Accounting and Finance Basic Definitions (Mozam331@yahoo - Com)

MOZAM MUSHTAQ PRESENTATION M-COM
(FINANCE) SESSION 2008-2010
FINANCE:
Acquiring Company
A company that seeks to acquire another firm.
Actual Realized Rate of Return,- ks

The rate of return on a common stock actually received by stockholders
ks may be greater or less that ^ks and/or ks.
Adjustable Rate Preferred Stocks (ARPs)

Preferred stocks whose dividends are tied to the rate on Treasury
securities.
After-tax Cost of Debt, kd (1-T)

The relevant cost of new debt, taking into account the tax deductibility of
interest; used to calculate the WACC.
Agency Problem
A potential conflict of interest between the agent (manager) and (1) the
outside stockholders or (2) the creditors (debt holders)
Amortization Schedule
A table showing precisely how a loan will be repaid. It gives the required
payment on each payment date and a breakdown of the payment, showing
how much is interest and how much is repayment of principal.
Amortized Loan
A loan that is repaid in equal payments over its life.
Annual Compounding
The arithmetic process of determining the final value of a cash flow or
series of cash flows when interest is added once a year
Annual Percentage Rate (APR)

The periodic rate X the number of periods per year.
Annual Percentage Rate (APR)

A rate reported by banks and other lenders on loans when the effective
rate exceeds the nominal rate of interest.
Annuity
A series of payments of an equal amount at fixed intervals for a specified
number of periods.
Annuity Due
An annuity whose payments occur at the beginning of each period.
Arbitrage
The simultaneous buying and selling of the same commodity or security in
two different markets at different prices, and pocketing a risk-free return.
Benchmarking
The process of comparing a particular company with a group of
"benchmark" companies.
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Bond
A long-term debt instrument.
Breakeven Point
The volume of sales at which total costs equal total revenues, causing
operating profits (or EBIT) to equal zero.
Call Option
An option to buy, or "call," a share of stock at a certain price within a
specified period.
Capital Asset Pricing Model (CAPM)

A model based on the proposition that any stock's required rate of return is
equal to the risk-free rate of return plus a risk premium which reflects only
the risk remaining after diversification.
Capital Budgeting
The process of planning expenditures on assets whose cash flows are
expected to extend beyond one year.
Capital Markets
The financial markets for stocks and for long-term debt (one year or
longer)
Capital Rationing
A situation in which a constraint is placed on the total size of the firm's
capital budget.
Cash Budget
A table showing cash flows (receipts, disbursements, and cash balances)
for a firm over a specified period.
Cash Flow (CF)

This term designates uneven cash flows.
Common Stockholders' Equity (Net Worth)

The capital supplied by common stockholder-capital stock, paid-in capital,
retained earnings and, occasionally, certain reserves. Total equity is
common equity plus preferred stock.
Compounding
The arithmetic process of determining the final value of a cash flow or
series of cash flows when compound interest is applied.
Congeneric Merger
A merger of firms in the same general industry, but for which no customer
or supplier relationship exists.
Conglomerate Merger
A merger of companies in totally different industries.
Convertible Bond
A bond that is exchangeable, at the option of the holder, for common stock
of the issuing firm.
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Corporate Bonds
Bonds issued by corporations.
Cost of New Common Equity, ke

The cost of external equity; based on the cost of retained earnings, but
increased for flotation costs.
Cost of Preferred Stock, kps

The rate of return investors require on the firm's preferred stock. kps is
calculated as the preferred dividend, Dps, divided by the net issuing price,
Cost of Retained Earnings, ks

The rate of return required by stockholders on a firm's common stock.
Coupon Interest Rate

The stated annual rate of interest on a bond.
Debenture
A long-term bond that is not secured by a mortgage on specific property.
Declaration Date
The date on which a firm's directors issue a statement declaring a dividend.
Defensive Merger
A merger designed to make a company less vulnerable to takeover.
Depreciation
The charge for assets used in production Depreciation is not a cash outlay.
Discount Bond
A bond that sells below its par value; occurs whenever the going rate of
interest rises above the coupon rate.
Discount Interest
Interest that is calculated on the face amount of a loan but is paid in
advance.
Discounting
The process of finding the present value of a cash flow or a series of cash
flows; discounting is the reverse of compounding.
Diversifiable Risk
That part of a security's risk associated with random events; it can be
eliminated by proper diversification.
Dividend Yield
The expected dividend divided by the current price of a share of stock.
Earnings Per Share (EPS)

Net income divided by the number of share of common Stock outstanding
.
Economic Value Added
Value added to shareholders by management during a given year.
Ex-Dividend Date
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The date on which the right to the current dividend no longer accompanies
a stock; it is usually four working day prior to the holder-of-record date.
Expected Rate of Return, ^k

The rate of return expected to be realized from an investment; the
weighted average of the probability distribution of possible results.
Expected Rate of Return,^ ks

The rate of return on a common stock that a stockholder expects to
receive.
Expected Return on a Portfolio, ^kp

The weighted average of the expected returns on the assets held in the
portfolio.
Expected Total Return

The sum of the expected dividend yield and the expected capital gains
yield.
Externalities
Effects of a project
Financial Leverage
The use of debt financing.
Financial Merger
A merger in which the firms involved will not be operated as a single unit
and from which no operating economies are expected.
Financial Risk
An increase in stockholders' risk, over and above the firm's basic business
risk, resulting from the use of financial leverage.
Floating Rate Bond

A bond whose interest rate fluctuates with shifts in the general level of
interest rates.
Forward Contract
A contract under which one party agrees to buy a commodity at a specific
price on a specific future date and the other party agrees to make the sale.
Physical delivery occurs.
Future Value (FV)

The amount to which a cash flow or series of cash flows will grow over a
given period of time when compounded at a given interest rate.
Future Value Interest Factor for an Annuity (FVIFAi,n)

The future value interest factor for an annuity of n periods compounded at i
percent.
Future Value Interest Factor for i and n (FVIFi,n)

The future value of $1 left on deposit for n periods at a rate of i percent per
period.
Futures Contract
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Standardized contracts that are traded on exchanges and are "marked to
market" daily, but where physical delivery of the underlying asset is
virtually never taken.
Growth Rate, g
The expected rate of growth in dividends per share.
Hedging
Using transactions to lower risk.
Holding Company
A corporation that own sufficient common stock of another firm to achieve
working control over it.
Horizontal Merger
A combination of two firms that produce the same type of good or service.
IRR
The discount rate which forces the PV of a project's inflows to equal the PV
of its costs.
Income Bond
A bond that pays interest only if the interest is earned.
Inflation
The tendency of prices to increase over time.
Inflow
A cash receipt.
Internal Rate of Return (IRR) Method

