Cfa Level 1 - Economics

Front 1

Accounting Profit (Loss)

Back 1

Total Revenue - Total Accounting Costs

Front 2

Normal Profit

Back 2

Accounting Profit - Economic Profit

Front 3

Total Revenue (TR)

Back 3

Price times Quantity (P x Q)

Front 4

Average Revenue (AR)

Back 4

Total Revenue divided by quantity (TR / Q)

Front 5

Marginal Revenue (MR)

Back 5

Change in total revenue divided by change in Quantity (Change TR / Change Q)

Front 6

Total Fixed Costs (TFC)

Back 6

Sum of all fixed expenses

Front 7

Total Variable Costs (TVC)

Back 7

Sum of all variable expenses

Front 8

Total Costs (TC)

Back 8

Total Fixed Costs plus Total Variable Costs (TFC + TVC)

Front 9

Average Fixed Cost (AFC)

Back 9

Total Fixed Costs divded by quanity

Front 10

Average Variable Cost (AVC)

Back 10

Total Variable Costs divded by quanity

Front 11

Average Total Cost (ATC)

Back 11

Total Costs divded by quanity

Front 12

Marginal Cost (MC)

Back 12

Change in total cost divded by change in quanity (Change TC / Change Q)

Front 13

MRP

Back 13

Marginal Revenue Product ; Marginal product * Product price (MP *PP)

Front 14

MRP of Labor

Back 14

Change in total revenue / change in quanity of labor

Front 15

A Profit Maximizing firm will hire more labor until

Back 15

MRP(labor) = Price (Labor)

Front 16

Marginal Revenue and Price Elasticity

Back 16

MR = P[1 - (1/Ep)]

Front 17

N - Firm Concentration Ratio

Back 17

Computes the aggregate market share of the N largest firms in the industry. The ratio will equal 0 for perfect competition and 100 for a monopoly

Front 18

Herfindahl-Hirschman Index (HHI)

Back 18

Adds up the squares of the market shares of each of the largest N companies in the market. The HHI equals 1 for monopoly. If there are M firms in the industry with equal market shares, the HHI will equal 1/M

Front 19

GDP Deflator

Back 19

(Nominal GDP / Real GDP) x 100

Front 20

Disposable Income

Back 20

GDP - Business Saving - Net Taxes

Front 21

LM Curve

Back 21

MV = PY

Front 22

Capacity Utilization

Back 22

Capacity Utilization is a measure of how fully an economy's production capacity is being used

Front 23

Growth in potential GDP

Back 23

Growth in Technology + WL (Growth in Labor) + Wk(Growth in Capital)

Front 24

Growth in per capita potential GDP

Back 24

Growth in Technology + Wk(Growth in Capital-labor ratio)

Front 25

Labor Productivty

Back 25

Real GDP / Aggregate Hours

Front 26

Potential GDP

Back 26

Aggregate Hours x Labor Productivity

Front 27

Potential GDP Growth Rate

Back 27

Long-term growth rate of labor force + long-term labor productivity growth rate

Front 28

Required Reserve Ratio

Back 28

Required Reserves / Total Deposits

Front 29

Money Multiplier

Back 29

1 / (Reserve Requirement)

Front 30

Basic Earnings per Share (EPS)

Back 30

(Net Income - Preferred Dividends) / Weighted Average number of Shares outstanding

Front 31

Diluted EPS

Back 31

[(net income - preferred dividends) + convertible preferred dividend + (convertible debt interest * (1-t))] / [weighted average shares + shares from conversion of convertible preferred shares + shares from conversion of convertible debt + shares issuable from stock options]

Front 32

Comprehensive Income

Back 32

Net Income + Other Comprehensive Income

Front 33

Free Cash Flow to Equity (FCFE)

Back 33

CFO - FCInv + Net Borrowing

Front 34

Inventory Turnover

Back 34

Cost of Goods Sold / Average Inventory

Front 35

Days of Inventory on hand (DOH)

Back 35

365/Inventory Turnover

Front 36

Receivables Turnover

Back 36

Revenue / Average Receivables

Front 37

Days of Sales Outstanding (DSO)

