Corporate Finance Institute (Cfi) Terms- Financial
Analysis Fundamentals #17
ACCOUNTS PAYABLE - correct answer Amounts owed by an organization to others for
goods or services received. Buying from suppliers on credit will generate accounts
payable.
ACCOUNTS RECEIVABLE - correct answer Amounts due to an organization for goods
delivered or services rendered. Selling to customers on credit will generate accounts
receivable for a business.
ACCOUNTS PAYABLE DAYS RATIO - correct answer Accounts payable / COGS x
365. Average number of days a firm takes to pay for items purchased.
ACCOUNTS PAYABLE TURNOVER - correct answer Cost of sales / Accounts payable
(either the ending balance or average balance). This ratio measures how effective
management is in paying its suppliers.
ACCOUNTS RECEIVABLE DAYS RATIO - correct answer Accounts receivable / Sales
x 365. Average number of days a firm takes to collect payments on goods sold.
ACCOUNTS RECEIVABLE TURNOVER - correct answer Sales / Accounts receivable
(either the ending balance, or average balance). This ratio measures how effective the
company's credit policies are.
ACID TEST - correct answer See quick ratio.
ADMINISTRATION COST RATIO - correct answer Administration costs / Sales. This
margin shows the general overhead cost for each dollar of sales.
AMORTIZATION - correct answer The gradual reduction of a financial amount over
time.
ASSETS - correct answer Resources owned and employed by an organization which
confer future economic benefits.
ASSET TURNOVER RATIO - correct answer Sales / Total assets. This ratio shows how
effective the company is in
AUDIT - correct answer The process of examination and verification of a firm's books of
account, transaction records, and other relevant documents including financial models.
AVERAGE BALANCE - correct answer (Opening balance - Closing balance) / 2. This
balance can be used to calculate efficiency / turnover ratios instead of using a closing
balance.
, BALANCE SHEET - correct answer The balance sheet is a 'snapshot' of an
organization's assets and liabilities on a particular date. The balance sheet shows the
sources of funds provided to an organization (called the capital employed and normally
either equity or debt) and how those funds have been used by the organization to invest
in fixed assets (assets the organization intends to keep for more than one year) and
working capital (money tied up in the day to day operations of the business).
CAPITAL - correct answer See capital employed.
CAPITAL ASSET - correct answer Assets such as property, plant and equipment
employed to generate income.
CAPITAL EMPLOYED - correct answer Synonyms: capital, Capital employed
represents the funds provided to an organization in the form of equity or debt.
CAPITAL IN EXCESS OF PAR VALUE - correct answer See contributed surplus.
CAPITAL STOCK - correct answer Synonyms: stock, shares, share capital. There are
two types of stock - common stock and preferred stock. Most shares tend to be
common stock and generally carry one vote each and carry an equal right to a
proportionate share of dividends.
Capitalstockisnotaliabilityinthesenseofothersourcesoffunds(e.g. Bank loans) since it is
not generally paid back to shareholders unless the company is wound up.
CASH FLOW STATEMENT - correct answer The cash flow statement is a 'summarized
bank statement' that shows an organization's sources of cash during the financial year
and the ways in which the cash has been used during that period (e.g.
Investments,fixed asset purchases,etc.).
CIRCULAR REFERENCES - correct answer Circular references occur when a formula
includes a reference to the cell in which the formula appears.
COGS CREDITORS - correct answer Cost of goods sold.
COMMON SHARES - correct answer See common stock.
COMMON STOCK , Synonyms: common shares, ordinary shares - correct answer Most
shares tend to be common stock carrying one vote each and with an equal right to a
proportionate share of dividends. Common stock dividends tend to rise as profits grow.
This is in contrast to preferred stock where the dividend tends to be fixed.
CONTRIBUTED SURPLUS, Synonyms: share premium, capital in excess of par value -
correct answer Most stock is originally issued with a nominal/par value attached to it
(e.g. 1 share in ABC Inc. Has a nominal value of $1.00). However, if shareholders buy
Analysis Fundamentals #17
ACCOUNTS PAYABLE - correct answer Amounts owed by an organization to others for
goods or services received. Buying from suppliers on credit will generate accounts
payable.