A method of ranking investment proposal using the rate of return on an
investment, calculated by finding the discount rate that equates the
present value of future cash inflow s to the project's cost.
Intrinsic Value,^Po
The value of an asset that, in the mind of a particular investor, is justified
by the facts;^Po may be different from the asset's current market price, its
book value, or both.
Joint Venture
A corporate alliance in which two or more independent companies combine
their resources to achieve a specific, limited objective.
Junk Bond
A high-risk, high-yield bond.
Just-in-Time (JIT) System

A system of inventory control in which a manufacturer coordinates
production with suppliers so that raw materials or components arrive just
as they are needed in the production process.
Long Hedges
Futures contracts are bought in anticipation of (or to guard against) price
increases.
Marginal Cost of Capital (MCC)
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The cost of obtaining another dollar of new capital; the weighted average
cost of the last dollar of new capital raised.
Market Portfolio
A portfolio consisting of all stocks.
Market Price Po
The price at which a stock sells in the market.
Market Value Added (MVA)

The difference between the market value of equity and the amount of
equity capital that investors supplied.
Marketable Securities
Securities that can be sold on short notice.
Maturity Date
A specified date on which the par value of a bond must be repaid.
Merger
The combination of two firms to form a single firm.
Money Markets
Then financial markets in which funds are borrowed or loaned for short
periods (less than one year).
Mortgage Bond
A bond backed by fixed assets. First mortgage bonds are senior in priority
to claims of second mortgage bon
Natural Hedges
Situations in which aggregate risk can be reduced by derivatives
transactions between two parties.
Net Cash Flow

The actual net cash, as opposed to accounting net income, that a firm
generates during some specified period.
Net Present Value (NPV) Method

A method of ranking investment proposals using the NPV, which is equal to
the present value of future net cash flows, discounted at the marginal cost
of capital.
Operating Leverage
The extent to which fixed costs are used in a firm's operations.
Operating Merger
A merger in which operations of the firms involved are integrated in hope
of achieving synergistic benefits.
Operation Cash Flow

That cash flow which arises from normal operations; the difference
between sales revenues and cash operation expenses, after taxes on
operation income.
Opportunity Cost
The return on the best alternative use of an asset, or the highest return
that will not be earned if funds are invested in a particular project.
Option
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A contract which gives its holder the right to buy (or sell) an asset at a
predetermined price within a specified period of time.
Ordinary (Deferred) Annuity

An annuity whose payments occur at the end of each period.
Out-Sourcing
The practice of purchasing components rather than making them in-house.
Outflow
A cash deposit, cost, or amount paid. Has a minus sign.
Parent Company
A holding company; a firm which controls another firm by owning a large
block of its stock.
Partnership
An unincorporated business owned by two or more persons.
Payback Period
The length of time required for an investment's net revenues to cover its
cost.
Perpetuity
A stream of equal payments expected to continue forever.
Premium Bond
A bond that sells above its par value; occurs whenever the going rate of
interest falls below the coupon rate.
Present Value (PV)

The value today of a future cash flow or series of cash flows.
Present Value Interest Factor for an Annuity (PVIFAi,n)

The present value interest factor for an annuity of n periods discounted at i
percent.
Present Value Interest Factor for i and n (PVIFi,n)

The present value of $1 due n periods in the future discounted at i percent
per period.
Primary Market
The market in which firms issue new securities to raise corporate capital.
Progressive Tax
A tax system where the tax rate is higher on higher incomes. The personal
income tax in the United States, which goes form 0 percent on the lowest
increments of income to 39.6 percent, is progressive.
Project Cost of Capital, kp

The risk-adjusted cost of capital for an individual project.
Relevant Cash Flows

The specific cash flows that should be considered in a capital budgeting
decision.
Relevant Risk
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The risk of a security that cannot be diversified away, or its market risk.
This reflects a security's contribution to the riskiness of a portfolio.
Required Rate of Return, ks

The minimum rate of return on a common stock that a stockholder
considers acceptable.
Residual Value
The value of leased property at the end of the lease term.
Retained Earnings
That portion of the firm's earnings that has been saved rather than paid out
as dividends.
Return on Common Equity (ROE)

The ratio of net income to common equity; measures the rate of return on
common stockholders' investment.
Return on Total Assets (ROA)

The ratio of net income to total assets.
Risk
The chance that some unfavorable event will occur.
Secondary Market
The market in which "used" stocks are traded after they have been issued
by corporations.
Secondary Markets
Markets in which securities and financial assets are traded among investors
after they have been issued by corporations.
Secured Loan
A loan backed by collateral, often inventories or receivables.
Short Hedges
Futures contracts are sold to guard against price declines.
Speculation
With futures, it involves betting future price movements.
Stock Dividend
A dividend paid in the form of additional shares of stock rather than in
cash.
Stock Repurchase
A transaction in which a firm buys back shares of its own stock, thereby
decreasing share outstanding, increasing EPS, and, often, increasing the
stock price.
Stock Split
An action taken by a firm to increase the number of share outstanding,
such as doubling the number of share outstanding by giving each
stockholder two new share for each one formerly held.
Sunk Cost
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A cash outlay that has already been incurred and which cannot be
recovered regardless of whether the project is accepted or rejected.
Target Company
A firm that another company seeks to acquire.
Treasury Bonds
Bonds issued by there federal government, sometimes referred to as
government bonds.
Uneven Cash Flow Stream

A series of cash flows in which the amount varies from one period to the
next
Vertical Merger
A merger between a firm and one of its suppliers or customers.
Warrant
A long-term option to buy a stated number of shares of common stock at a
specified price.
Weighted Average Cost of Capital, WACC

A weighted average of the component costs of debt, preferred stock, and
common equity.
Zero Coupon Bond

A bond that pays no annual interest but is sold at a discount below par,
thus providing compensation to investors in the form of capital
appreciation.
Zero Growth Stock

A common stock whose future dividends are not expected to grow at all;
that is g=0.
What is risk?
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Risk reflects the chance that the actual return on an investment may vary
from the
expected return. One way to measure risk is to calculate the variance and
standard
deviation of the distribution of returns.
How many types of risks are present in the market? How we

can measure it?
Risks can be divided into systematic and unsystematic risks. The total
risk of a
security/portfolio/asset can be calculated by using standard deviation and

coefficient of
variation.
What do you understand by Systematic Risk?

An investment risk which applies to all securities of the same class,
which cannot be
avoided by diversifying ones portfolio. Economic, social or political factors

will cause
price fluctuations of all shares alike. Hence, the prices of shares in the
market tend to
rise and fall together.
What is ROI?
The term return on investment is widely used in connection with the
performance of a
company or project. It is calculated as:
ROI= Earning Before Interest and Taxes/ Total Assets.
What is meant by gearing ratio?

Gearing ratio is not a specific ratio. It is a general term given to
leverage ratios that
express the capital of a firm.
Can you explain, what is P/E ratio?

