Dictionary - Financial Analysis

#### 10-Q

A 10-Q is a report of a company's performance that must be submitted quarterly by all public companies to the Securities and Exchange Commission (SEC) A 10-Q contains similar information as a 10-K, but is not as comprehensive.A 10-Q must be submitted at the end of the first 3 quarters of a company's fiscal year, while a 10-K is submitted at the end of the 4th quarter. Read more

#### Accounts Payable Turnover Ratio

The accounts payable turnover ratio is a company's purchases made on credit as a percentage of average accounts payable.The formula for accounts payable turnover ratio is: Accounts Payable Turnover = Net Credit Purchases/Average Accounts Payable Let's assume Company XYZ buys \$10 million of widget parts this year. Read more

#### Accretive

To be accretive is to increase earnings per share. This term is most often used in the context of acquisitions. Read more

#### Altman's Z-Score

Altman's Z-score is a financial statistic that is used to measure the probability of bankruptcy. Altman's Z-score is used to determine the likelihood of a company going bankrupt. Read more

#### Analyst

An analyst gathers and interprets data about securities, companies, corporate strategies, economies or financial markets.Analysts are sometimes called financial analysts, securities analysts, equity analysts or investment analysts (although there is a distinction among these titles). Read more

#### Average Annual Growth Rate (AAGR)

The average annual growth rate (AAGR) is the arithmetic mean of a series of growth rates. The average annual growth rate (AAGR) formula is: AAGR = (Growth Rate in Period A + Growth Rate in Period B + Growth Rate in Period C + [Other Periods]) / Number of Periods Let's look at an example. Read more

#### Break-Even Analysis

Break even analysis is a calculation of the quantity sold which generates enough revenues to equal expenses.In securities trading, the meaning of break even analysis is the point at which gains are equal to losses.  Another definition of break even analysis is the examination and calculation of the margin of safety that’s based on a company’s revenue – as well as the related costs of running the organization.  A break-even analysis helps business owners determine when they'll begin to turn a profit, which can help them better price their products. Read more

#### CAGR - Compound Annual Growth Rate

CAGR stands for compound annual growth rate.A widely-used measure of growth, CAGR is used to evaluate anything that can fluctuate in value (such as assets and investments). Read more

#### Capital IQ

Capital IQ is a research division of Standard & Poor's. Essentially, Capital IQ provides research and analysis on companies. Read more

#### Cash Budget

Cash budget is a review or projection of cash inflows and outflows.It can be used as a tool for analyzing the revenues and costs of a company or individual. Read more

#### Cost of Capital

Cost of capital can best be described as the ability to cover both asset and liability expenditures while generating a profit.  A simpler cost of capital definition: Companies can use this rate of return to decide whether to move forward with a project.Investors can use this economic principle to determine the risk of investing in a company.  Cost of capital is the return (%) expected by investors who provide capital for a business. Read more

#### Earnings Season

Earnings season refers to the four times per year when most public companies announce their quarterly and/or annual earnings. Although there are no official dates, earnings seasons usually last about a month and start in mid-January (after the fourth quarter ends in December), mid-April (after the first quarter ends in March), mid-July (after the second quarter ends in June), and mid-October (after the third quarter ends in September). Read more

#### EBITDA - Earnings Before Interest, Taxes, Depreciation and Amortization

Earnings before interest, taxes, depreciation, and amortization (EBITDA) is a measure of corporate profitability.Analysts and investors use EBITDA to evaluate a company's underlying profits without factoring in financing/accounting decisions or tax environments. Although EBITDA reporting is not required under Generally Accepted Accounting Principles (GAAP), many companies include a breakdown of their EBITDA along with their quarterly and annual financial reports. Read more

#### Electronic Data Gathering, Analysis and Retrieval (EDGAR)

EDGAR, the Electronic Data Gathering, Analysis and Retrieval system, is an automated system of submission used by public companies required to file forms with the U.S.Securities and Exchange Commission (SEC) In 1984, EDGAR was created by the SEC to improve the quality and speed of information available to investors and corporations. Read more

#### Financial Engineering

Financial engineering is the quantitative, technical development of financial strategies and products. Financial engineers design, create and implement new financial instruments, models and processes to solve problems in finance and take advantage of new financial opportunities. Read more

#### Financial Planning and Analysis (FP&A)

There are two parts to FP&A: financial planning and financial analysis.Financial planning is the process of creating a complete account of an individual’s or business’s plan for long-term security. Read more

#### Fixed Costs

Fixed costs are independent expenses that companies must pay, regardless of what their business does.Because they cover expenses that help keep the business up and running, they are sometimes referred to as overhead costs.  Fixed costs do not change when goods or services produced or sold by a company move up or down. Read more

#### Forensic Accounting

Forensic accounting is a form of investigative accounting which examines financial records in order to find evidence for a lawsuit or criminal prosecution. Forensic Accounting is sometimes referred to as forensic auditing. Read more

#### Forensic Auditing

Forensic auditing examines individual or company financial records as an investigative measure that attempts to derive evidence suitable for use in litigation. Forensic auditing can sometimes be referred to as forensic accounting. Read more

