The FP&A Glossary
Dive into our FP&A glossary with over 200 key terms. Perfect for finance professionals or anyone wanting to understand financial terms better. Use this page as your go-to guide for quick financial insights.
A costing method that includes all manufacturing costs — direct materials, direct labor, and both variable and fixed manufacturing overhead — in the cost of a product.
Measures how efficiently a company uses its assets. Specifically, it measures how effectively a company is extending credit and collecting debts.
Accounts Receivable Turnover
An accounting method where revenue and expenses are recorded when they are earned or incurred, regardless of when the cash is actually received or paid.
A costing method that identifies activities in an organization and assigns the cost of each activity to products and services according to the actual consumption by each.
Activity-Based Costing (ABC)
These represent the factual financial outcomes recorded by a company over a specific period. Unlike projections or forecasts, actuals are based on real transactions and are crucial for performance analysis.
This refers to custom reports generated for specific, one-time purposes. Unlike regular reports, which follow a standard format and frequency, ad-hoc reports are tailored to address unique situations or questions.
This is a comprehensive financial plan for the upcoming year, detailing expected revenues, expenses, investments, and cash flows. It serves as a roadmap for businesses to allocate resources, evaluate performance, and implement strategies.
This measures a company's efficiency in using its assets to generate sales. It's calculated as total sales divided by average total assets during a period.
Amounts owed to a company that are not going to be paid.
A snapshot of a company's financial position at a particular moment. It lists assets (what the company owns), liabilities (what the company owes), and equity (the residual interest in assets after deducting liabilities).
A reference point used for comparisons. In financial planning, a baseline might be the current year's actuals or the previous year's budget, serving as a foundation for future projections.
This involves comparing a company's performance metrics to those of industry peers or best practices. It helps identify areas of improvement and drives competitive advantage.
Departments or units prepare their own budgets, which are then reviewed and approved by higher-level management.
Determines the point at which total revenue equals total costs, resulting in neither profit nor loss.
The difference between budgeted figures and actual results. Analyzing budget variances helps companies understand their financial performance and make necessary adjustments.
An estimated financial plan that outlines expected revenues and expenses over a set period, guiding businesses in their financial decisions and strategies.
Technology-driven processes for analyzing data and presenting actionable information to help executives, managers, and other corporate end users make informed business decisions.
Business Intelligence (BI)
The process of determining the economic value of a business or company.
Funds used by a company to acquire or upgrade long-term assets like machinery, buildings, or technology. CAPEX is crucial for companies to grow and maintain their operations.
CAPEX (Capital Expenditure)
The process of how a company decides to invest its resources for growth.
The process of deciding which long-term investments or projects will yield the best return over an extended period.
Refers to the mix of debt and equity that a company uses to finance its operations and growth. The optimal capital structure minimizes the cost of capital and maximizes shareholder value.
An accounting method where revenues and expenses are recorded only when cash changes hands.
Measures how long it takes for a company to convert resource inputs into cash flows. It's the time between buying raw materials and receiving payment for products sold.
Cash Conversion Cycle
Represents the movement of money in and out of a business. Positive cash flow indicates that a company's liquid assets are increasing, providing it with more flexibility for investments, debt repayment, or dividends.
The process of merging financial data from different departments or subsidiaries to present a unified view of a company's overall financial position.
Preparing for unforeseen events by having alternative strategies and action plans. This ensures that businesses can respond quickly and effectively to disruptions.
Represents the incremental money generated for each product/unit sold after deducting the variable portion of the firm's costs. It helps in determining the break-even point for a product.
Costs that can be directly controlled or changed at the management level.
The method of distributing specific costs across various departments, products, or services. It ensures that each segment bears its fair share of the costs.
A segment within a company, like a department, that incurs expenses but doesn't directly generate revenues. Monitoring cost centers helps in controlling expenses.
Any factor that causes a change in the cost of an activity.
Represents the direct costs associated with producing goods. It includes material costs, direct labor, and other direct expenses related to production.
Cost of Goods Sold (COGS)
A liquidity metric that measures a company's ability to cover its short-term obligations with its short-term assets. It's calculated as current assets divided by current liabilities.