The P/E ratio takes the stock price and divides it by the last four
quarters' worth of
earnings.
What is the importance of P/E Ratio in stock valuation?

Price-Earning Ratio is the ratio of market price per share to
earnings per share. The
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higher the PE ratio the better the value of the stock.
What do you understand by cost of capital?

The minimum rate of return a firm must earn on its investment in order to
satisfy the
expectations of investors who provide the funds to the firm. It is often

measured as the
weighted arithmetic average of the cost of various sources of finance

tapped by the firm.
What is Weighted Average Cost of Capital (WACC)?

In the long run, the company wants a balanced capital structure (the right
mix of debt
and equity) and for financing any investment project, it tries to

maintain its capital
structure intact.
What is CAPM (Capital Asset Pricing Model)?

The Capital Asset Pricing Model (CAPM) reflects the market for different
financial
assets. The model suggests that asset prices will adjust to achieve the
precise return, and
to compensate investors for the risk of the asset, when it is held with a
perfectly
diversified portfolio.
Tell us something about Portfolio Theory?

Overall investment strategy that seeks to construct an optimal portfolio by
considering
the relationship between risk and return, especially as measured by alpha,

beta, and R-
squared. This theory recommends that the risk of a particular stock should
not be looked
at on a stand-alone basis, but rather in relation to how that particular

stock's price varies
in relation to the variation in price of the market portfolio. The theory goes
on to state
that given an investor's preferred level of risk, a particular portfolio can be

constructed
that maximizes expected return for that level of risk, also called
modern investment
theory.
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What do you understand by the term IRR?
The Internal Rate of Return (IRR) is that rate at which the net present
value of the
expected cash flows is equal to zero. In other word s, it is the rate,

which equates the present value of cash inflows to the present value of
cash outflows.
If IRR were less than the cost of capital of capital what would
you do?
While evaluating the feasibility of a project we compare the internal rate of
return and
cost of capital. If IRR is less than the cost of capital, then the project is not
viable and
cannot be accepted as the cost is less than the return.
What is a Treasury Bill?

A short-term government debt instrument with a maturity of one year or
less. Bills are
sold at a discount to face value (or par value) with the interest earned
being the
difference between the face value received at maturity and the price paid.
What is Bill and Bond?

A bill of exchange is a kind of cheque or promissory note. It is a written
order by one
person directing another to pay a specific sum on a specific date sometime

in the future.
If the bill of exchange is drawn on a bank, it is called a bank draft. If it is

drawn on
another party, it is called a trade draft.
A debt instrument issued for a period of more than one year with the
purpose of raising
capital by borrowing. The Federal government, states, cities,

corporations, and many
other types of institutions sell bonds. Generally, a bond is a promise to

repay the
principal along with interest (coupons) on a specified date (maturity).
What do you mean by Perpetual Bond?

A bond with no pre-determined redemption date. Many have a date after
which they may
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be redeemed by the issuer, such as UK government 2% Consols (1923 and
after).
Effectively, they have an open-ended issuers call.
What do you understand by Zero Coupon Bond?
These bonds are issued at a discount to their face value and are
redeemed at par on
maturity. The difference between their face value and the issue price
represents the
return to the investors.
What is the difference between Zero Coupon Bond and Deep

Discount Bond?
Deep discount bond is issued with a very low coupon or no coupon that
sell at a price far
below. A Zero-coupon bond is a bond in which no periodic coupon is paid

over the life of the
contract. Instead, both the principal and the interest are paid at the
maturity date. A
bond that has no coupon is called a zero-coupon bond.
What is project finance?

The amount required to meet the cost of the project is called project
finance. The means
of project finance are: Share Capital, Term Loans, Debenture Capital.
Deferred Credit: Facility under which suppliers of plant and machinery offer
to make the
Payment over a period of time.
Incentive Sources: The aid given by government and its agencies like seed
capital
Assistance, capital subsidy and tax deferment or exemption.
Other Sources: These include public deposits, leasing and hire purchase.
Is cash a source or use of funds?

It depends upon the source of the cash generated.
What is "leverage"?
Suppose a user of a forward market adopts a position worth Rs.100. As
mentioned above,
no money changes hands at the time the deal is signed. In practice, a

good-faith deposit
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would be needed. Suppose the user puts up Rs.5 of collateral, using Rs.5 of
capital, a
position of Rs.100 is taken. In this case, we say there is "leverage of 20

times". This
example involves a forward market.
What is financial and operating leverage?

Financial leverage measures the effect of change in EBIT on the EPS of the
company,
and operating leverage examines the effect of change in the quantity

produced on the
EBIT of the company.
Does higher leverage always increase the risk of a firm?

No. Higher leverage always does not increase the risk of a firm. The
proportion of
financial and operating leverages makes the difference in the risk of a firm.
What is meant by Net working capital? What are the sources

of working capital finance?
Net working capital can be defined in the following two-ways:
• Net-working capital is the difference between current assets and

current liabilities
• Net-working capital is the proportion of a firms current assets which

is financed with
long-term funds
What do you understand by Mortgage?

Mortgage is the transfer to interest in specific immovable property for
the purpose of
securing an existing or a future debt or the performance of an

engagement, which may
give rise to pecuniary liability.
What is Share buyback? What are its advantages to

companies and investors?
Share buyback is a companies plan to buy back its own shares from the
marketplace,
reducing the number of outstanding shares, and typically an indication that

the
companies management thinks the shares are undervalued. Generally

firms buyback the
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shares to increase the market value of the shares.
What is sweat equity?

These are shares issued by the company to its directors and employees.
The shares are
issued in accordance with regulation issued by SEBI in case of listed

companies.
When does a company undertake a Bonus Issue?

A company may choose to capitalize its reserves by issuing bonus shares
to existing
shareholders in proportion to their holdings. Bonus shares are issued free

of cost, but
since the number of shareholders remains the same and their

proportionate holdings do
not change, bonus shares do not increase the shareholders ownership of

the company.
What is the advantage of Convertible Debenture over other

debentures?
Fixed interest secured loan certificates, which carry a provision of
conversion into a
certain number of shares at par or at a premium or a certain date. When

only a part of
the loan is converted the certificate is called a partly convertible

debenture, and when
the entire amount is converted it is called a fully convertible debenture.
What is known as bridge financing?

Bridge financing is the finance made by a venture capital fund for a short
period of 6
months to 1 year before the company goes public.
What is a Venture Capital and what is its other name?

Funds made available for start-up firms and small businesses with
exceptional growth
potential. Managerial and technical expertise is often also provid ed .

Also called risk
capital.
What is mezzanine Finance?

Mezzanine Financing is a type of equity financing used in takeovers, which
uses preferred
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shares and convertible securities to make a target firm larger.
Can all companies issue Commercial Paper?