Back 37

365 / Receivables Turnover

Front 38

Payabales Turnover

Back 38

Purchases / Average trade payables

Front 39

Number of Days of Payables

Back 39

365 / Payables Turnover

Front 40

Working Capital Turnover

Back 40

Revenue / Average working capital

Front 41

Fixed Asset Turnover

Back 41

Revenue / Average Fixed Assets

Front 42

Total Asset Turnover

Back 42

Revenue / Average Total Assets

Front 43

Current Ratio

Back 43

Current Assets / Current Liabilities

Front 44

Quick Ratio

Back 44

Cash + Short-term marketable investments + Receivables / Current Liabilities

Front 45

Cash Ratio

Back 45

Cash + Short-term marketable investments / Current Liabilities

Front 46

Defensive Interval Ratio

Back 46

Cash + Short-term marketable investments + Receivables / Daily cash expenditures

Front 47

Cash Conversion Cycle

Back 47

DSO + DOH - Number of days of payables

Front 48

Debt-to-assets Ratio

Back 48

Total Debt / Total Assets

Front 49

Debt-to-capital ratio

Back 49

Total Debt / Total Debt + Shareholders' equity

Front 50

Debt-to-equity ratio

Back 50

Total Debt / Shareholders' equity

Front 51

Financial Leverage Ratio

Back 51

Average Total Assets / Average Total Equity

Front 52

Interest Coverage Ratio

Back 52

EBIT / Interest Payments

Front 53

Fixed Charge Coverage Ratio

Back 53

EBIT + Lease Payments / Interest Payments + Lease Payments

Front 54

Gross Profit Margin

Back 54

Gross Profit / Revenue

Front 55

Operating Profit Margin

Back 55

Operating Profit / Revenue

Front 56

Pretax Margin

Back 56

EBT (Earnings before tax, but after interest) / Revenue

Front 57

Net Profit Margin

Back 57

Net Income / Revenue

Front 58

Return on Assets (ROA)

Back 58

Net Income / Average total assets

Front 59

Adjusted ROA

Back 59

Net Income + Interest Expense (1 - Tax Rate) / Average Total Assets

Front 60

Operating ROA

Back 60

Operating Income or EBIT / Average Total Assets

Front 61

Return on Total Capital (ROC)

Back 61

EBIT / Short-term debt + Long-term debt + Equity

Front 62

Return on Equity (ROE)

Back 62

Net Income / Average total equity

Front 63

Return on Common Equity

Back 63

Net Income - Preferred dividends / Average Common Equity

Front 64

DuPont of ROE

Back 64

Net Income / Average Shareholders Equity

Front 65

Price-to-Earnings (P/E) Ratio

Back 65

Price per share / Earning per share

Front 66

Price to Cash Flow (P/CF)

Back 66

Price per share / Cash flow per share

Front 67

Price to Sales (P/S)

Back 67

Price per share / sales per share

Front 68

Price to Book Value (P/BV)

Back 68

Price per share / book value per share

Front 69

Dividend Payout ratio

Back 69

Common share dividends / net income attributable to common shares

Front 70

Retention Rate

Back 70

Net income attributable to common shares - common share dividends / net income attributable to common shares

Front 71

sustainable growth rate

Back 71

Retention rate x ROE

Front 72

Straight Line Depreciation

Back 72

Original Cost - Salvage value / Depreciable Life

Front 73

Accelerated Depreciation

Back 73

(2 / Depreciable life) x Book value at beginning of year "X"

Front 74

Estimated Useful Life

Back 74

Gross Investment in fixed assets / annual depreciation expense

Front 75

average cost of asset

Back 75

Accumulated depreciation / annual depreciation expense

Front 76

Remaining Useful Life

Back 76

Net Investment in fixed assets / annual depreciation expense

Front 77

Effective Tax Rate

Back 77

Income Tax expense / pretax income

Front 78

Income Tax Expense

Back 78

Taxes Payable + Change in DTL - Change in DTA

Front 79

Economic Profit

Back 79

Total Revenue - Total Economic Costs
Total Revenue - (Explicit Costs + Implicit Costs)
Accounting Profit - Total Implicit Opportunity Cost

Front 80

Monopoly

Back 80

One Seller
Unique product
High barriers to entry
Considerable Pricing Power
Advertising
MC = MR

Front 81

Perfect Compitition

Back 81

Many Sellers
Differentiated product
Low barriers to entry
Some Pricing Power
Advertising and Product Differentiation

Front 82

Monopolisitic Competition

Back 82

Many Sellers
Homogeneous / Standardized product
Very Low barriers to entry
No Pricing Power

Front 83

Oligopoly

Back 83

Few Sellers
Homogeneous / Standardized product
High barriers to entry
Some / Considerable Pricing Power
Advertising and Product Differentiation

Front 84

Nominal GDP

Back 84

Refers to the value of goods and services included in GDP measured at Current Prices

Quantity produced in Year t x Prices in Year t

Front 85

Real GDP

Back 85

Refers to the value of goods and services included in GDP measured at Base-year prices

Quantity produced in Year t x Prices in Base year

Front 86

Gross Domestic Product (GDP)

Back 86

C + I + G + (X - M)
C = Consumer Spending on final goods and services
I = Gross private domestic investment
G = Government spending on final goods and services
X = Exports
M = Imports

Front 87

Consumer and Business Expecations

Back 87

When Consumers are confident in their future income they spend higher portion of disposable income.