#### Future Value (FV)

Future value (FV) refers to a method of calculating how much the present value (PV) of an asset or cash will be worth at a specific time in the future. One dollar put into a savings account today might be worth more than one dollar a year from now. Read more

#### Goodness of Fit

Goodness of fit (also known as a chi-square goodness of fit) is a statistical term referring to how far apart the expected values of a financial model are from the actual values. Goodness of fit is a component of regression analysis, which is a statistical method used in finance and a variety of other fields to make predictions based on observed values. Read more

#### Last Fiscal Year (LFY)

Last fiscal year (LFY) refers to a company's most recent completed fiscal year. A fiscal year is a company's 12-month accounting cycle. Read more

#### Last Twelve Months (LTM)

Last twelve months (LTM), also known as trailing twelve months (TTM), is the 12-month interval occurring before a given point in time.  For example, an analyst who is issuing a report on October 15, 2012, will report last twelve months (LTW) earnings as those from October 1, 2011, to September 30, 2012.  Analysts and policymakers frequently use the last twelve months to gauge economic performance and to analyze data from the past year.It is important not to confuse the last twelve months with the last fiscal year (LFY), which covers the organization's most recently-completed fiscal year. Read more

#### Management Discussion and Analysis

In the financial world, a management discussion and analysis (MD&A) is a written explanation of a public company's performance for the reporting period.The explanation appears in the company's disclosures to the Securities and Exchange Commission (usually the 10-K and 10-Q). Read more

#### Mosaic Theory

In the finance world, the mosaic theory refers to a research approach whereby the analyst arrives at a conclusion by piecing together bits of publicly available information. For example, let's assume that John Doe is an analyst at Company XYZ. Read more

#### Net Present Value Rule

The net present value rule is the idea that investors and managers should only engage in deals, projects or transactions that have positive net present value (NPV).  Using the NPV formula, the net present value rule decides if an acquisition or project is worth it based on the following criteria: If NPV < 0, the project/acquisition will lose the company money and therefore may not be considered.If NPV = 0, the project/acquisition will neither increase nor decrease value of the company and non-monetary benefits may instead be considered before a decision is made. Read more

#### Predictive Indicator

A predictive indicator is a ratio, index, report or other measurement that signals a company or market's direction in advance.  The business cycle has highs and lows.That's why predicting what's around the corner is one of the best (but most difficult) ways to protect and grow portfolios. Read more

#### Return on Investment (ROI)

ROI (or return on investment) is a key financial ratio that measures the gain/loss from an investment in relation to the initial investment.  Due to its flexibility and simplicity, ROI is one of the most frequently used profitability metrics.It's extremely useful to gauge the efficiency and profitability of investments. Read more

#### Revenue per Available Room (RevPAR)

Revenue per available room, or RevPAR for short, is a ratio commonly used to measure financial performance in the hospitality industry.The metric, which is a function of both room rates and occupancy, is one of the most important gauges of health among hotel operators. Read more

#### Revenue Per Employee

Revenue per employee measures the average revenue generated by each employee of a company.  Revenue per employee is calculated by dividing a firm's revenue by its total number of workers (Revenue/Number of Employees).Let's take a closer look some sample figures from Company XYZ: 2005 Revenue:  \$50,000,000 Employees:  312 By plugging the information provided above into the above formula, we can calculate the firm's revenue per employee as follows: \$50,000,000/312 = \$160,256.41 Therefore, every employee at Company XYZ contributed approximately \$160,256 in revenue for 2005. Read more

#### Rolling EPS

The rolling EPS is a variation of the earnings per share (EPS) metric which measures a company's profitability. The rolling EPS is measured on the basis of a year and is calculated by adding a company's EPS from the two previous quarters to the projected EPS for the two upcoming quarters. Read more

#### Stochastics

This is a momentum indicator that shows the location of the current close relative to the high/low range over a set number of periods.Momentum indicators try to identify turning points by measuring how fast prices are rising or falling. Read more

#### SWOT Analysis

SWOT stands for strengths, weaknesses, opportunities, and threats.A SWOT analysis uses internal and external data to evaluate a company's competitive status and risk exposures in strategic planning. Read more

#### Synergy

Synergy occurs when two (or more) agents work together to achieve something that one couldn't have achieved on its own.The simplest concept of synergy is the whole being greater than the sum of its parts.  In management, synergies may be created between management teams, resulting in increased capacity and workflow that weren’t possible with independent teams.  Synergy is often a major goal during mergers and acquisitions, specifically because two firms may be able to achieve higher profitability than either firm could achieve on its own.  In this straightforward example of synergy in business, Company ABC may acquire Company XYZ, a similar firm. Read more

#### Williams %R

Often combined with stochastics to detect overbought and oversold conditions, Williams %R -- or %R for short -- is a momentum indicator developed by Larry Williams. While stochastics compares the close of a security/index to its lowest low over a specific time period, Williams %R compares the close to its highest high over a specified period. Read more