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Break-even pointBreak-even point is the sales volume at which total contribution margin exactly covers total fixed costs, leaving profit at zero. Below this level the business makes a loss; every unit above it adds directly to profit.Read definitionDepreciationDepreciation allocates a long-lived asset's cost as an expense across the periods it helps generate revenue. The straight-line method spreads this evenly: annual charge equals cost minus residual value, divided by useful life.Read definitionReturn on investmentReturn on investment measures how efficiently an investment centre uses its assets. It is operating profit divided by the investment base, expressed as a percentage, and is the primary divisional performance ratio.Read definition
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A62 terms
A/B testingA/B testing is a randomised experiment that shows two versions of something, such as a webpage or price, to separate groups to see which produces the better outcome.
Abnormal gainAbnormal gain is the extra good output a process produces when actual losses come in below the normal loss allowance, valued at the normal cost per unit and credited to the process account.
AbsenteeismAbsenteeism is habitual unplanned absence from work, tracked as the percentage of scheduled working days lost, calculated as days lost divided by days available, multiplied by 100.
Absorption costingAbsorption costing, also called full costing, assigns all manufacturing costs to each unit produced: direct materials, direct labour, variable overhead, and a share of fixed manufacturing overhead.
Absorption costing profit reconciliationAbsorption costing profit reconciliation explains why absorption and variable costing report different profits: the difference equals the change in inventory units multiplied by the fixed overhead rate per unit.
Acceptable quality levelAcceptable quality level (AQL) is the highest fraction of defective units a sampling plan is designed to pass most of the time — the line a buyer draws for what still counts as an acceptable batch.
Acceptance samplingAcceptance sampling is a quality-control method that inspects a random sample from a batch and accepts or rejects the entire batch based on how many defects the sample contains.
Account analysis methodAccount analysis method estimates cost behaviour by classifying each general ledger account as fixed, variable or mixed based on management judgement and summing the classes; it is fast and practical but more subjective than regression.
B46 terms
Backflush costingBackflush costing records costs at one or two trigger points — product completion or sale — rather than through sequential WIP accounts; it suits just-in-time environments where work-in-progress inventories are negligible.
Balance sheetBalance sheet reports the financial position of a business at a single point in time, not over a period. It presents the accounting equation: assets on one side, liabilities and owners' equity on the other, with both totals always matching.
Balanced scorecardBalanced scorecard is a strategic performance framework that organises measures into four perspectives: financial, customer, internal process, and learning and growth.
Bank overdraftBank overdraft is a negative bank balance repayable on demand, reported as a current liability rather than netted against positive cash, though it may count as a cash equivalent in the cash-flow statement.
Bank reconciliation statementA bank reconciliation statement is a working schedule explaining every difference between a business's cash book balance and its bank statement balance, so both are brought to one agreed true cash figure.
Bankruptcy costsBankruptcy costs are the direct (legal, administrative) and indirect (lost sales, distressed asset sales) expenses a firm bears near or in default, offsetting the tax shield in trade-off capital structure theory.
Bar chartA bar chart compares categories using separated rectangular bars whose lengths are proportional to the values shown, distinct from a histogram, which shows one numeric variable's distribution with touching bars.
Base effectThe base effect is the distortion in a percentage change caused by an unusually high or low comparison value in the base period, which can make a growth or inflation figure look misleadingly large or small.
C140 terms
Call optionA call option gives its holder the right, but not the obligation, to buy an underlying asset at a fixed strike price on or before expiry, with payoff max(spot price − strike price, 0).
Callable bondA callable bond gives the issuer the right, not the obligation, to redeem it early at a preset call price, typically once interest rates fall enough to make refinancing cheaper.
Capacity utilisationCapacity utilisation: actual output expressed as a percentage of available (practical) capacity — how much of a factory, hotel or fleet is actually being used.
Capital asset pricing modelThe capital asset pricing model (CAPM) gives required return as the risk-free rate plus beta times the market risk premium: r = rf + β(rm − rf). Only systematic risk is priced.
Capital employedCapital employed is the long-term funds financing a business: total equity plus non-current liabilities, equivalently total assets minus current liabilities. It is the denominator of return on capital employed (ROCE).
Capital expenditure budgetThe capital expenditure budget sets out planned spending on non-current assets — property, plant, equipment and major intangibles — during a budget period, feeding into both the cash budget and the budgeted balance sheet.
