Financial Accounting, Valuation, and Market Analysis Vocabulary

Vocabulary review flashcards covering key financial accounting principles, valuation methodologies, index structures, trading strategies, and breakeven mechanics based on lecture materials.

Income Statement

A financial statement that measures a company's profitability over a specified period of time by detailing revenues, cost of goods sold, operating expenses, and taxes down to Net Income.

Cash Flow Statement

A financial statement that begins with Net Income, adjusts for non-cash expenses and working capital changes, and tracks cash flows across operating, investing, and financing activities to calculate the net change in cash.

Deferred Tax Liability

A liability representing tax obligations owed that are postponed to future periods, created when tax laws allow companies to write off expenses faster on tax filings than on financial statements.

Capital Expenditures (CapEx)

Actual cash invested today in long-term physical or fixed assets (PP&E) to support future business operations.

Capex vs. Depreciation Base Indicators

Benchmark rules evaluating asset base trajectory: when Capex equals Depreciation, the asset base is consistent; when Capex is less than Depreciation, the base is shrinking; when Capex is greater than Depreciation, the base is expanding.

Days Sales Outstanding (DSO)

The average number of days required for a company to collect payment after making a credit sale, calculated as $(Average\,Accounts\,Receivable \div Total\,Credit\,Sales) \times 365$.

Depreciation Tax Shield

The cash savings resulting from the deductibility of non-cash depreciation expense, calculated as $Depreciation\,Tax\,Shield = Depreciation \times Tax\,Rate$.

Enterprise Value (EV)

The total market value of a company's core operations attributable to all providers of capital, calculated as $EV = Equity\,Value + Debt + Preferred\,Stock + Minority\,Interest - Cash$.

Valuation Multiples Summary

Core equity and enterprise valuation multiples (including P/E, P/B, P/S, EV/Revenue, EV/EBITDA, and EV/EBIT) used to evaluate company value based on earnings, book value, sales, and operating profits.

Unlevered Free Cash Flow (UFCF)

Cash flow generated by core business operations available to all capital providers before debt service, calculated as $UFCF = EBIT \times (1 - t) + D\&A - CapEx - \Delta NWC$.

Levered Free Cash Flow (LFCF)

Cash flow remaining after operating expenses and debt service obligations are paid, available exclusively to equity holders: $LFCF = Net\,Income + D\&A - CapEx - \Delta NWC$.

Weighted Average Cost of Capital (WACC)

The overall required rate of return for a business across all capital structure sources, calculated as $WACC = \frac{E}{E + D} \times R_e + \frac{D}{E + D} \times R_d \times (1 - t)$.

Capital Asset Pricing Model (CAPM)

The model used to calculate the cost of equity ($R_e$) representing the required return shareholders demand for market risk: $CAPM = R_f + \beta \times (R_m - R_f)$.

Rule of 70

A quick rule of thumb used to calculate the time required for a principal investment to double given a constant growth rate, calculated as $\frac{70}{coupon\,rate\,as\,a\,\%}$.

Sum-of-the-Parts (SOTP) Valuation

A valuation methodology that calculates the Enterprise Value of a conglomerate business by aggregating the standalone values of its individual operating segments ($SOTP\,Enterprise\,Value = \Sigma value\,of\,each\,segment$).

Customer Concentration Benchmarks

Risk thresholds assessing customer revenue concentration: top 1 customer generating under 10% of revenue is healthy, 10-20% is a caution zone, and 20%+ is a red flag.

Dow Jones Industrial Average (DJIA)

A major stock market index created by Charles Dow in 1896 tracking 30 blue-chip U.S. companies with stable earnings listed on the NYSE and Nasdaq, excluding utility and transportation stocks.

Price-Weighted Index

A stock index (such as the DJIA) where weighting is determined by share price rather than total market capitalization, calculated by summing constituent share prices and dividing by a divisor.

Delta-Neutral Trading

An options strategy that hedges directional price exposure (delta) using futures (such as E-mini DJIA futures) to allow traders to isolate and profit strictly from volatility.

Negative Working Capital

A condition where current operational liabilities exceed current operational assets, typical in businesses that collect cash upfront (high deferred revenue) or maintain fast inventory turns.

Breakeven Point

The specific volume of units a business must sell to fully cover its fixed and variable costs, calculated as $Breakeven\,Point = \frac{Total\,Fixed\,Costs}{Selling\,Price\,per\,Unit - Variable\,Cost\,per\,Unit}$.

Contribution Margin

The percentage of each unit's selling price available to cover fixed costs after variable costs have been subtracted, calculated as $\frac{Selling\,Price\,per\,Unit - Variable\,Cost\,per\,Unit}{Selling\,Price\,per\,Unit}$.