Financial and Investment Appraisal Vocabulary

A collection of vocabulary flashcards covering investment appraisal techniques, budgeting concepts, and financial performance measurement based on the lecture notes.

Investment

Spending by a business on non-current (fixed) assets; also known as capital expenditure.

Investment appraisal

A process of quantitative and qualitative evaluation of an investment decision.

Payback period

A calculation of the length of time that it takes for a capital investment to pay for itself, by estimating future cash flow each year and working out the month and year in which the cash flow will finally cover the investment cost.

Average rate of return

An investment appraisal technique that expresses the annual forecast returns as a percentage of the initial capital cost.

Net present value

A method of making investment appraisals more accurate by using a discount rate to adjust the value of future returns.

Discount rate

The rate of return that a business could earn on another comparable investment; applied to the expected future cash flows from an investment to reduce them to reflect today's value of that future cash flow.

Quantitative data

Information that can be counted and has a numerical value.

Qualitative data

Non-numerical data that describes qualities or characteristics.

Inflation

An increase in the general price level, usually expressed as a percentage change.

Budget

A plan that outlines a business’ revenue and expenditure over a period of time.

Variance

In cost or managerial accounting, variance is the difference between planned or budgeted sales revenue and costs and the actual sales revenue and costs.

Profit centre

A department in a business that generates both revenues and expenditures, so that its contribution to the profit of the business can be determined.

Cost centre

A department in a business that generates costs, but no revenue.

Statement of profit or loss

A statement that records sales revenues and costs of a business to determine the net profit and distribution of profit; also known as the income statement.

Variance analysis

A tool used to compare a business’s budgeted sales revenue and costs with the actual figures over a period of time.

Favourable variance

A situation whereby actual income and expenditure figures are better for the business than expected.

Adverse variance

A situation where actual income and expenditure figures are worse for the business than expected.