A visual tool that aggregates and displays key performance indicators (KPIs) and metrics, offering a quick overview of business performance.
Represents the average number of days a company holds its inventory before selling it.
Days Inventory Outstanding (DIO)
Shows the average number of days it takes a company to pay its bills and invoices to its trade creditors, after receiving the inventory.
Days Payable Outstanding (DPO)
Indicates the average number of days it takes a company to collect payment after a sale has been made. It's a measure of the efficiency of a company's collection efforts.
Days Sales Outstanding (DSO)
Measures the cash flow available to pay current debt obligations.
Debt Service Coverage Ratio (DSCR)
Costs that have been incurred but will be reported as an expense in a future period. These are prepaid expenses that will be recognized over time or through use.
Money received in advance for goods or services that will be delivered in the future. It's a liability on the balance sheet until the product or service is delivered.
These arise due to the temporary differences between the company's accounting and tax-carrying values. It's an anticipated tax bill or benefit that will come into play in future fiscal years.
The systematic allocation of the cost of a tangible asset over its useful life. It recognizes that assets lose value over time due to wear and tear.
Costs that can be directly traced and allocated to a specific product, service, or department.
A valuation method used to estimate the value of an investment based on its expected future cash flows, adjusted for the time value of money.
Discounted Cash Flow (DCF)
A risk management strategy that mixes a wide variety of investments within a portfolio.
A financial ratio that indicates how much a company pays out in dividends each year relative to its share price.
A measure of a company's operating performance, EBIT focuses on profitability from core business operations, excluding interest and tax expenses.
EBIT (Earnings Before Interest and Taxes)
A metric that evaluates a company's operational performance without considering the effects of financing decisions, tax environments, or depreciation strategies.
EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization)
Represents the optimal order quantity a company should purchase to minimize its inventory costs, including holding costs, shortage costs, and order costs.
Economic Order Quantity (EOQ)
A measure of a company's financial performance based on the residual wealth calculated by deducting its cost of capital from its operating profit, adjusted for taxes.
Economic Value Added (EVA)
Metrics that measure the ability of a company to use its assets and liabilities to generate sales or profits.
Business process management software that allows an organization to use a system of integrated applications to manage the business and automate many back-office functions.
Enterprise Resource Planning (ERP)
The process of raising capital through the sale of shares.
Represents ownership in any asset after all debts associated with that asset are paid off. For companies, it's the value of assets minus liabilities.
Outflows or obligations resulting from operations that decrease equity. Expenses can be operational, like salaries, or non-operational, like interest payments.
The estimated market value of a financial asset or liability.
A measure of the sensitivity of a company's earnings per share (EPS) to fluctuations in its operating income, as a result of changes in its capital structure.
Financial Leverage Ratio
The extent to which a company uses borrowed funds to finance its operations. High leverage can amplify both profits and losses.
These are mathematical comparisons of financial statement accounts or categories. They help in analyzing a company's performance and financial position over time and against competitors.
A company's financial year. It can coincide with the calendar year or any other 12-month period chosen by the company.
A ratio that indicates how well a company's fixed assets are generating sales.
Fixed Asset Turnover
Costs that remain constant regardless of the level of goods or services produced.
Adjusts or flexes with changes in volume or activity, providing a more accurate benchmark for performance evaluation.
A prediction of future financial outcomes based on historical data, trends, and analytical insights. Forecasts guide businesses in strategic planning and resource allocation.
Represents the cash a company generates after accounting for cash outflows to support operations and maintain its capital assets.
Free Cash Flow (FCF)
A standardized set of accounting principles, procedures, and criteria adopted by the accounting profession, ensuring consistency and transparency in financial reporting.
GAAP (Generally Accepted Accounting Principles)
Measures the proportion of a company's borrowed funds to its equity. High gearing means more debt relative to equity, which can be riskier.
The primary accounting record of a company, containing all accounts of its financial transactions.
An intangible asset that represents the excess value of an acquired company over its book value.