Short duration usage promissory notes with fixed maturity issued mostly
by the leading
creditworthy and highly credit rated companies. These are unsecured

instruments
negotiable by endorsement and delivery.
What is EVA?
Economic Value Added (EVA) is the difference between the firms after-tax
return on
capital and its cost of capital.
What is meant by horizontal integration?

An integration (merger or acquisition) of one company by another company
in the same
industry.
What is Synergy in mergers?

Synergy in mergers results from complementary activities. For instance,
one firm may
have substantial financial assets and another firm may have

profitable investment
opportunities. Hence after merger, the combined value of the firms is likely
to be greater
than the sum of the individual entities.
What is Share Splitting?

Share Splitting is division of the share capital of a company into smaller
units. The effect
of a share split is the same as a scrip issue although the technicalities

differ. Share splits
are usually carried out when the existing shares reach such a high price
that trading in
them becomes difficult.
When a Split of shares occur?

This occurs when the shares are divided into shares of smaller
denomination. Rs.100
shares may be split into ten Rs.10 shares. It usually happens when the
price becomes
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unwieldy.
What do you understand by Short Position?

Shares which a person has sold short, by delivering borrowed certificates,
but which he has not yet covered by actually buying shares to repay the
loan as on a particular date.
What do you understand by Speculation?

An activity, in which a person assumes high risks, not bothered about the
safety of his
invested principal, to achieve large capital gains. The time span in

which the gain is
sought to be made is usually very short.
What is delisting? What are its implications for investors?

Delisting is removing a particular scrip from the trading activities on an
exchange. The
delisting decision has to be taken by the regulators of the exchange.

Delisting gives the
negative impression of the scrip to the investor. Hence, generally investors

do not show
interest in delisted scrip.
ACCOUNTING:
FINANCIAL ACCOUNTING
What is the primary objective of Financial Accounting?

The primary objective of the Financial Accounting is to communicate
and provide
information to the investors and creditors on the economic activities of the

enterprise
that will help them in their investment decisions.
What are financial statements? Name the major financial

statements.
The Financial statements are the reports that result from the process of
accounting
which allow the interested parties to evaluate the profitability and the
solvency of the
business. The major financial statements are
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• Profit and Loss Account
• Balance sheet
• Cash Flow statement
What is the difference between balance sheet and profit &

loss account?
The balance sheet is one of the most important financial statements of a
company. It is
reported to investors at least once per year. It may also be presented

quarterly,
semiannually or monthly. The balance sheet provides information on what

the company
owns (its assets), what it owes (its liabilities), and the value of the
business to its
stockholders (the shareholders' equity). The name, balance sheet, is

derived from the
fact that these accounts must always be in balance. Assets must always
equal the sum of
liabilities and shareholders' equity.
A company's income statement/profit and loss account statement is a

record of its
earnings or losses for a given period. It shows all of the money a

company earned
(revenues) and all of the money a company spent (expenses) during this
period. It also
accounts for the effects of some basic accounting principles such as

depreciation.
The income statement is important for investors because
What are the principal qualitative characteristics of financial

statements?
The principle characteristics of financial statements are the attributes that
make the
information provided in the financial statements useful to the users. The

principle
qualitative characteristics are
Understandability: They should be readily understandable to the users. For

this purpose
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users are deemed to have reasonable knowledge of business and economic
activities.
Relevance: To be useful information must be relevant to the decision-

making needs of
the users.
Reliability: Information is said to be reliable when it is free from errors, bias

and can be
depended upon by the users to represent faithfully, which it purports to

represent.
Comparability: Users must be able to compare the financial statements of

an enterprise
through time in order to identify trends in its financial position and

performance.
What is meant by the quality of financial reporting? What is

conservatism, and how does it affect the quality of earnings?
The quality of financial reporting refers to how close the financial
statements are to
economic reality. The closer the financial statements are to economic

reality, the higher
is the quality of financial reporting. The less that management uses

discretionary means
to manipulate earnings, the higher the quality of financial reporting.

Conservatism
means that management should take great care not to overstate assets
and revenues and
not to understate liabilities and expenses. The more conservative

management is in
making accounting judgments, the higher will be the quality of financial

reporting.
What are the major constraints on relevant and reliable

financial statements?
The major constraints are Timeliness: If there is undue delay information
becomes irrelevant .Balance between cost and benefit: The benefits
derived from information should exceed the cost of providing it.
Balance between the various qualitative characteristics: In practice it has

become
Necessary to achieve an appropriate balance between the qualitative

characteristics.
True and fair view presentation:
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What are the golden rules of Accounting?

The golden Rules of Accounting are:
• Debits always equal Credits
• Increases do not necessarily equal Decreases
• Assets - Liabilities = Owner's Equity (The accounting equation)
What is Fundamental Accounting equation?

Accounting equation is a mathematical expression used to describe the
relationship
between the assets, liabilities and owner's equity of the business model.
The basic
accounting equation states that assets equal liabilities and owner's equity,
but can be
modified by operations applied to both sides of the equation, e.g., assets

minus liabilities
equal owner's equity.
What are Accounting Standards? List few advantages.

Accounting Standard s are rules and criteria of accounting
measurement evolved by
several accounting standard setting bodies established in developing and

developed
countries.
• International Accounting Standard Board (IASB) - International

Accounting Standards.
• Financial Accounting Standards Board (FASB) US Generally

Acceptable
Accounting Practices (specifically Statements on Financial Accounting

Standards).
• In India Institute of Chartered accountants of India Accounting

Standards.
The advantages
i. Reduces to a reasonable extent eliminates confusing variations in

the accounting
treatment.
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ii. Lays down disclosure requirements beyond that required by law.
iii. To a limited extent facilitates comparison of financial statements

globally.
Tell me something about Accounting for goodwill

Goodwill is considered to be one of the largest intangible assets, the value
of which
companies want to reflect correctly in their financial statements.

Accounting for this
asset, poses many challenges for accountants, as it is an unidentifiable

intangible asset.
Tell us what you know about Accounts Receivables and

Payables?
Accounts Receivable, normally abbreviated as A/R, is the money that is
currently owed to
a company by its customers. The reason why the customers owe

money is that the
product has been delivered but has not been paid for yet. Companies
routinely buy
goods and services from other companies using credit. Although typically
A/R is almost
always turned into cash within a short amount of time, there are instances
where a
company will be forced to take a write-off for bad accounts receivable if it

has given credit
to someone who cannot or will not pay. This is why you will see something
called
allowance for bad debt in parentheses beside the accounts receivable

number.
Accounts Payable is the money that the company currently owes to

its suppliers, its
partners and its employees. Basically, these are the basic costs of doing
business that a
company, for whatever reason, has not paid off yet. One company's
accounts payable is
another company's accounts receivable, which is why both terms are

similarly structured.
A company has the power to push out some of its accounts payable, which
often
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produces a short-term increase in earnings and current assets.
Tell me something about Accounting for goodwill

Goodwill is considered to be one of the largest intangible assets, the value
of which
companies want to reflect correctly in their financial statements.

