COMM1140 Final Exam - Vocabulary Flashcards

Vocabulary flashcards covering key terms and definitions from the COMM1140 Financial Management lecture notes.

Financial Management

The process of planning, organizing, controlling and monitoring a firm’s financial resources to achieve goals; primary objective is to maximise shareholder value through optimal resource use and decision making.

Accounting

The language of business; reveals profitability, cash flow, sustainability, value, debt, ROI, and financial integrity; has Long Term (Strategic), Short Term (Operational), and Commercial types.

Finance

External to the company; focuses on sourcing and investing money; two main types are Investment/Asset Pricing and Corporate Finance; includes Free Cash Flow estimation.

Tax

A regulatory guidebook ensuring financial responsibility and compliance; aims to raise revenue, minimise tax liabilities, and maximise deductions where legal.

Revenues

Increases to company wealth from cash received for goods or services or from accounts receivable.

Expenses

Decreases to company wealth incurred to generate revenue; exclude owner withdrawals and distributions (dividends).

Cash Accounting

Recording revenues and expenses when cash is received or paid; limitations include ignoring credit sales and future payments.

Accrual Accounting

Recording revenues and expenses when they occur, not when cash changes hands; includes depreciation; overcomes cash accounting limitations.

Balance Sheet

A financial position snapshot showing assets, liabilities and equity at a point in time; follows the accounting equation: Assets = Liabilities + Equity.

Assets

Resources controlled by the entity expected to provide future benefits (cash, receivables, inventory, PPE, etc.).

Liabilities

Obligations or debts of the company (e.g., accounts payable, loans payable, taxes payable).

Equity

Residual interest in the assets after liabilities; consists of Share Capital and Retained Profits.

Share Capital

Amount invested by owners; contributed equity.

Retained Profits

Cumulative profits kept in the business; Opening Retained Profits + Net Profits − Distributions = Closing Retained Profits.

Income Statement

Statement of financial performance over a period; records revenues earned and expenses incurred under accrual accounting; gross profit = Sales − COGS.

Gross Profit

Sales Revenue minus Cost of Goods Sold (COGS).

COGS

Cost of Goods Sold; direct costs attributable to goods sold that are subtracted from sales to derive gross profit.

Depreciation

Allocation of the cost of a non-current asset over its useful life; shown as Depreciation Expense (income statement) and Accumulated Depreciation (balance sheet).

Accumulated Depreciation

Contra-asset on the balance sheet showing total depreciation charged to date for an asset.

Depreciation Expense

Current period depreciation allocation shown on the income statement.

Cash Flow Statement

Statement of cash movements over a period; categories: Operating, Investing, and Financing activities.

Operating Activities

Primary revenue-generating activities (cash receipts from customers, payments to suppliers and employees).

Investing Activities

Acquisition and disposal of long-term assets (e.g., PPE) and related investments.

Financing Activities

Transactions with lenders and owners (e.g., borrowings, repayments, dividends paid).

Dividends

Distributions to shareholders; not an expense and do not appear on the income statement; shown in the cash flow statement.

Net Working Capital

Current assets minus current liabilities; measures short-term liquidity.

Current Ratio

Liquidity ratio: Current Assets divided by Current Liabilities.

Quick Ratio

Liquidity ratio excluding inventories and prepayments; assesses short-term liquidity more stringently.

Debt to Equity Ratio

Leverage ratio: total liabilities divided by shareholders’ equity.

Cash Conversion Cycle

CCC = Days in Inventory + Days in Debtors − Days Payable Outstanding; shorter cycles are typically better and high days payable can improve CCC.

DuPont

A framework linking ROE to operating efficiency, asset use efficiency and financial leverage to identify drivers of ROE.

Enterprise Value

Firm value from the perspective of all providers: EV = Debt + Equity − Cash.

Market Capitalisation

Market value of equity; share price multiplied by number of shares outstanding.

P/E Ratio

Price per share divided by earnings per share (or Market Cap / Net Income); indicates valuation relative to earnings.

P/B Ratio

Price per share divided by book value per share (or Market Cap / Total Equity).

P/S Ratio

Price per share divided by sales per share (or Market Cap / Sales).

Free Cash Flow

Cash generated by the firm that is available to all providers after capital expenditures; FCFF often used in valuation.

Terminal Free Cash Flow

The continuing value of FCFF at the horizon, often estimated using firm multiples to derive enterprise value.

Comparable Company Analysis (CCA)

Valuation method using multiples from peer firms to estimate value; relies on similar firms and comparable metrics.

Earnings per Share (EPS)

Net income attributable to each outstanding share; used to compare profitability across firms.

Dividend Yield

Dividend per share as a percentage of share price; reflects cash return to shareholders.

Assessable Income

Ordinary income plus statutory income used for tax purposes; base for calculating tax payable.

Taxable Income

Assessable income minus deductions and tax offsets; the income on which tax is calculated.

Deductions

Amounts that reduce assessable income for tax purposes.

Tax Offsets

Reductions in tax payable; generally more valuable than deductions.

Base Rate Entity

Australian tax rule for companies with turnover below a threshold (e.g., <$50m) and significant business income; affects tax treatment.

TFN

Tax File Number; unique personal reference for tax and superannuation purposes.

ABN

Australian Business Number; 11-digit identifier displayed on tax invoices.

ATO

Australian Taxation Office; the tax authority responsible for administering tax laws.

Tax Planning

Legal strategies to minimise tax liabilities and improve cash flow.

Tax Evasion

Illegal practices to avoid paying taxes (e.g., under-declaring income, false deductions).

Tax Avoidance

Legal exploitation of loopholes to minimise tax, often scrutinised for intent.

Audit Opinion

Formal statement by auditors about the true and fair view of financial statements; types include Unmodified, Qualified, Adverse, and Disclaimer.