Represents the difference between sales and COGS. It's a key profitability metric that shows the percentage of revenue that exceeds the COGS.
A company's total sales revenue minus its cost of goods sold, divided by the total sales revenue, expressed as a percentage.
Gross Profit Margin
Represents the total sales revenue minus the cost of goods sold (COGS). It's the profit a company makes after deducting direct production-related costs but before deducting operating expenses.
The total return on an investment before the deduction of any fees or expenses.
A pooled investment fund that trades in relatively liquid assets and is able to make extensive use of more complex trading, portfolio construction, and risk management techniques.
A strategy used to offset potential losses that may be incurred by a financial operation. Common in currency and commodity markets.
Involves analyzing financial statements over multiple periods to identify trends, patterns, and anomalies in the financial data.
The minimum rate of return on a project or investment required by a manager or investor.
A financial report that provides a summary of a company's revenues, expenses, and profits/losses over a specific period. It offers insights into a company's profitability.
The process of identifying the financial data changes that occur as a result of an action.
A budgeting method where the previous period's budget is used as a base and adjusted for forecasted changes in the upcoming period.
Costs that cannot be directly linked to a specific product or service but are necessary for the business's overall operations.
An asset that is not physical in nature, such as patents, trademarks, and copyrights.
Measures a company's ability to pay interest on its outstanding debt.
Interest Coverage Ratio
The discount rate that makes the net present value (NPV) of all cash flows from a particular project equal to zero. It's used to evaluate the attractiveness of an investment or project.
Internal Rate of Return (IRR)
The accounting method used to track the costs of a specific job, as opposed to the performance of a company as a whole.
Costs that are incurred to produce a set of products and cannot be directly traced back to a particular product.
A business arrangement where two or more parties pool their resources for a specific task or project. Each party retains its distinct identity.
A record in the general ledger that is used to document a financial transaction. It includes a debit and a credit side.
An inventory strategy companies employ to increase efficiency by receiving goods only as they are needed in the production process.
A Japanese term meaning "change for better" or "continuous improvement." In business, it refers to activities that continuously improve all functions and involve all employees.
A scheduling system used in JIT to optimize inventory levels and production processes.
The process of building and maintaining long-term relationships with strategically important customers.
Key Account Management
A mathematical ratio that illustrates and summarizes the current financial condition of a company.
Metrics that reflect how effectively a company is achieving its strategic and operational goals. KPIs vary across industries and organizations but are vital for performance evaluation.
KPI (Key Performance Indicator)
A variable that is used to represent values from previous periods in time series analysis.
A measure of a company's financial leverage, indicating the proportion of equity and debt the company is using to finance its assets.
The acquisition of a company using a significant amount of borrowed money to meet the acquisition cost.
Leveraged Buyout (LBO)
The use of an above-normal amount of debt, as opposed to equity or cash, to finance investment assets.
A measure of a company's ability to cover its short-term obligations with its short-term assets. Common liquidity ratios include the current ratio and the quick ratio.
The risk that a company may encounter difficulty in meeting obligations associated with financial liabilities.
Refers to the ease with which assets can be converted into cash. High liquidity ensures that companies can meet short-term obligations.
Focuses on providing financial information to internal stakeholders, such as managers, to aid in decision-making.
Represents the difference between sales and the cost of producing or procuring the sold goods. It's a key indicator of a company's profitability.
The additional cost incurred by producing one more unit of a product.
The additional revenue that will be generated by increasing product sales by one unit.
The practice of adjusting the value of an asset to its current market value rather than its book value.
The percentage of an industry's total sales that is earned by a particular company over a specified time period.
The value of an entity's assets minus the value of its liabilities.
Net Asset Value (NAV)
The total profit of a company after deducting all expenses, including operational costs, interest, taxes, and other relevant expenses. It's a primary indicator of a company's profitability.
The difference between the present value of cash inflows and the present value of cash outflows over a period of time. It's used to analyze the profitability of an investment or project.
Net Present Value (NPV)
Represents the difference between current assets and current liabilities. It indicates the short-term liquidity position of a business.