Accounting for this
asset, poses many challenges for accountants, as it is an unidentifiable

intangible asset.
Can you provide us a suitable definition of goodwill?

Goodwill as an intangible asset can be defined from two approaches:
• Residuum approach
Under this method, goodwill is taken to be the difference between the

purchase price
and the fair market value of an acquired companies assets.
• Excess profits approach
Under this method, the present value of the projected future excess
earnings over
normal earnings for similar businesses is recorded as goodwill. Due to

uncertainty of
future earnings, valuing goodwill using this method is difficult.
What is debenture redemption reserve?

The companies (Amendment) Act 2000 require every company to create
debenture
redemption reserve for redemption of debentures out of appropriation of

profits every
year until redemption. This reserve cannot be utilized by the company

except for the
purpose of redemption.
What is deferred revenue expenditure?

Deferred revenue expenditures represent types of assets whose
usefulness do not expire
in the year of their occurrence but generally expires in the near future.
These types of
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expenditures are carried forward and are written off in future
accounting periods.
Sometimes, we make some revenues expenditure but it eventually

becomes a capital asset
(generally of an intangible nature). Example, if we undertake substantial

repairs to the
existing building, the deterioration of the premises may be avoided. If we

charge the
whole expenditure during the current, the current year expenses are affect.
However,
since the benefit of this expenditure is enjoyed over a number of years. So,
to overcome
this only a part of the expenditure is charged current year and the
balance carried
forward and written off gradually during the future periods.
What are contingent liabilities?

These are liabilities, which materialize on the happening or non-happening
of an event.
Contingent liabilities are not real liabilities and as such do not appear in the
liability side
of balance sheet. But are disclosed by way of a note in the balance sheet.
What do you understand by contract account?

Account in which posting data for contracts or contract items are
processed for which the
same collection/payment agreements apply. Contract accounts are

managed on an open
item basis within contract accounts receivable/payable.
What are marketable securities?

Marketable securities are cash substitutes. Marketable securities are
investments with
short-term maturities with little risk due to interest rate fluctuations.

Examples of
marketable securities include Treasury Bills, Negotiable Certificates of

Deposit, and
Commercial Paper.
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What is depreciation? List few methods of providing
depreciation.
It is common knowledge that when an asset is used over a period of time, it
looses its
value. This loss in value is called depreciation. Pickles defines it as "the

permanent and
continuing diminution in the quality, quantity or value of an asset"

Depreciation is the
continuous shrinkage of book value of an asset. Few method of

depreciation are
Straight line Method: An equal amount is written off every year during
the working life of
an asset so as to reduce the cost of the asset to nil or its residual value at
the end of its
useful life.
Reducing Balance Method: A fixed percentage of the diminishing

value of the asset is
written off each year so as to reduce to its break up value at the end of its
life.
Machine hour method: If it is practicable to keep a record of the actual

running hours of
each machine, depreciation may be calculated on the basis of the hours for
which the
concerned machine worked.
Define FIFO and LIFO. Explain what effects that FIFO and
LIFO have on the balance
sheet during a period of rising prices and during a period of

falling prices?
FIFO is the inventory cost flow assumption that treats the first goods in as
the first goods
sold. LIFO is the inventory cost flow assumption that treats the last goods
in as the first
goods sold. In a period of rising prices, FIFO values inventory at current

costs. However,
LIFO would value inventory at costs that the company could have
incurred years ago.
The analyst should take the LIFO cost flow assumption into account and
consider
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adjusting the inventory of a company using LIFO upward to account for
inflation.
What are marketable securities?

Marketable securities are cash substitutes. Marketable securities are
investments with
short-term maturities with little risk due to interest rate fluctuations.

Examples of
marketable securities include Treasury Bills, Negotiable Certificates of

Deposit, and
Commercial Paper.
MANAGEMENT ACCOUNTING
What is a Cost? What do you mean by cost unit?
A Cost is a resource consumed to accomplish a specified objective. A Cost
Unit is a unit
of output in the production of which the costs are incurred.
What is Budget?
Budget is a quantitative representation of the policy to be pursued during
a specified
period of time for purpose of attaining predefined objectives.
What is Standard cost?

It is a predetermined or forecast estimate of cost to manufacture a
single unit, or a
number of units of a product, during a specific immediate future unit of a

product.
What is a Standard costing?

It is the preparation and use of standard costs, their comparison with
actual costs, and
analysis of variances to their causes & points of incidence.
What is a direct cost?

A cost which can be economically identified with a specific saleable cost
unit.
What do you understand by cost center?
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It is a smaller segment of activity or area of responsibility for which costs
can be
accumulated. Responsibility in a cost center is restricted to costs only.
How is investment center different from cost center?

Investment center is a profit center whose performance is measured
by its return on
capital employed. Cost center is a smaller segment of activity or area of

responsibility for
which costs can be accumulated. Responsibility in a cost center is

restricted to costs only.
How does standard costing affect performance?

A control technique which compares standard costs and revenues with
actual results to
obtain variances which are used to stimulate improved performance.
How do you calculate opportunity cost?

The value of a benefit sacrificed in favor of an alternative course of action.
What is EOQ?
Economic Order Quantity-It represents the quantity of goods ordered which
minimizes
the sum of inventory ordering costs and carrying costs
How do the financial experts use cost sheet

Through the use of a cost sheet, financial experts estimate the detailed
cost in respect
of a cost center or a cost unit and also makes inter-firm comparison by

including cost
data of different firms.
How do you identify direct labor?

Labor that is directly identifiable with a specific product or activity.
What is the importance of Cost-Volume-Profit Analysis?

Managing cost is one of the most important aspects of a successful
business. A firm
should have a clear understanding of the financial impact of every decision

it takes. For
example, when a firm acquires loan, its fixed cost increases due to increase
in payment
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by way of interest. In such a situation, a firm should be able to
analyze sales volume
required to cover the additional cost incurred.
Cost-Volume-Profit (CVP) Analysis evaluates various business decisions

and helps the
finance manager to account for any deviation caused in the profits, by

manipulating cost
and sales of the firm. CVP analysis can also be stated as the relationship
between cost
(fixed and variable), volume (in units or in rupees) and profit.
Can you identify the two basic tools used for CVP analysis?
Contribution margin analysis
Break-even analysis
What is BEP analysis?

Break-Even analysis is an analytical technique to study the relationship
between fixed-
assets, variable costs, profits and sales. The Break-Even Point (BEP)
represents the level
of sales at which the operating income and operating costs are

equal so that profit is zero.
How do you calculate contribution margin?

