C01 - Fundamentals of Management Accounting C02 - Fundamentals of Financial Accounting

C03 - Fundamentals of Business Mathematics

Percent Change Formula The Equation of a Straight Line

Histogram with unequal intervals (adjustment factor) Coefficient of Variation

'Change'/Original Value * 100 i.e. (X-X/X) x100% y = a + bX Where: A = the intercept on the y axis b = the slope (gradient) of the line i.e. b = change in y (y2-y1)/change in x (x2-x1) Adjustment factor = Standard class width/current class width = Standard Deviation/Mean The bigger the coefficient of variation, the wider the spread of data. = (value in given year/value in base year) *100 = (this year's value/last year's value) *100 = actual cash flow in given year * (index number for base year/index number for given year = number of ways of achieving desired result/total number of possible outcomes e.g.) probability of rolling a 3 on a normal die = 1/6 (EV) = np Where: n=outcome p=probability of outcome occurring i.e. - a weighted average of probabilities S=X+nrX Where: X=the original sum invested r=the interest rate (as a proportion - e.g. 0.05=5%) n=the number of periods S=the sum invested after n periods (capital + interest) e.g.) invest $1000 @ 10% simple interest for 5 years = 1000+(50.101000) = $1500 S = X(1+r)^y(1+r)^n-y Where: r = the initial rate of interest y = the number of years in which the interest rate r applies r = the next rate of interest n-y = the numbers of (remaining) years in which r applies

Fixed base index formula Chain base index formula Deflated/inflated cash flow Probability of achieving the desired result

Expected Value formula

Simple interest formula

Compound interest formula with changing rates

Effective annual rate of interest formula

The sum of a Geometric Progression

(1+R)=(1+r)^n Where: R=the effective annual rate r=the period rate n=the number of periods aka - the terminal value of an investment to which equal annual amounts will be added S = [A(R^n -1)]/R-1 Where: S = the terminal value A = the first term R = the common ratio n = the number of terms X = S*[1/(1+r)^n] Where: S = the sum to be received after n time periods X = the present value of that sum r = the rate of return (as a proportion) n = the number of time periods r - rate - is sometimes called cost of capital

Discounting Formula

Internal Rate of Return IRR= + [(NPV/NPV-NPV)(-)]% Where: =one interest rate =the other NPV=the NPV at rate NPV=the NPV at rate (NPV = Net Present Value)

Given a result, how do you find the number from which a percentage has been added to achieve it?

eg) of what number is 16 a 25% increase? divide the result by 1+the increase proportion eg) X=16/(1+0.25) = 12.8 16 is a 25% increase over 12.8

Given a result, how do you find the number from which a percentage has been deducted to achieve it? eg) of what number is 16 a 25% decrease? divide the result by 1-the decrease proportion eg) X=16/(1-0.25)=21.33 16 is a 25% decrease of 21.33

How do you decrease a number by a given percentage? eg) decrease 16 by 25% multiply the number by 1-the decrease proportion eg) 16(1-0.25) = 160.75 = 12 12 is a 25% decrease of 16

How do you increase a number by a given percentage? eg) increase 16 by 25% multiply the number by 1+the increase proportion eg) 16(1+0.25) = 161.25 = 20 20 is a 25% increase over 16

Powers: (1)^x can also be expressed how? (3/2)^x or 3^x/2^x (i.e - raising a fraction to a power raises both the numerator and denominator of that fraction to that power)

Powers: 2^-x can also be expressed how? 1/2^x (i.e. raising a number to a negative power is the same as taking 1/the number to the positive expression of that power)

Powers: 1^x can also be expressed how? Simply 1 1 raised to any power is 1 (i.e. 111*... still equals 1)

Powers: X can also be expressed how? Simply X any number raised to the power of 1 is that number

Powers: X can also be expressed how? Simply 1 any number raised to the power of 0 is 1

Powers: (2^x)^y can also be expressed how? 2^(x*y) or 2^xy when you raise a number with an exponent to any power, you multiply the exponents. eg) (2) = 2

Powers: 2/2 = ? 2 = 2 = 8 when you divide two numbers with exponents, you subtract the exponents one from the other.

Powers: 2*2 =? 2 = 2 when you multiply two numbers with exponents, you add the exponents one to the other.

How do you find what one number is as a percentage of another? eg) what is 18 as a percentage of 45 divide the number in question by the total - or number from which you're taking the percentage. eg) 18/45 = 0.4 = 40% 18 is 40% of 45

Quadratic Equation an equation in the format:

Y=aX+bX+c Use the given quadratic formula to solve when aX+bX+c=0

Powers: X^-1 1/X

Graphing: What is the horizontal axis (X or Y) X axis Plot the independent variable

What does the sign (+/-) of "a" in the quadratic equation (Y=aX+bX+c) determine in the graph? The "way-up" of the parabola: if +, ditch-shaped , has a "minimum point" if -, bell-shaped , has a "maximum point"

What does the constant "c" in the quadratic equation (Y=aX+bX+c) determine in the graph? It is the Y intercept - the value of Y where the curve crosses the Y axis.