Net Working Capital
Expenses that are not a result of core operations, such as interest expenses or losses from selling assets.
Income derived from non-primary business activities, such as investment income or sales of assets.
Revenue generated by activities not related to a company's core operations.
The average time it takes for a business to make an initial outlay for raw materials and receive payment for the finished product from customers.
Costs associated with the day-to-day operations of a business, excluding direct production costs. Examples include rent, utilities, and salaries of non-production staff.
Income derived from regular business operations, excluding any non-operating income and expenses.
A measure of how sensitive net operating income is to a given percentage change in dollar sales.
A measure of profitability. It indicates how much of each dollar of revenues is left over after both costs of goods sold and operating expenses are considered.
Measures how a percentage change in sales will affect operating income. High operational leverage means that a small change in sales can lead to a large change in operating income.
Refers to the expenses incurred as a result of normal business operations, such as wages, rent, and utilities.
OpEx (Operating Expenditure)
The potential benefit an individual or business forgoes when choosing one alternative over another.
General operating expenses not directly tied to a specific activity or product, such as rent, utilities, and office supplies.
Another term for the income statement, it provides a detailed account of a company's revenues, costs, and expenses, leading to its net profit or loss over a period.
P&L (Profit and Loss) Statement
The time required for an investment to generate cash flows equal to the original investment. It helps businesses evaluate the risk and return of an investment.
The art and science of making decisions about investment mix and policy, matching investments to objectives, and balancing risk against performance.
The current worth of a sum of money or stream of cash flows given a specified rate of return. It's the opposite of future value, which calculates the future worth of a present sum.
Present Value (PV)
A measure of the responsiveness of the quantity demanded or quantity supplied of a good to a change in its price.
A valuation ratio of a company's current share price compared to its per-share earnings.
Price-to-Earnings Ratio (P/E)
Financial statements that project future financial performance based on certain assumptions and often excluding one-time charges.
A part of a company that directly adds to its profits.
Represents the percentage of total sales that has turned into profit. It's a key metric to gauge a company's profitability relative to its revenue.
The use of non-numerical data, like company culture or brand reputation, to evaluate investment or business decisions.
The use of mathematical and statistical techniques to understand or predict behavior or events in financial modeling.
A monetary policy in which a central bank purchases government securities or other securities from the market to lower interest rates and increase the money supply.
Quantitative Easing (QE)
Forecasting techniques that use statistical and mathematical modeling.
The systematic empirical investigation of observable phenomena via statistical, mathematical, or computational techniques.
Also known as the acid-test ratio, it measures a company's ability to cover its short-term liabilities with its most liquid assets, excluding inventory.
The process of ensuring that two sets of records (usually the balances of two accounts) are in agreement.
The value of an asset or company compared to another or its historical value.
Funds set aside to cover future liabilities or losses. Reserves can be for specific liabilities, or they can be general.
The cumulative amount of net income left over for the company after it has paid out dividends to its shareholders.
The profit kept in the company rather than paid out to shareholders as a dividend.
Indicates how efficiently a company is using its assets to generate profit. It's calculated by dividing net income by total assets.
Return on Assets (ROA)
Measures a company's profitability by revealing how much profit a company generates with the money shareholders have invested.
Return on Equity (ROE)
Represents the percentage of profit for each dollar of sales and is calculated by dividing net income by total sales.
Return on Sales (ROS)
The accounting principle determining the specific conditions under which revenue becomes realized as income. It ensures that companies record revenue accurately and consistently.
The process of identifying, assessing, and controlling threats to an organization's capital and earnings.
A performance measure used to evaluate the efficiency or profitability of an investment. It's calculated by dividing the net profit from the investment by its initial cost.
ROI (Return on Investment)
Continuously updated projections based on adding a future period (e.g., month or quarter) as the current period is completed.
Evaluating potential future events by considering alternative possible outcomes. It helps businesses prepare for various situations.
The reporting of the operating segments of a company in the disclosures accompanying its financial statements.
A technique used to determine how different values of an independent variable will impact a particular dependent variable under a given set of assumptions.
The total value of all issued shares of a company.