The difference between the selling price and the variable cost of a product
or service.
Both the per-unit manufacturing and non-manufacturing variable costs are

deducted
from the selling price to determine the contribution margin. In aggregate,

contribution
margin is the difference between total sales and total variable costs.
Contribution Margin Ratio = Sales Variable Costs / Sales
What is break-even point for a company?

The activity level that yields zero profit. It is the level at which there is
neither profit nor
loss. Here the total revenue equals the total costs.
How do you calculate absorption costing?

A product costing method in which all costs of production, direct and
indirect, fixed and
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variable, are included in the cost of products. Also called full costing.
What do you understand by Zero-based Budgeting?

A method of budget review and evaluation that requires all projects and
programs, new
and old, to justify all resources. Each project starts the budget evaluation
process without
a resource commitment even if it is an ongoing project.
How a company can be benefited by Zero-Based Budgeting?

There are plenty of reasons. Such as:
i. Results in efficient allocation of resources as it is based on needs

and benefits
ii. Drives managers to find out cost effective ways to improve

operations
iii. Detects inflated budgets
Can you define flexible budget?

A flexible budget is a budget, which by recognizing different cost behavior
patterns, is
designed to change as volume of output changes.
Why is it important to calculate variance for a company?

Variances represent deviations of actual performance from standard
performance. There
can be cost variances, profit variances and sales value variances.

Variances can be
favorable or unfavorable depending upon their impact on the profits of the

organization.
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MARKETING
Define Marketing
It is an integrated process through which companies build strong customer
relationships and create value for their customers and for themselves
What are the key success factors in direct marketing?

Customer Database, Targeting, Appropriate media, Appropriate distribution.
Since direct marketing facilitates first hand information of customers,

marketing
function can be aligned more suitably to achieve marketing objectives.
How will you access customer needs?

Customer needs are of different types based on physiological, psychological,
social and
many other factors. For need identification the marketer has to study the
complete
profile of the customer. Marketing research is one of the basic tools for
understanding
customer needs.
What is the difference between customer need and want?

Need is driven by the behavioral stimuli in customer. To satisfy the need
customer
develops wants eg., biological need is thirst. Individual may want to

quench the thirst
with water or soft drink.
What is the importance of 4 Ps in marketing?

Study and understanding of product, price, place and promotion are essential
in making
marketing mix decisions. In planning marketing strategy external market

forces like
industry, competition, customer profile, government policies, state of

economy factors
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are to be aligned with internal policies on product, price, place and promotion
to
achieve optimum marketing results.
Explain the characteristics of services.

The characteristics of services are Intangibility, Inseparability, Variability and
Perishability
What is the difference between Marketing and Selling? Can

there be selling without
marketing and vice versa? Are Modicare products, marketed or

sold?
Concept explained by Kotler, identifying customer wants and needs and
satisfying them by
creating value exchanges for transferring products and services for mutual
benefits to
customers.
Selling involves exchanging goods / services and recovering value. In other

words, it can
be termed as a process of changing ownership.
What do you understand by marketing mix? Are they

different from products and
services?
Marketing Mix consists of internal factors influencing the target customer. The
internal
factors are product, price, place (distribution) and promotion. When matched
with the
external factors i.e., competition, consumers, govt.. policies and nature of the
economy
they result in effective marketing mix. This will enable organizations to attract
customers
and meet the Marketing objective.
Briefly tell us about various pricing strategies?

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There are two main basic pricing policies. In penetration policy, prices are at
lower levels
to competition to increase penetration and market coverage and to attract

large
customer segments to become one of the major players in the market. This
can be
adopted only when the competition is intense in terms of quality, price and
product
acceptance in market place. When the competition is weak, price is

fixed at the
maximum level the market can absorb to skim the profits before the
competition catches
up with their improvement in marketing mix offerings.
What is societal marketing concept?

societal marketing also takes care of social of the organization for the benefit
of the society.
e.g.: Johnson and Johnson setting up plants for destroying bio-degradable

packing material.
How will you convince the customer that your product is better
than your competitors?
Showing your competitors in inferior light is bad selling and marketing.
Instead it is
always beneficial to stress your product features, which are different

compared to
competitors offering and how they benefit user better compared to

competitors. In case
there is very little difference with competitors products it will be necessary to

highlight
your superior customer service and what extra you will be giving in
deliverables in
service.
Define the following concepts.

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a) Image: Image is the set of beliefs, ideas, and impressions a person holds
regarding
product / service.
b)Position: The place in the minds of consumers, where the product is

situated vis-à-
vis the competitors.
c)Product feature: Characteristics of the product that supplement the

products
basic function.
d) Competitive advantage: Strong points in terms of customer

benefits, which a
company may possess with respect to its competitors.
e) Positioning strategy: Brand building strategy in the minds of

consumers vis-à-vis
the competitors.
f) Customers perception: How the customer is viewing the companies

brands.
What is BCG Matrix and what does it show?

This matrix was coined by Boston Consulting Group, a reputed management
consultancy
firm. This is a portfolio evaluation model, which evaluates various Strategic

Business
Units (SBUs) of the firm on relative market share and industry growth rate.
This matrix
helps managers address the issue of resource allocation between various

SBUs and the
business that the firm should exit/reinforce its presence.
What are competitive advantage and core competence of a

company?
Competitive Advantage:
Competitive edge with respect to its competitor

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Core competence:
Competence inherent within the company
Explain Porters five forces Model

Five forces that determine the intrinsic long-run profit attractiveness of a
market or
market segments are: Potential Entrants, Suppliers, Industry Competitors,

Buyers and
Substitutes.
Define Centralization and Decentralization

Centralization is said to be a process where the concentration of decision
making is in a few hands. All the important decision and actions at the lower
level, all subjects and actions at the lower level are subject to the approval of
top management
Decentralization: The lower the level where decisions are made, the greater is
the decentralization.
What are push and pull strategies?

In pull system, the following processes go to pick up what they need to
replace what they have
used up from preceding processes. An approach opposite to this / push

system.
What is benchmarking?
What is the difference between a brand and a product?

While brand is a name, term, symbol, design or logo, product is of an
identifiable generic
nature object.

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Describe the steps in carrying out benchmarking in the realm of
marketing.
Benchmarking: - Benchmarking is the process of determining who is the very
best, who
sets the standard, and what that standard is.
E.g.: in retail banking provision of getting bank balance over telephone.
Steps in bench marking:
1) Determine the function to benchmark
2) Identify the key performance variables to measure
4) Identify the best in-class companies
5) Measure the companies performance
6) Specify the programs and actions to close the gap
7) Implement and monitor results
Give an example of any reputed company to elucidate the

following terms. Mission,
Vision, Strategy, Goal, Marketing Plan and Product Plan.