How do you determine the degree of the angle on a pie chart from a proportion (%) The degree is the %age of total * 360. eg) if we had a "slice" that was 15% of the pie, the degree of the angle on the pie chart would be:

0.15*360 = 54 degrees

Excel: What are the arguments in the FREQUENCY function? =FREQUENCY(DATARANGE,BIN) Where: DATARANGE is the set of data - eg) B3:D7 BIN is the range used for the X axis - the group limits lain out vertically - eg) E3:E10 would be 0, 10, 20, etc. When using this function, the result is a vertical array, so the cells below it should be empty - you must hold down CTRL and SHIFT as you press enter for it to populate the array.

Advantages of using the Mean as a measure of tendency Easy to calculate Widely understood Representative of the whole data set Suited to further statistical analysis

Disadvantages of using the Mean as a measure of tendency Value may not correspond to an actual value - eg) 2.3 children per household. Results are distorted by extreme values

Advantages of using the Mode as a measure of tendency Easy to find Not influenced by extremes Can be used for non-numerical data Can be the value of an actual item in data set

Disadvantages of using the Mode as a measure of tendency May not be representative Does not take all values into account There can be more than one in a dataset Instability as a measure

Advantages of using the Median as a measure of tendency Easy to understand Unaffected by extremes Can be the value of an actual item in data set

Disadvantages of using the Median as a measure of tendency Does not reflect the full range of values Unsuitable for further statistical analysis Can be tedious to find

Finding Midpoints of Grouped Data Discrete variables - it's a whole number in the middle of the set - eg) the midpoint for 5<10 is 7. Continuous variables - it can be a ".5" - eg) the midpoint for 5<10 is 7.5.

Quartile Deviation AKA Semi-interquartile range =(Q-Q)/2 Where: Q = the value BELOW which 25% of the population fall Q = the value ABOVE which 25% of the population fall

Mean Deviation a measure of the average amount by which values in a distribution differ from the arithmetic mean =(fx-xbar)/n =Sum of the frequencies of the absolute values of the value or class midpoint minus the mean all divided by the number of items in the dataset

Variance =the average squared mean deviation for each value in the distribution =[(X-Xbar)]/n or =[f(X-Xbar)]/f To find : 1. X-Xbar (difference between value and mean) 2. (X-Xbar) (square it) 3. (X-Xbar) (add them together) 4. n

Positively Skewed Distributions Lean to the LEFT (i.e. long tail is right) MODE - MEDIAN - MEAN Mode value is less than the median Mean value is higher than the median

Negatively Skewed Distributions Lean to the RIGHT (i.e. long tail is left)

MEAN - MEDIAN - MODE Mode value is higher than the median Mean value is lower than median

Excel: Functions of variance =MIN(DATA) - minimum of the dataset =MAX(DATA) - maximum of the dataset =STDEV(DATA) - finds the standard deviation of the dataset =VAR(DATA) - calculates the variance of the dataset

Standard Deviation () =the square root of the variance =the most common/important measure of spread Formula given on the assessment - for grouped data, use the f version, for ungrouped data use the standard 'n' version.

Index Relatives = name given to the index number which measures the change in a single distinct commodity. Formulae are given on the assessment - just remember that P or Q are the index base year value and P or Q are the values for the year in question.

Index Relatives: Fixed Base vs. Chain Base Methods Fix base method = for commodities in which the basic nature is unchanged over time: =(value in given year/value in base year)*100

Chain base method = for commodities where the basic nature changes over time: =(this year's value/last year's value)*100

Splicing an Index (definition) aka - rebasing - redefining the base year of an index creates a situation where the P value would be <100 eg) if P were for 1993 and P were 2000 and there was inflation in the commodity price you might see the index relative for 1993 (P) at 97, etc.

Rebase to a Previous Index =(Value in current index/100)*value of rebase year in previous index eg) - in 2006, a commodity had an index score of 111 based on the rebased value in 2001 - the value in 2001 of the commodity was 132 in the old index (now 100, since it is the new base year) -to express 2006 in terms of the previous index base: =(111/100) *132 = 146.52

General "Or" Probability General Addition: not mutually exclusive P(A or B) = P(A)+P(B)-P(A and B) i.e. - you add the probability of each, but subtract those that would be double-counted. e.g. probability of pulling either an Ace or a Spade from a normal deck = P(Ace)[4/52] + P(Spade)[13/52] - P(Ace of Spades)[1/52] = 16/52

Simple "Or" Probability Simple Addition: mutually exclusive outcomes:

P(A) + P(B) e.g. if delivery will take up to 5 weeks, we can calculate the probability of it taking 3 or 4 weeks by adding the probability that it'll take 3 weesk with the probability of it taking 4 weeks (it can't take both, so we don't have to account for double counting)

Simple "And" Probability Simple Multiplication: not mutually exclusive outcomes P(A and B)=P(A)P(B) e.g - rolling a die and flipping a coin - they are unrelated, so we multiply the P of rolling a given number on the die (1/6) by the P of getting a desired result on the coin (1/2) 1/6*1/2=1/12

Probability of Complementary Outcomes (formula) P(Abar)=1-P(A) Where Abar is not A Certainty = 1. Probability of something other than the desired outcome is 1-probability of desired outcome.