An analysis which identifies the individuals or groups that are likely to affect or be affected by a proposed action.
Anyone who has an interest in a company, including shareholders, employees, customers, and suppliers.
A fixed budget that remains unchanged throughout the budget period, regardless of changes in activity or volume.
Costs that have already been incurred and cannot be recovered. They should not influence future business decisions.
Physical assets like machinery, buildings, and land.
The net value of a company's physical assets.
Tangible Net Worth
A pricing method where the selling price is determined by market conditions, and the target cost is calculated by subtracting the desired profit margin.
Senior management sets the overall budget goals, and lower-level managers allocate resources based on these directives.
A management approach to long-term success through customer satisfaction.
Total Quality Management (TQM)
Represents the total return of a stock to an investor, including the appreciation of the stock price and dividends received.
Total Shareholder Return (TSR)
Evaluating changes over time through the analysis of historical data. In finance, it's often used to predict future movements.
A worksheet listing each account and its balance, ensuring that total debits equal total credits in the accounting system.
Represents the number of times an asset, such as inventory, is replaced or sold during a period.
The process by which investment bankers raise investment capital from investors on behalf of corporations and governments.
The direct revenues and costs associated with a particular business model expressed on a per-unit basis.
The cash flow available to all investors in a company, including equity holders and debt holders.
Unlevered Free Cash Flow
A profit or loss that results from holding an asset but hasn't been realized through a transaction, such as selling a stock.
Revenue that has been recognized but not yet billed.
The process of determining the current worth of an asset or a company. Various methods can be used for valuation, such as DCF or comparables.
The proportion of variable costs to sales.
Variable Cost Ratio
A costing method where only variable costs are allocated to products, and fixed costs are treated as expenses of the period.
Costs that change in proportion to the volume of goods or services produced.
A company in which an investor holds a controlling interest, but this interest is not based on the majority of voting rights.
Variable Interest Entity (VIE)
A loan in which the interest rate charged on the outstanding balance varies based on an underlying benchmark interest rate or index.
Variable Rate Loan
Examining the differences between planned and actual financial performance. It helps businesses understand where they overperformed or underperformed against their plans.
Evaluates each line item on a financial statement as a percentage of a single base figure, such as sales or total assets, facilitating the comparison of companies of different sizes.
Represents the average rate of return a company is expected to pay to its investors for using their capital. It's a crucial metric in capital budgeting.
Weighted Average Cost of Capital (WACC)
A method used to calculate some aggregate value which considers the relative importance of different items in a group.
The management of short-term assets and liabilities to ensure the most financially efficient operation of the company.
Working Capital Management
A calculation of a company's current assets divided by its current liabilities.
Working Capital Ratio
A measurement comparing the depletion of working capital to the generation of sales over a given period.
Working Capital Turnover
The difference between current assets (like cash, accounts receivable, and inventory) and current liabilities (like accounts payable). It's a measure of a company's operational liquidity.
A reduction in the book value of an asset when its fair market value has fallen below the book value, and this decline is expected to be permanent.
The act of reducing the value of an asset, usually to zero, in the books to reflect its reduced or zero value in reality.
The efficiency with which output is produced given a set of inputs. It's not about producing at the minimum cost but about producing output efficiently.
The risk of experiencing an adverse shift in market interest rates associated with investing in a fixed income instrument.
Yield Curve Risk
A graphical representation of interest rates on debt for a range of maturities. It shows the relationship between the interest rate and the time to maturity of the debt.
The difference between yields on differing debt instruments, calculated by deducting the yield of one instrument from another.
The yield of a bond or note if you were to buy and hold the security until the call date.
Yield to Call (YTC)
The total return anticipated on a bond if it is held until it matures.
Yield to Maturity (YTM)
The income or return on an investment, usually expressed as a percentage.
A quantitative model developed by Edward Altman in 1968 to predict the probability that a company will go into bankruptcy within two years.
A statistical measurement that describes a value's relationship to the mean of a group of values. In finance, it's often used in predicting corporate defaults.
A method of budgeting in which all expenses must be justified for each new period, starting from zero.