Capital expenditure vs revenue expenditureCapital expenditure vs revenue expenditure is the classification test behind every cost: capital expenditure is capitalised as an asset and depreciated, while revenue expenditure is expensed immediately.
Capital gains yieldCapital gains yield is the price-appreciation part of a share's return, equal to (ending price − beginning price) ÷ beginning price, excluding any dividend.
D61 terms
Days inventory outstandingDays inventory outstanding (DIO) is the average number of days inventory sits in stock before being sold, calculated as average inventory divided by cost of goods sold, multiplied by 365.
Days sales outstandingDays sales outstanding is the average number of days a business takes to collect payment after a sale, calculated as accounts receivable divided by daily revenue; a shorter figure signals tighter credit control.
Debit and creditDebit and credit are the two equal sides of every accounting entry under double-entry bookkeeping.
Debt covenantA debt covenant is a lender-imposed restriction in a loan requiring the borrower to maintain financial ratios above set levels, such as minimum interest cover.
Debt-to-equity ratioThe debt-to-equity ratio is total debt divided by total shareholders' equity, expressing how much of a firm's financing comes from creditors relative to owners; a rising ratio signals increasing financial risk.
DecentralisationDecentralisation shifts significant decision-making authority away from headquarters and towards local managers who are closer to customers and daily operations.
DecileA decile is one of nine values that split ranked data into ten equal-sized groups of 10% each. Deciles locate an observation's relative position, such as income or fund-return rank.
Decision treeA decision tree is a branching diagram mapping decisions and uncertain outcomes, evaluated by rolling expected values back from the end branches to find the best choice.
E45 terms
EBITDAEBITDA — earnings before interest, taxes, depreciation and amortisation — approximates the cash operating profit from core activities, stripping out financing costs and non-cash charges; widely used in valuation multiples and loan.
EBITDA marginEBITDA margin is EBITDA expressed as a percentage of revenue, showing operating profitability before depreciation, amortisation, interest and tax distort the comparison.
EV/EBITDA multipleThe EV/EBITDA multiple divides enterprise value by EBITDA to produce a capital-structure-neutral valuation benchmark.
Earnings per shareEarnings per share is net profit attributable to ordinary shareholders divided by the weighted average number of shares in issue; a key profitability indicator disclosed on the face of the income statement.
EconometricsEconometrics applies statistical methods to economic data to quantify how variables are related and to test whether economic theories hold empirically.
Economic batch quantityEconomic batch quantity is the production-run size that minimises combined setup and holding costs when a batch is produced gradually rather than delivered all at once.
Economic order quantityEconomic order quantity (EOQ) is the order size that minimises combined ordering and holding costs, found where the ordering-cost and carrying-cost curves cross. It answers the question of how much stock to order each time.
Economic profitEconomic profit is total revenue minus both explicit costs and implicit (opportunity) costs, such as a founder's foregone salary. Accounting profit ignores implicit costs, so a business can earn one while making an economic loss.
F46 terms
F-distributionThe F-distribution is the right-skewed sampling distribution of a ratio of two independent variance estimates, indexed by numerator and denominator degrees of freedom, supplying critical values for the F-test and ANOVA.
F-testF-test is a hypothesis test that assesses whether a set of regression coefficients are jointly different from zero.
FIFO inventory methodFIFO inventory method assumes the oldest units purchased are sold first, so cost of goods sold reflects earlier purchase costs and closing inventory is valued at the most recent prices.
FIFO method (process costing)The FIFO method in process costing costs opening work-in-process separately from units started and finished this period, rather than blending old and new costs like the weighted-average method.
Face valueA bond's face value is the amount repaid at maturity and the base for its coupon calculation, typically €1,000 in a textbook problem, and it is fixed regardless of the bond's trading price.
FactoringFactoring is selling trade receivables to a factor for immediate cash, at a discount and a fee; whether the receivable leaves the balance sheet depends on whether the sale is with or without recourse for bad debts.
Fair valueFair value is what an asset would sell for, or a liability cost to settle, in a normal unforced deal between willing, informed parties at the measurement date — a market exit price, not the holder's own estimate.
Favourable and unfavourable varianceFavourable and unfavourable variance: the sign convention of variance analysis — favourable means a variance pushes budgeted profit up, unfavourable (or adverse) means it pushes profit down.
G19 terms
GAAPGAAP (generally accepted accounting principles) is the rule book a company follows to prepare its financial statements. US GAAP is a detailed, rules-based codification, contrasted with the more principles-based IFRS used across Europe.