General "And" Probability General Multiplication: conditional outcomes P(A and B)=P(B)*P(A/B) eg- if sales don't improve, there's a 70% chance we'll go under - P(A). There's a 20% chance that sales will improve - P(B). What's the probability of us going under? (PB does not depend on PA, but PA depends on PB) P(B)P(A/B)=0.80.7=0.56 - there's a 56% chance of us going under.

Sinking Fund (definition)

An investment into which equal annual installments are paid in order to earn interest, so that by the end of a given number of years, the investment is large enough to pay off a known commitment at that time. -calculated using Geometric Progression Formula

Loan Repayment (amount calculation/procedure) 1) Calculate the loan value using the compound interest formula: eg) 50,000 @8% for 5 years = 50,000(1.08) =$73466.40 2) Use that value in a Geometric Progression to calculate the annual repayment: eg) 73,466.40= A(1.08-1)/.08 = A(5.866600%) A=73,466.40/5.8660096 = $12,522.82 annual repayment

Effective Annual Rate of Interest (formula) aka - APR or Compound Annual Rate (CAR): (1+R) = (1+r)^n Where: R=effective annual rate/APR/CAR r=the periodic rate (monthly, semi-annually, etc.) n=the number of periods eg) 1.5% compounded monthly: (1+R)=(1.015) = 1.1956 R=1.1956-1=.1956... 19.56% APR

Nominal Rate vs. Effective Rate Nominal Rate = interest rate expressed (not calculated) as a p.a. figure. eg) a bank may offer 10%p.a. payable half-yearly. 10% is the nominal rate. Effective rate would be 5% every six months (1+R)=(1+.05)= 10.25% APR

Limitations of Expected Values Not appropriate for one-off decisions

Probabilities are estimates/forecasts Does not take into account attitude toward risk

Present Value = the amount of money that must be invested now for n years at r rate to earn a future sum -calculated using the discounting formula X=S*[1/(1+r)^n] or -using PV tables provided on the assessment to determine the discount factor

Net Present Value (NPV) = a calculation of the PVs of cash flows related to an investment at a given cost of capital (interest rate) for a given period of time. - if NPV is positive, it beats the cost of capital - can be used to evaluate a single project or compare different projects

Limitations of using NPV method a) Future rates can only be estimates b) Future cashflows are also estimates c) NPV assumes that all cash flows occur at the end of the year; which is likely to give rise to inaccurate values.

Internal Rate of Return (IRR) (definition) = an approximation of the rate of return on an investment. You start by calculating two NPVs at two interest rates, ideally one one with a positive NPV and the other negative. You can estimate where the NPV might be close to 0 by using 2/3*(profit/cost of project).

Excel:

IRR function arguments =IRR(Cash movements, guess) Cash movements should include the initial investment and the guess can really be anything...

Excel: NPV function arguments =NPV(cost of capital, cash inflows)-initial investment - be careful - if the spreadsheet already expresses the initial investment as a negative #, you should change the formula to ...+initial investment

Excel: ROI function arguments =Average(cash inflows)/initial investment - again be mindful of the sign on initial investment if using a reference to a cell - the formula assumes the initial investment is expressed as a positive #

Pearson's 'r' is also known as Product Moment Correlation Coefficient -formula is given in assessment -shows the degree to which two variables are correlated on a scale of -1 to 1 0=unrelated

Coefficient of Determination Simply r

if r=0.9 we can say the two variables are well correlated. r=0.81 - so we can say that 81% of the variation can be explained by one variable's effect on the other (19% not explained). -careful - correlationcause

Spearman's 'R' =The correlation between rank-ordered variables -formula given in the assessment, but remember that d refers to the square of the difference in the two expressions of rank in absolute terms: eg) Judge P gives a rank of 1 while Judge Q gives a rank of 3... d=2 (not -2) and d=4

"Ties" in rank when calculating 'R' When 2 or more items tie in rank order, assign all the rank of the average of ranks: eg) 3 people tie for 5th place. Each will be assigned the average of 5,6&7 = 18/3=6 eg) 2 people tie for 1st place. Each will be assigned the average of 1 & 2 = 1.5

Scattergraph Method for estimating best fit Draw the line that defines the series (equal number of points above and below the line). Where the line crosses the Y (vertical) axis = 'a' in the equation of a straight line (Y=a=bX). i.e.) you can then find 'b' using any two coordinates for X&Y

Least Squares Method for linear regression analysis Linear Regression formula is given in the assessment. What's important is that you first find 'b' and then use 'b' to calculate the value of 'a' and define your equation.

