over the stock
of its most liquid assets with the flow of revenue.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

debt management ratio

A

A type of ratio that measures the firm’s degree of

indebtedness and its ability to service its debt.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

debt to tangible net worth ratio

A

A type of debt management ratio that reflects the
impact of intangible assets (e.g., goodwill, patents,
trademarks, and copyrights) on the balance sheet.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

DuPont approach

A

An integrated ratio analysis technique that looks
at the return on equity (ROE) as a relationship
among an organization’s net profit margin, asset
management, and financial leverage.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

EBITDA margin

A

A measure of operating profitability calculated by
dividing EBITDA (earnings before interest, taxes,
depreciation, and amortization) by total revenues

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

economic value added (EVA)

A

A performance measurement ratio that isolates the
funds available to all suppliers of capital and then
relates that total to the amount of capital supplied.
It can be computed as earnings before interest
and taxes (EBIT), times one minus the company’s
tax rate, and then subtracting the product of the
weighted average cost of capital (WACC) and longterm debt and equity.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

efficiency/asset management ratio

A

A type of ratio that measures how effectively assets

are utilized.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

equity capital

A

The invested capital of an organization (as

contrasted with borrowed or debt capital).

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

financial budget

A

A component of a master budget, this budget
addresses an organization’s financing and investing
activities.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

financial leverage

A

A measure of a company’s use of debt in its capital

structure.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

fixed asset turnover ratio

A

An efficiency/asset management ratio that measures
how efficiently fixed assets (or property, plant, and
equipment) are used. It is computed as revenues
divided by net property, plant, and equipment.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

fixed cost

A

A type of cost that does not vary in total over a wide
range of activity and is not immediately impacted by
changes in business activities.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

fixed-charge coverage ratio

A

A measure computed as earnings before interest and
taxes (EBIT) plus fixed charges, divided by interest
expense plus fixed charges.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

flotation costs

A

The costs of issuing a security (usually the
underwriting costs), not related to direct interest or
equity costs.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

free cash flow (FCF)

A

The amount of effective cash generated and
available to a company after all necessary
investments have been accounted for.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

future value (FV)

A

For an investment made today, this is the expected

value of the investment at a later date.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

gross profit margin

A

A performance ratio that shows the percentage of
revenues remaining after the cost of goods sold is
deducted from revenue

22
Q

indebtedness/debt ratio

A

A ratio used to measure the level of indebtedness or

use of leverage by a company.

23
Q

internal rate of return (IRR)

A

The discount rate that makes the net present value
equal to zero or, equivalently, makes the present
value (PV) of cash inflows equal to the PV of cash
outflows.

24
Q

liquidity/working capital ratio

A

A type of ratio that measures a firm’s ability to meet
its payment obligations on short-term debt and helps
ascertain whether cash is being used effectively.

25
long-term debt to capital ratio
A type of debt management ratio that measures the percentage of a company’s capital that is provided by long-term debt.
26
master budget
An annual budget for an entire organization.
27
net present value (NPV)
A type of financial analysis, this value is calculated by summing the present value of anticipated cash inflows and the present value of cash outflows.
28
net profit margin
A performance ratio that shows the percentage of profits earned after all expenses and taxes are deducted from revenues.
29
operating budget
A component of a master budget, this budget | focuses on day-to-day operations.
30
operating leverage
A concept that examines the responsiveness of operating profits to changes in sales by examining the extent to which fixed costs are used in a company’s operating cost structure.
31
operating profit margin
A performance ratio that shows the percentage of revenue remaining after both the cost of goods sold and all operating expenses are deducted from revenue. It is computed as earnings before interest and taxes (EBIT) divided by revenues
32
opportunity cost
The value of the best known alternative not taken when two or more mutually exclusive alternatives are available.
33
payback period
The number of years required to recover the initial | investment in an asset or project.
34
performance ratio
A type of ratio that measures profit relative to the | amount of revenue or the level of financing.
35
present value (PV)
The current value of anticipated future cash flows or | payments.
36
profitability index (PI)
A cost/benefit measurement that is similar to net present value, this is ratio of the present value gained to the cost required to obtain that value.
37
return on assets (ROA)
A performance ratio that measures net income in | relation to the investment in assets.
38
return on common equity (ROCE)
A performance ratio that measures the amount of earnings available to common shareholders relative to the level of their investment in the company. It is computed as earnings available to common shareholders divided by common equity.
39
return on invested capital (ROIC)
A performance measurement ratio that calculates profit per dollar of invested capital. It is computed by dividing net income by the sum of long-term debt and equity.
40
risk-adjusted discount rate (RADR)
A type of cost/benefit analysis that essentially requires high-risk endeavors to earn a higher rate of return in order to justify the investment.
41
risk-adjusted return on capital | RAROC
A method of determining the economic value of a transaction or activity based upon the anticipated risk-adjusted performance of the activity.
42
scenario analysis
A method for assessing investment risk, this type of what-if analysis assesses possible outcomes under a range of circumstances. It is used frequently to establish the lower bound (i.e., worst case) and upper bound (i.e., best case) of outcomes.
43
sensitivity analysis
A method of assessing investment risk, this type of analysis determines how a final outcome, such as net present value, is influenced by changes in the value of a single variable and how vulnerable the expected outcome is to changes in a specific assumption.
44
simulations
A method of assessing investment risk, this method combines aspects of scenario and sensitivity analyses, allowing certain assumptions in a decision model to fluctuate simultaneously
45
step-up-cost
A type of cost that is fixed over a wide range of activity, but once output reaches a certain level, requires additional fixed costs to facilitate an increased level of output
46
time value of money
A fundamental finance principle that establishes the relationship between cash flows received at different times.
47
times interest earned (TIE) ratio
A coverage ratio that measures a firm’s ability to service its debt through interest payments. It is computed as operating income divided by interest expense.
48
total asset turnover ratio
An efficiency/asset management ratio that measures how many times a firm’s asset base was used in generating the flow of revenue during the period.
49
total liabilities to total assets ratio
A type of debt management ratio that measures the percentage of all liabilities to total investments or total assets. It is computed as total liabilities divided by total assets.
50
variable cost
A type of cost in a business whose total amount changes in direct proportion to the level of business activity.
51
weighted average cost of capital | WACC
Used in determining the overall cost of capital, this cost is computed as a weighted average of the effective cost of debt and the cost of equity.

CTP (9 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2025 Bold Learning Solutions. Terms and Conditions