ACCOUNTS RECEIVABLE - correct answer Amounts due to an organization for goods
delivered or services rendered. Selling to customers on credit will generate accounts
receivable for a business.
ACCOUNTS PAYABLE DAYS RATIO - correct answer Accounts payable / COGS x
365. Average number of days a firm takes to pay for items purchased.
ACCOUNTS PAYABLE TURNOVER - correct answer Cost of sales / Accounts payable
(either the ending balance or average balance). This ratio measures how effective
management is in paying its suppliers.
ACCOUNTS RECEIVABLE DAYS RATIO - correct answer Accounts receivable / Sales
x 365. Average number of days a firm takes to collect payments on goods sold.
ACCOUNTS RECEIVABLE TURNOVER - correct answer Sales / Accounts receivable
(either the ending balance, or average balance). This ratio measures how effective the
company's credit policies are.
ACID TEST - correct answer See quick ratio.
ADMINISTRATION COST RATIO - correct answer Administration costs / Sales. This
margin shows the general overhead cost for each dollar of sales.
AMORTIZATION - correct answer The gradual reduction of a financial amount over
time.
ASSETS - correct answer Resources owned and employed by an organization which
confer future economic benefits.
ASSET TURNOVER RATIO - correct answer Sales / Total assets. This ratio shows how
effective the company is in
AUDIT - correct answer The process of examination and verification of a firm's books of
account, transaction records, and other relevant documents including financial models.
AVERAGE BALANCE - correct answer (Opening balance - Closing balance) / 2. This
balance can be used to calculate efficiency / turnover ratios instead of using a closing
balance.
, BALANCE SHEET - correct answer The balance sheet is a 'snapshot' of an
organization's assets and liabilities on a particular date. The balance sheet shows the
sources of funds provided to an organization (called the capital employed and normally
either equity or debt) and how those funds have been used by the organization to invest
in fixed assets (assets the organization intends to keep for more than one year) and
working capital (money tied up in the day to day operations of the business).
CAPITAL - correct answer See capital employed.
CAPITAL ASSET - correct answer Assets such as property, plant and equipment
employed to generate income.
CAPITAL EMPLOYED - correct answer Synonyms: capital, Capital employed
represents the funds provided to an organization in the form of equity or debt.
CAPITAL IN EXCESS OF PAR VALUE - correct answer See contributed surplus.
CAPITAL STOCK - correct answer Synonyms: stock, shares, share capital. There are
two types of stock - common stock and preferred stock. Most shares tend to be
common stock and generally carry one vote each and carry an equal right to a
proportionate share of dividends.
Capitalstockisnotaliabilityinthesenseofothersourcesoffunds(e.g. Bank loans) since it is
not generally paid back to shareholders unless the company is wound up.
CASH FLOW STATEMENT - correct answer The cash flow statement is a 'summarized
bank statement' that shows an organization's sources of cash during the financial year
and the ways in which the cash has been used during that period (e.g.
Investments,fixed asset purchases,etc.).
CIRCULAR REFERENCES - correct answer Circular references occur when a formula
includes a reference to the cell in which the formula appears.
COGS CREDITORS - correct answer Cost of goods sold.
COMMON SHARES - correct answer See common stock.
COMMON STOCK , Synonyms: common shares, ordinary shares - correct answer Most
shares tend to be common stock carrying one vote each and with an equal right to a
proportionate share of dividends. Common stock dividends tend to rise as profits grow.
This is in contrast to preferred stock where the dividend tends to be fixed.
CONTRIBUTED SURPLUS, Synonyms: share premium, capital in excess of par value -
correct answer Most stock is originally issued with a nominal/par value attached to it
(e.g. 1 share in ABC Inc. Has a nominal value of $1.00). However, if shareholders buy