GainsharingGainsharing is a group incentive plan that pays a team a pre-agreed share of measured cost savings or productivity gains against a baseline standard, rather than a share of overall company profit.
Gambler's fallacyThe gambler's fallacy is the mistaken belief that a run of one outcome makes the opposite outcome more likely next, even though independent trials keep the same probability every time.
Gap analysisGap analysis compares where current plans will take the business with where its objectives say it should be, sizing the shortfall between the two so new strategies can be sized to close it.
Gearing ratioGearing ratio measures the proportion of a firm financed by debt relative to equity or total capital, such as the debt-to-equity ratio. High gearing signals greater reliance on borrowing and higher financial risk.
General ledgerGeneral ledger is the master record containing every account used by a business. Journal entries are posted here after they are recorded, so each account holds a running total of its transactions.
Geometric distributionThe geometric distribution models the number of independent trials needed for the first success, with probability (1-p)^(k-1) times p on trial k, and a mean of 1/p trials.
Geometric meanThe geometric mean is the n-th root of the product of n positive values. It is the correct average for multiplicative processes such as investment returns over multiple periods, and is always at or below the arithmetic mean.
H16 terms
Hamada equationThe Hamada equation splits a levered equity beta into business and financial risk: levered beta = unlevered beta × [1 + (1 − tax rate) × debt-to-equity ratio].
Harmonic meanThe harmonic mean is the number of values divided by the sum of their reciprocals. It is the correct average for rates and ratios, such as average speed or portfolio price-earnings ratios.
HedgingHedging means taking a position, often using a forward, future or option, that offsets an existing exposure so a loss on the underlying is matched by a gain on the hedge, reducing risk rather than seeking profit.
HeteroskedasticityHeteroskedasticity is a violation of the ordinary least-squares assumption that the variance of the regression error is constant across observations.
High-low methodHigh-low method separates a mixed cost into fixed and variable components using only two observations: the period with the highest activity and the period with the lowest.
High-yield bondA high-yield bond is a bond rated below investment grade, informally a junk bond, paying a higher coupon and yield than safer bonds to compensate investors for greater default risk.
HistogramA histogram is a bar chart for continuous data grouped into class intervals, where bar area, not just height, represents frequency, making it the first tool for viewing a distribution's shape.
Historical costHistorical cost is the convention of recording an asset at the price originally paid to acquire it, with no subsequent adjustment for changes in market value. The only reduction applied thereafter is accumulated depreciation.
I50 terms
IFRSIFRS (international financial reporting standards) is the principles-based accounting framework used by listed companies across Europe and most of the world. It sets how European students meet nearly every financial statement they read.
Ideal standardAn ideal standard is a performance benchmark based on perfect operating conditions — no waste, no idle time, maximum machine efficiency — that cannot be achieved in practice; because it permanently generates adverse variances, it is.
Idle timeIdle time is paid hours in which employees produce nothing, caused by machine breakdowns, material shortages or scheduling gaps. Normal idle time is charged to production overhead, not to a specific job.
Idle time varianceThe idle time variance is the cost of direct-labour hours paid but not productively worked, calculated as idle hours multiplied by the standard wage rate; separating it from the efficiency variance prevents uncontrollable stoppages from.
ImpairmentImpairment is a write-down of an asset's carrying amount to its recoverable amount when the asset's value has fallen below its book value; the loss is recognised immediately in the income statement.
Imposed budgetAn imposed budget, also called a top-down budget, is set by senior management and handed directly to operating managers without consultation, aligning quickly with strategic priorities but risking reduced commitment from managers who.
Imputed interest chargeImputed interest charge is the notional cost of capital tied up in a division: its investment base multiplied by the company's required rate of return, deducted from operating profit to find residual income.
Incentive compensationIncentive compensation ties a manager's pay to measured performance — such as profit or return on investment — to align their self-interest with organisational goals; poorly designed schemes encourage short-termism or gaming.
J10 terms
Jarque-Bera testThe Jarque-Bera test checks whether regression residuals are normally distributed by comparing their sample skewness and kurtosis to the values expected under normality, producing a statistic compared to a chi-square distribution.
Jensen's alphaJensen's alpha is a portfolio's actual return minus its CAPM-predicted return. A positive value signals risk-adjusted outperformance relative to passive market exposure and is the standard metric for evaluating active fund management.