Coca Cola Pakistan
Mission: To take coke at the arms reach of desire
Vision: Vast potential in increasing 10 to 15 times in terms of per capita

consumption of
beverage
Strategy: Building Coke brand and retail infrastructure to achieve twin

objective of
increasing market size and taking leadership position in cola market
Goal: Rs10, 000 corer by 2010
Marketing Plan: Sales target and resource requirement in terms of financial

budget,
manpower, logistics for a market like Delhi, or any other specific market.

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Mixed Question
What is market research? How can a company benefit from it?
The systematic design, collection, analysis and reporting of data relevant to a
specific
marketing situation facing an organization is marketing research. Marketing

research is
an input for making better and informed decisions.
What are the various steps involved in market research?

The steps involved in the market research process include: defining the
problem and
research objectives; developing the research plan; implementing the research

plan and
interpreting and reporting the findings.
Differentiate between primary and secondary data? Which

would you rely more? Why?
Primary data is the information collected for the specific purpose at hand
whereas,
Secondary data is the information that already exists somewhere, having been
collected
for another purpose. The primary data is comparatively more reliable as the
information collected for the problem in hand is relevant, accurate and
sufficient.
What are the ingredients of secondary research?

Secondary data consist of information that already exists somewhere, having
been
collected for another purpose. Secondary research is a good starting point and
often
helps to define problems and research objectives. In most cases the company
must also
collect primary data.

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What tools do you use for market research?
Tools of market research include commercial data sources, online databases
and
Internet data sources, observational research, survey research, experimental

research,
focus group interviewing, and in-depth interviewing.
What is Fiscal Deficit?

The fiscal deficit is the difference between the government's total
expenditure and its
total receipts (excluding borrowing).
What is GDP and how it is calculated? Gross Domestic Product

(GDP) represents the total market value of all final goods and services
produced in a country in a given year. The GDP can be calculated in
the following methods: GDP = C + I + G + NX.
Why do companies outsource?

Mainly companies outsource their non-core activities to achieve competitive
advantage
due to various reasons; traditionally companies used to outsource just to

reduce and
control the operating costs.
What do you know about GATT and WTO?

The General Agreement on Tariffs and Trade (GATT) was first signed in 1947.
The
agreement was designed to provide an international forum that encouraged

free trade
between member states by regulating and reducing tariffs on traded

goods and by
providing a common mechanism for resolving trade disputes. Eight major

trade
negotiations had taken place starting from first round in 1947 (Geneva), to its
eighth

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round in Uruguay in 1986-94. Then it was converted into WTO.
The World Trade Organization (WTO) began its operations in 1995 as a

successor of
GATT, which represents the rules-based regime of the policy of economic

globalization.
The central operating principal of the WTO is that commercial interests should
supersede all others. Any obstacles in the path of operations and expansion of
global
business enterprise must be subordinated. Its membership includes 146

nations
including US.
Please describe the operating cycle. Give examples.

Operating cycle of a firm begins with the acquisition of materials and ends
with the
collection of the receivables by selling the finished goods. It has four

components: Cash,
Inventory, Bills Payable, Bills Receivables.
Operating cycle = + accounts payable (in days) -inventory replacement

(in days) -
accounts receivable (in days)
What is the difference between stakeholders and shareholders?

Shareholders are the owners of the company who invested money in the form
of share
capital. Stakeholders include the shareholders along with customers,

employees,
creditors, suppliers, community neighbors, and various governmental

agencies.

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Shareholders are those who have voting rights and rights of electing the
members of the
board of directors. But stakeholders don't have such rights.
Shareholders share both the profits and loss of the company. But the
stakeholders if they
share, then it is only the profits and not the losses of the company.
Shareholders value is easier to define than stake holders value, so it is easier

to account
for shareholders than for stakeholders.
What are benefits and services?

Benefits are important means by which organizations successfully attract,
motivate and
retain employees. The employers should establish and maintain an employee

benefit
program that rewards the efforts of employees in the organization and in

comparable
and competitor organizations in tandem with the prevailing market price for
the
knowledge, skill and attitude. Employees seek benefits and services from the
employer to
take advantage of low costs, taxes, and inflation protection.
Do you have any knowledge about Patents?

Patents are the intellectual property rights, authorized by the government,
which permits
its owner to exclude members of the public from making, using, or selling the
claimed
invention. Different types of patents are like follows.

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Utility patents: is granted to anyone who invents or discovers any
new and useful
machine, article of manufacture, processes (Methods), compositions such as

chemicals,
drugs etc., and improvements of known devices or new uses of old devices.
The patent term is 20 years.
Design patents: is granted to anyone who invents a new, original, and

ornamental design
for an article of manufacture. Term is 14 years.
Plant patents: may be granted to anyone who invents or discovers and

asexually
reproduces (by means other than seeds) any distinct and new variety of
plants. Term is
20 years.
Why team and teamwork have assumed importance in today’s

organizations?
A team is a group of interdependent people who share a common
purpose, have
common work methods and hold one another accountable. The most common
focus of
teamwork is behavior related to task performance and group process. In an

effective
team, task behavior and group process must be integrated with each other as
well as with
needs and wants of the people making up the group. Teamwork activities
often begin by
clarifying the teams purpose, priorities, goals, and objectives.
What does empowerment mean?

Empowerment is a process of enhancing feelings of self effectiveness among
employees.
By identifying conditions that foster among them a feeling of powerlessness

the
organization ensures their removal by both formal organizational practices

and informal

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techniques of providing effective information. Empowerment makes the
employees
motivated and committed and makes employees to aspire to do a better job

because they
get personally rewarded.
Why is performance appraisal so important to organizations?

Performance means contribution made by an individual employee in the
accomplishment of organizational objectives. Performance can be observed

and
measured by a mix of quantity, quality, time and cost. The success of an

organization will
therefore depend on its ability to measure accurately the performance of its

members.
Performance appraisal means all those procedures that are used by the
organization to
evaluate the personality, the performance, and the potential of its

group members.
Please explain the meaning and finer aspects of Management

by Objectives (MBO)?
The MBO technique is one of the ways of seeking to control, coordinate, and
motivate
managers. It consists of six stages
• Corporate objectives defined at board level.
• Management tasks analyzed, with formal job specifications allocating

responsibilities
• Performance standards set.
• Specific objectives agreed and set.
• Individual targets harnessed with corporate objectives.
• MIS established to monitor achievement against objectives. .
What is the meaning of Brainstorming?

