Financial Management & Market Fundamentals Flashcards

Vocabulary flashcards covering financial management concepts, stock market fundamentals, operational efficiency metrics, auditing principles, and working capital strategies.

Financial Statement (FS) Analysis

The process of reviewing and evaluating a company's financial statements (Balance Sheet, Income Statement, Cash Flow Statement) to make better economic decisions.

Fundamental Analysis

A valuation approach that evaluates a company's intrinsic value by examining financial statements, management quality, industry conditions, and macroeconomic factors ("what to buy").

Technical Analysis

A methodology that evaluates stock price movements, historical patterns, volume, and chart indicators to forecast future price direction ("when to buy/sell").

Holding Corporation

A business entity (also known as a parent or umbrella company) created to buy and own controlling shares in other companies (subsidiaries) to provide risk diversification and centralized strategic management.

Philippine Stock Exchange (PSE)

The national stock exchange of the Philippines where investors buy and sell shares of publicly listed corporations.

Candlestick Chart

A financial visualization tool used in technical analysis to display the high, low, open, and closing prices of a security for a specific time period.

Primary Shares

Newly created and issued shares direct from unissued capital stock where proceeds go directly to the issuing corporation for business expansion.

Secondary Shares

Pre-existing shares owned by current stockholders that are traded investor-to-investor on the secondary market, where proceeds go to the selling investor.

Initial Public Offering (IPO)

The event occurring when a privately held company offers its stock to the public for the first time, transitioning into a publicly traded company.

Marketable Securities

Short-term financial instruments recorded under Current Assets that can be quickly converted into cash at reasonable prices, usually maturing within $1$\text{ year} or traded on liquid open markets.

Insider Trading

The illegal practice of buying or selling securities based on Material Non-Public Information (MNPI).

Horizontal Analysis

An analytical method (also known as Trend Analysis) evaluating financial statement items sequentially across two or more accounting periods using $\text{Absolute Change} = \text{Current Year Amount} - \text{Prior Year Base Amount}$ and $\text{Percentage Change} = \left(\frac{\text{Absolute Change}}{\text{Prior Year Base Amount}}\right) \times 100$.

Just-In-Time (JIT) Inventory System

An inventory management strategy where raw materials are ordered and received only as needed in the production process and finished goods are produced only as customer orders arrive.

Responsibility Accounting

An internal accounting system that measures, evaluates, and reports financial results of specific business segments based on the managers who have direct control over those operational decisions.

Cost Center

A responsibility center segment where the manager has operational control over costs only (e.g., Maintenance or HR Department).

Profit Center

A responsibility center segment where the manager has control over both revenues and costs (e.g., a specific retail branch store).

Investment Center

A responsibility center segment where the manager has operational control over revenues, costs, and capital investment in assets.

Bottom Line

The informal business term for a company's Net Income or Net Profit, named for its physical location on the final line entry of the Income Statement.

Matching Principle

An accounting principle dictating that inventory is recorded as an expense (Cost of Goods Sold) only when the inventory is actually sold to generate revenue.

Cash Conversion Cycle (CCC)

A metric measuring the net time in days cash is tied up in operations, computed as $\text{CCC} = \text{Inventory Days} + \text{Receivable Days} - \text{Payable Days}$.

Asset Leakage

The gradual loss or waste of enterprise resources due to operational inefficiencies, theft, fraud, spoilage, shrinkage, uncollected debts, or poor internal controls.

Professional Skepticism

The foundational mindset in auditing that involves maintaining a questioning mind, remaining alert to potential misstatements due to error or fraud, and critically evaluating audit evidence.

Lapping

A fraudulent scheme where an employee steals a cash payment from Customer A and uses a subsequent payment from Customer B to cover Customer A's receivable balance.

Kiting

A fraudulent scheme exploiting bank clearing time ("float") by transferring cash between bank accounts and recording the deposit before the withdrawal is posted.

Imputed Cost

An implicit or opportunity cost representing lost profit from the next best alternative given up when selecting one option over another.

Net Working Capital (NWC)

The difference between current assets and short-term debt calculated as $\text{Net Working Capital} = \text{Current Assets} - \text{Current Liabilities}$.

Safety Stock

Extra buffer inventory kept on hand to prevent stockouts during unexpected demand spikes or supplier delays.

Backflush Costing

A simplified accounting method that delays recording costs until products are finished or sold, working backwards ("flushing") to allocate costs.

Consignment Arrangement

A retail agreement where goods are placed in a store while ownership remains with the supplier until sold, resulting in $0$\text{ days} in the seller's Cash Conversion Cycle.

Credit Line

A flexible borrowing arrangement with a bank or supplier establishing a pre-approved maximum borrowing limit that a business can draw from, repay, and reborrow as needed.

Stockout Loss

The opportunity cost and lost profit incurred when customer demand cannot be met due to lack of inventory, calculated as $\text{Stockout Cost} = \text{Lost Sales Units} \times \text{Profit Margin per Unit}$.

Holding Cost

The physical and direct expenses spent on physically storing and maintaining inventory inside a warehouse or store (e.g., warehouse rent, utilities, staff salaries).

Carrying Cost

A broad cost category encompassing physical holding costs along with risks, insurance, spoilage, theft, damage, taxes, and financial capital costs of maintaining inventory.

Aggressive Working Capital Policy

An operational strategy that maintains low cash balances, low inventory buffer stock, and stringent credit terms while relying heavily on short-term liabilities to fund current assets.

Conservative Working Capital Policy

An operational strategy maintaining large cash balances, high safety stock, and liberal credit terms, funding current assets primarily through long-term debt or equity.