Job cost sheetA job cost sheet is the running record that accumulates the direct materials, direct labour and applied overhead charged to one specific job, used to find that job's total and per-unit cost under job costing.
Job costingJob costing is a method of accumulating production costs separately for each distinct order, contract, or batch.
Joint cost allocationJoint cost allocation apportions the shared production costs incurred up to the split-off point among the separate products that emerge from a joint process, using bases such as physical volume or relative sales value.
Joint probabilityJoint probability is the chance that two events occur together, P(A and B), read from the inside cells of a contingency table rather than its row or column totals.
Joint productA joint product is one of two or more products with significant sales value that emerge together from a shared process and only become separable at the split-off point.
Journal entryJournal entry is the first record a transaction receives in an accounting system. Written in the general journal, it states the date, the accounts affected, the amounts debited and credited, and a brief narration.
K6 terms
Kaizen budgetingKaizen budgeting builds a small, continuous cost-reduction target into each period's budget, so the standard cost baseline is expected to fall period after period rather than stay fixed.
Kaizen costingKaizen costing pursues continuous, incremental reductions in production costs throughout a product's life. It relies on frequent small improvements by front-line workers rather than periodic large-scale redesigns.
KanbanKanban: a pull-based signalling system, typically cards or bins, that authorises a workstation to produce or replenish only when the next stage downstream actually needs more units.
Key performance indicatorKey performance indicator is a quantified measure selected to track progress toward a specific strategic or operational objective.
Kruskal-Wallis testThe Kruskal-Wallis test is a non-parametric method that compares medians across three or more independent groups by ranking all observations together, used when ANOVA's normal-distribution assumption is not met.
KurtosisKurtosis measures the heaviness of a distribution's tails relative to a normal distribution. Excess kurtosis above zero means heavier tails than normal, implying more frequent extreme values — a concern in financial risk modelling.
L33 terms
LIFO inventory methodThe LIFO inventory method assumes the most recently purchased units are sold first, so cost of goods sold reflects recent prices while closing stock carries older costs. It is permitted under US GAAP but prohibited by IFRS.
Labour mix varianceLabour mix variance measures the cost effect of using a different proportion of labour grades, such as skilled versus unskilled, than standard, for the actual total hours actually worked.
Labour productivityLabour productivity measures output per unit of labour input, usually output units divided by labour hours worked, and is the standard non-financial efficiency measure on operating and divisional performance reports.
Labour turnover rateLabour turnover rate is the percentage of employees who leave during a period relative to the average number employed, used to estimate the cost of recruiting and training replacements.
Labour yield varianceLabour yield variance measures the cost effect of actual total labour hours worked differing from the standard hours allowed for actual output, holding the standard labour mix and rate constant.
Lag indicatorA lag indicator is a performance measure that records an outcome after it has occurred — such as annual revenue, return on assets or year-end customer satisfaction scores — confirming whether objectives were achieved but providing no.
Laspeyres indexThe Laspeyres index is a weighted price index that values a fixed base-period basket of quantities at current prices, so it measures pure price change but tends to overstate cost-of-living increases by ignoring substitution.
Law of large numbersThe law of large numbers states that the sample mean converges in probability to the true population mean as sample size increases without bound, providing the theoretical basis for using sample statistics to approximate population.
M65 terms
Machine hour rateMachine hour rate is an overhead absorption rate that charges factory overhead to products based on machine hours used rather than labour hours. It suits production that is machine-intensive rather than driven mainly by manual labour.
Make-or-buy decisionMake-or-buy decision compares the costs a business can avoid by stopping in-house production against the purchase price from an external supplier.
Management by exceptionManagement by exception focuses managerial attention on significant deviations from plan, leaving results that are close to budget unexamined. It directs scarce time to variances large or unusual enough to warrant investigation.
Management by objectivesManagement by objectives is a performance management approach in which managers and their superiors jointly agree specific, measurable targets at the start of a period and evaluate results against those goals at period end, promoting.
Management controlManagement control is the system of financial and non-financial measures that steers managers' decisions toward an organisation's strategy.
Managerial accountingManagerial accounting produces internal financial and non-financial information so managers can plan operations, control costs, and make decisions.
Mann-Whitney U testThe Mann-Whitney U test compares two independent groups by jointly ranking all observations and testing whether one group tends to produce higher values.
Manufacturing cost flowManufacturing cost flow: the path production costs travel through a manufacturer's accounts, moving from direct materials, labour and overhead into work in progress, then finished goods, then cost of goods sold.