Under this method, a problem is posed and alternative solutions are
invited from the

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participants. Their suggestions are then critically examined and the
assessment of their
abilities is made. The purpose of this method of training is to enable the

executive to
take maximum number of decisions within a limited period of time.
Accounting:
• The bookkeeping methods involved in making a financial record of

business transactions and in the preparation of statements concerning
the assets, liabilities, and operating results of a business.
Financial Accounting
• Reporting of the financial position and performance of a firm through

financial statements issued to external users on a periodic basis.
Managerial Accounting
• The process of identifying, measuring, analyzing, interpreting, and

communicating information for the pursuit of an organization's goals.
• This is also known as "cost accounting".
Key Difference between Managerial and Financial accounting
• The key difference between managerial and financial accounting is that

managerial accounting information is aimed at helping managers within
the organization make decisions. In contrast, financial accounting is
aimed at providing information to parties outside the organization.
Finance
• The science of the management of money and other assets.
• The management of money, banking, investments, and credit.
• finances Monetary resources; funds, especially those of a government

or corporate body.

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• The supplying of funds or capital.
Financial Management
In other words, financial management is about planning income, and expenditure and make
decisions that will enable one to survive financially
May refer to:
• Managerial finance, the branch of finance that concerns itself with the
managerial significance of finance techniques
• Corporate finance, an area of dealing with the corporate financial

decisions
Managerial finance
• Managerial finance is the branch of the finance that concerns itself with
the managerial significance of finance techniques. It is focused on
assessment rather than technique.
Corporate finance
• Corporate finance is the field of finance dealing with financial

decisions business enterprises make and the tools and analysis used to
make these decisions. The primary goal of corporate finance is to
maximize corporate value while managing the firm's financial risks.
Marketing
Philip Kotler defines marketing as 'satisfying needs and wants through an
exchange process' It is an integrated process through which companies build
strong customer relationships and create value for their customers and for
themselves.
Management:
• The act, manner, or practice of managing; handling, supervision, or

control: management of a crisis; management of factory workers.
• The person or persons who control or direct a business or other

enterprise.
Computer:
• A computer is an Electronic Device that can accept data, process it and

give result after processing
Statistics:

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• The mathematics of the collection, organization, and interpretation of
numerical data, especially the analysis of population characteristics by
inference from sampling.
Economics :
• The social science that deals with the production, distribution, and
consumption of goods and services and with the theory and
management of economies or economic systems.
Managerial Economics
• Application of economic principles to decision making in business firms

or other management units. The basic concepts are drawn
from microeconomic theory, but new tools of analysis have been added.
Statistical methods, for example, are increasingly important in
estimating current and future demand for products. The methods of
operations research and programming provide scientific criteria for
maximizing profit, minimizing cost, and selecting the most profitable
combination of products. Decision-making theory and game theory,
which recognize the conditions of uncertainty and imperfect knowledge
under which business managers operate, have contributed to
systematic methods of assessing investment opportunities.
Operations management
• Operations management is an area of business concerned with the

production of goods and services, and involves the ensuring
that business operations are efficient in terms of using as little resource
as needed, and effective in terms of meeting customer requirements. It
is concerned with managing the process that converts inputs (in the
forms of materials, labor and energy) into outputs (in the form of goods
and services).
Investment:
• The Commitment of funds to one or more asset that will be held over
some future time period
Total Quality Management:
• Management practices designed to improve the performance of

organizational processes in business and industry. Based on concepts
developed by statistician and management theorist W. Edwards
Deming, TQM includes techniques for achieving efficiency, solving
problems, imposing standardization and statistical control, and
regulating design, housekeeping, and other aspects of business or
production processes. See also International Organization for
Standardization (ISO); Total Quality Control (TQC).

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International Business
• International business is a term used to collectively describe all

commercial transactions (private and
governmental, sales, investments, logistics, and transportation) that
take place between two or more nations. Usually, private companies
undertake such transactions for profit; governments undertake them for
profit and for political reasons. It refers to all those business activities
which involves cross border transactions of goods, services, resources
between two or more nations. Transaction of economic resources
include capital, skills, people etc. for international production of physical
goods and services such as finance, banking, insurance, construction
etc
Human Resources Management (HRM)
• Term that is replacing personnel management and implying that

personnel managers should not merely handle recruitment, pay, and
discharging, but should maximize the use of an organization's human
resources
Taxation
• The act or practice of imposing taxes.

BEST
• The fact of being taxed. OF
• An assessed amount of tax.
LUCK
• Revenue gained from taxes.

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Accounting and Finance Basic Definitions (Mozam331@yahoo - Com)

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Accounting and Finance Basic Definitions (Mozam331@yahoo - Com)

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MOZAM MUSHTAQ PRESENTATION M-COM

(FINANCE) SESSION 2008-2010

Actual Realized Rate of Return,- ks

Adjustable Rate Preferred Stocks (ARPs)

After-tax Cost of Debt, kd (1-T)

Annual Percentage Rate (APR)

Annual Percentage Rate (APR)

Capital Asset Pricing Model (CAPM)

Cash Flow (CF)

Common Stockholders' Equity (Net Worth)

Cost of New Common Equity, ke

Cost of Preferred Stock, kps

Cost of Retained Earnings, ks

Coupon Interest Rate

Earnings Per Share (EPS)

Expected Rate of Return, ^k

Expected Rate of Return,^ ks

Expected Return on a Portfolio, ^kp

Expected Total Return

Floating Rate Bond

Future Value (FV)

Future Value Interest Factor for an Annuity (FVIFAi,n)

Future Value Interest Factor for i and n (FVIFi,n)

Internal Rate of Return (IRR) Method

Just-in-Time (JIT) System

Marginal Cost of Capital (MCC)

Market Value Added (MVA)

Net Cash Flow

Net Present Value (NPV) Method

Operation Cash Flow

Ordinary (Deferred) Annuity

Present Value (PV)

Present Value Interest Factor for an Annuity (PVIFAi,n)

Present Value Interest Factor for i and n (PVIFi,n)

Project Cost of Capital, kp

Relevant Cash Flows

Required Rate of Return, ks

Return on Common Equity (ROE)

Return on Total Assets (ROA)

Uneven Cash Flow Stream

A merger between a firm and one of its suppliers or customers.

Weighted Average Cost of Capital, WACC

Zero Coupon Bond

Zero Growth Stock

deviation of the distribution of returns.

How many types of risks are present in the market? How we

security/portfolio/asset can be calculated by using standard deviation and

What do you understand by Systematic Risk?

avoided by diversifying ones portfolio. Economic, social or political factors

rise and fall together.

company or project. It is calculated as:

ROI= Earning Before Interest and Taxes/ Total Assets.

What is meant by gearing ratio?

express the capital of a firm.

Can you explain, what is P/E ratio?

What is the importance of P/E Ratio in stock valuation?

What do you understand by cost of capital?

expectations of investors who provide the funds to the firm. It is often

weighted arithmetic average of the cost of various sources of finance

What is Weighted Average Cost of Capital (WACC)?

and equity) and for financing any investment project, it tries to

What is CAPM (Capital Asset Pricing Model)?

Tell us something about Portfolio Theory?