Excel: Least Squares regression formula =FORECAST(X,Known Y's, known X's) in a standard sheet you might use this in cell C2: =FORECAST(A2,$B$2:$B:$6,$A$2:$A$6) and drag the formula down Use F4 to make cell references absolute

4 Components of a time series 1) Trend (long-term) 2) Seasonal Variations (short-term fluctuations) 3) Cyclical Variations (medium-term) 4) Random Variations

Moving Average A method for removing seasonal variations from a dataset in order to better describe the trend. In an odd # of periods, you'll "assign" the average to the midpoint of the series. In an even # of periods, you'll do a moving average of the moving average to "assign" averages to actual periods.

Additive Model of Seasonal Variation =finding the differences between the Trend (T) and the actual values (Y): 1) use moving averages to define the trend (T) 2) use Y=T+S+R Y-T=S+R to find 'S' 3) find the average of the variations (S) for each period 4) the sum of these averages should = 0. Take what it actually equals and split among periods 5) round the variations as appropriate

Multiplicative Model of Seasonal Variation aka - the Proportional Model - as Y=TSR - assuming R is negligible, S=YT - use the same process as additive model, but use Y/T rather than Y-T - in the summary, the averages should average to 1 (i.e. sum to n or # of periods) - take any random bits and distribute across your periods

Deseasonalised (Seasonally Adjusted) Data When given Seasonally Adjusted data, you can reverse the process to obtain the original amounts: -Additive Model - subtract positive and add negative seasonal variations from the actual amounts -Multiplicative Model - divide actual results by the seasonal variation factors

Residuals = The differences between the results that would have been predicted using a trend line and seasonal adjustments and the actual values. eg) Trend line predicts 96.1 Seasonal Adjustment 1.0 Forecast = 97.1 Actual = 98 the residual is 0.9

Limitations of Forecasting Models -All forecasts are subject to error a) Further into the future = less reliable b) Less data upon which forecast is modeled = less reliable c) Past results do not always indicate future performance

d) Random variations can upset the pattern e) Extrapolation of the trend line requires judgement which can introduce error

Rules for manipulating inequalities: 1) Adding or subtracting the same quantity from both sides leaves the inequality unchanged 2) Multiplying or dividing both sides by a Positive number leaves the inequality unchanged 3) Multiplying or dividing both sides by a NEGATIVE number REVERSES the inequality.

Characteristics of good data It is error free. It is available at the right time. It is available at the right place. It is available to the appropriate individuals.

Sampling Error Can not be avoided unless the data collected represents the entire population. Can be reduced with a larger sample size and by ensuring that the sample is representative of the population and unbiased.

Probability Sampling Methods -Simple Random - use a frame and randomly choose -Stratified Random - stratify population into cohorts and select at random from each -Cluster - randomly select a cluster of folks (e.g. folks living on a given block if the city were the population) -Systematic - taking every 'n'th member of the pop.

-Quota - NON RANDOM stratified sampling - no frame -Multistage - breaking the population into successively smaller groups before selecting your sample e.g.) break down the country into regions, then districts, then randomly select a sample

How do you get a or etc. in Excel You'll use "to the power" of the reciprocal. eg) to get 4, you'd use 4^(1/2), to get the 4, you'd use 4^(1/3).

Solve: 6.1/Y=4.9/10-Y Cross Multiply to get: 6.1(10-Y)=4.9Y (6.1*10)-6.1Y=4.9Y 61=11Y Y=5.55

Finding the Midpoint Discrete Data = odd n - the middle number, even n - (n+1)/2 Continuous Data = (Top + Bottom)/2

Excel: Function to get Pearson's 'r' =CORREL(Dataset1,Dataset2)

C04 - Fundamentals of Business Economics

C05 - Fundamentals of Ethics, Corporate

Term Integrity

Objectivity

Definition Being straightforward, honest and truthful in all professional and business relationships. You should not be associated with any information that you believe contains a materially false or misleading statement, or which is misleading by omission. Not allowing bias, conflict of interest or the influence of other people to override your professional judgement.

Professional competence and due care

Confidentiality Professional behaviour

An ongoing commitment to your level of professional knowledge and skill. Base this on current developments in practice, legislation and techniques. Those working under your authority must also have the appropriate training and supervision. You should not disclose professional information unless you have specific permission or a legal or professional duty to do so. Comply with relevant laws and regulations. You must also avoid any action that could negatively affect the reputation of the profession.

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