More Confident - AD Curve Shifts Right
Less Confident - AD Curve Shifts Left

Front 88

Fiscal Policy

Back 88

The use of taxes and government spending to affect the level of aggregate expenditures

Increase in Government Spending - AD Curve Shifts Right
Decrease in Government Spending - AD Curve Shifts Left

Lower Taxes - AD Curve Shifts Right
Higher Taxes - AD Curve Shifts Left

Front 89

Monetary Policy

Back 89

Refers to Action taken by a nation's central bank to affect aggregate output and prices through changes in bank reserves, reserve requirements, or its target interest rate

Increase in Money Supply - AD Curve Shifts Right
Decrease in Money Supply - AD Curve Shifts Left

Front 90

Solow (neoclassical) growth model

Back 90

Y = AF(L,K)
Y = Aggregate Output
L = Quantity of Labor
K = Quantity of Capital
A = Technological knowledge or total factor productivity (TFP)

Front 91

Unit Labor Cost (ULC)

Back 91

W / O

W = Total labor compensation per hour per worker
O = Output per hour per worker

Front 92

The Fischer Effect

Back 92

The nominal interest rate (Rn) reflects the real interest rate (Rr) and the expected rate of inflation (IIe)

Rn = Rr + IIe

Front 93

The Fiscal Multiplier

Back 93

Ignoring taxes: 1 / (1-MPC) = 1 / (1-0.9) = 10
Assuming Taxes: 1 / [1 - MPC(1-t)]

Front 94

Balance of Payments Components

Back 94

3 Main Componants
Current Account = Balance largely reflects trade in goods and services
Capital Account = balance mainly consists of capital transfers and net sales of non-produced, non-financial assets
Financial Account = measures net capital flows based on sales and purchases of domestic and foreign financial assets

Front 95

The Real Exchange Rate

Back 95

S x (PFC / PDC)

S = Nominal Spot Exchange
PFC = Foreign price level quoted in terms of foreign currency
PDC = Domestic price level quoted in terms of the domestic currency

Front 96

The Elasticities Approach

Back 96

Marshall-Lerner Condition: WxEx + Wm(Em -1) > 0

Wx = Share of exports in total trade
Wm = Share of imports in total trade
Ex = Price Elasticity of demand for exports
Em = Price elasticity of demand for imports

Front 97

Free Cash Flow to Firm (FCFF)

Back 97

NI + NCC + [Int * (1 - tax rate)] - FCInv - WCInv

or

CFO + [Int * (1 - tax rate)] - FCInv

Front 98

2-Way Dupont ROE

Back 98

Net Income / Average total assets x Average total assets / Average Shareholders' Equity

or

ROA x Leverage

Front 99

3-Way Dupont ROE

Back 99

Net Income / Revenue x Revenue / Average total assets x Average total assets / Average Shareholders' Equity

or

Net Profit Margin x Asset Turnover x Leverage

Front 100

5-Way Dupont ROE

Back 100

(Net Income / EBT) x (EBT / EBIT) x (EBIT / Revenue) x (Revenue / Avg. total assets) x (Avg. total assets / Avg. Shareholders' Equity)

or

Tax Burden x Interest Burden x EBIT Margin x

Asset Turnover x Leverage

Front 101

Per Share Ratios

Back 101

Cash Flow per Share = Cash Flow from operations / avg. number of shares outstanding

EBITDA Flow per Share = EBITDA / avg. number of shares outstanding

Dividends per share = Common dividends declared / weighted avg. number of ordinary shares

Front 102

Straight Line Depreciation

Back 102

Cost - Residual value / useful life

Front 103

Double-Declining Balance Depreciation (DDB)

Back 103

(2/useful life) * (cost-accumulated depreciation)

Front 104

Amortization

Back 104

the allocation of the cost of an intangible asset (such as a franchise agreement, patent) over its useful life.

Front 105

What are dilutive Securities?

Back 105

Stock options, warrants, convertible debts, or convertible preferred stock

- will decrease EPS if exercised or converted to common stock

Front 106

What are anti-dilutive Securities?

Back 106

Stock options, warrants, convertible debts, or convertible preferred stock

- will increase EPS if exercised or converted to common stock

Front 107

reinvestment ratio

Back 107

CFO / Cash Paid for Long-term assets

Front 108

Debt Payment Ratio

Back 108

Measures the firms ability to satisfy long-term debt with operating cash flow

CFO / Cash Long-term debt repayment

Front 109

Dividend Payment Ratio

Back 109

Measures the firms ability to make dividend payments from operating cash flow

CFO / Dividends paid

Front 110

investing and financing ratio

Back 110

measures the firms ability to purchase assets, satisfy debts, and pay dividends

CFO / Cash outflows from investing and financing activities