Untitled Flashcards Set

Financial Analysis - to evaluate the financial well-being and invest-ability of a business and its various financial transactions, based on profitability, stability, liquidity, rates of return, and other financial measures of success.

Financial Planning and Analysis (FP&A) - involves budgeting, forecasting, planning, and analysis of financial information of an organization so that decision makers can make informed decisions.

Horizontal Analysis compares financial data from one time period to another. Horizontal Analysis is also called Trend Analysis, which means to collect and compare data in order to spot patterns or trends over time. 

Vertical Analysis - compares many items against the same or base item, like revenue, and the comparisons are expressed as a percentage.

In statistics, “Variance” measures the spread between numbers in a data set. It measures how far each number in the set is from the mean (average), and thus from every other number in the set. Variance Analysis is an analysis of when the actual results are different from, or vary from, the budgeted or forecasted numbers. 

Sensitivity Analysis - measures the degree to which a change in one independent variable affects the dependent variables at a company (as was done in the simulation on operating expenses). 

Leverage Ratio - a ratio used to measure the amount of debt compared to other important metrics, like equity, assets, and earnings.

Insolvent - when a person or company can no longer pay the money it owes; when the total value of debts exceeds the total value of assets.

Valuation - a company’s total market value.

What criteria make financial data useful?

1. Share-ability: In order for it to be shareable, it needs to be simple and understandable. It needs to be broken down into consumable pieces of information so that team members throughout the company can understand it.

2. Reliability: Decision makers depend on financial information to make informed decisions, so it needs to be complete and accurate, in order to be credible. It needs to be delivered in a prompt, timely manner, when needed.

3. Relevance: Any financial data presented must pertain to the circumstances that are being analyzed and to the decisions that are being made.

4. Unbiased: For those assembling financial data, the data can’t be presented in a way that might sway a decision maker in a certain direction. All data needs to be presented in a transparent fashion, and then analyzed objectively.

Comparability: Good financial information needs to be easily comparable to other periods of time, and/or to other divisions in the same company, and/or to competitors, and/or to industry standards, and so on.