N30 terms
NOPATNOPAT (net operating profit after tax) is operating profit adjusted for tax but before financing costs. It is the standard starting profit figure used to compute economic value added and similar divisional return measures.
NPV profileAn NPV profile is a graph plotting a project's net present value against a range of discount rates, showing the IRR where the line crosses zero and how project rankings can shift across rates.
Negative goodwillNegative goodwill, or a bargain purchase gain, arises when an acquirer pays less than the fair value of the net assets it buys; under IFRS 3 the excess is recognised immediately in profit after the figures are rechecked.
Negotiated transfer priceNegotiated transfer price is an internal pricing approach in which the selling and buying divisions agree a charge through direct bargaining.
Net assetsNet assets equal total assets minus total liabilities; by the accounting equation this figure always equals total equity, so it summarises an owner's stake in the business.
Net book valueNet book value (NBV) is an asset's original cost minus its accumulated depreciation, the carrying amount reported on the balance sheet.
Net debtNet debt is a company's total interest-bearing debt minus its cash and cash equivalents — what it would still owe if it used all its cash today to pay down borrowings. It bridges enterprise value and equity value.
Net incomeNet income is the profit remaining after all expenses — cost of goods sold, operating costs, interest, and income tax — have been deducted from revenue. It sits at the foot of the income statement, often called the bottom line.
O31 terms
OLS assumptionsOLS assumptions are the conditions data and errors must satisfy for ordinary least squares to deliver unbiased, efficient estimates.
Objectives and key results (OKR)Objectives and key results (OKR) is a goal-setting method pairing one qualitative objective with three to five measurable key results, set and scored each quarter and cascaded from company down to team level.
Obsolete inventoryObsolete inventory is stock that can no longer be sold at normal prices, such as outdated models or expired goods. It must be written down to net realisable value, or written off entirely if unsellable.
Omitted variable biasOmitted variable bias distorts a regression coefficient when the model excludes a variable that both affects the outcome and correlates with an included regressor.
One-proportion z-testA one-proportion z-test checks whether a population proportion equals a claimed value by comparing the sample proportion to that claim using the normal approximation, producing a z-statistic to judge the gap.
One-sample t-testOne-sample t-test assesses whether a sample mean is consistent with a hypothesised population value.
One-tailed testA one-tailed test places the entire rejection region in one tail of the distribution, used when the alternative hypothesis specifies a direction. It is more powerful than a two-tailed test for detecting effects in that direction.
Onerous contractAn onerous contract is one the firm is locked into where finishing it now costs more than it will ever earn back, forcing the company to recognise a provision for the expected net loss immediately.
P83 terms
PDCA cycleThe PDCA cycle (plan-do-check-act) is Deming's four-step loop for continuous improvement: set a target, trial the change, measure the result, then standardise or adjust and repeat.
Paasche indexThe Paasche index is a weighted price index that values the current period's basket of quantities at current versus base prices; paired with the Laspeyres index, the two bracket the true change in the cost of living.
Paired t-testA paired t-test tests whether the mean difference between matched pairs of observations — such as before-and-after measurements — is zero, by analysing the within-pair differences as a single sample.
Panel dataPanel data tracks the same set of units across multiple time periods, combining cross-sectional and time-series dimensions in a single dataset.
ParameterParameter is a fixed numerical property of an entire population, such as the true mean or a regression slope. Researchers rarely observe the whole population, so parameters are estimated from sample data using rules called estimators.
Pareto chartA Pareto chart ranks categories from most to least frequent as bars, with an overlaid cumulative-percentage line showing how few causes account for most of the total.
Partial correlationPartial correlation measures the linear association between two variables after removing the influence of specified control variables.
Participative budgetingParticipative budgeting lets the managers accountable for targets help build those targets, drawing on local knowledge and building commitment. Its main risk is that managers introduce slack to make targets easier to achieve.
Q5 terms
Quality loss functionThe quality loss function models quality cost as rising with the square of any deviation from the target specification, L = k(x − T)², not only once a unit falls outside a tolerance limit.
QuartileA quartile is one of three values (Q1, Q2, Q3) that split an ordered data set into four equal-sized groups, found using a position formula such as k(n+1)/4.
Quick ratioQuick ratio removes inventory from current assets before dividing by current liabilities, testing whether liquid assets alone can cover short-term obligations.
QuintileQuintile refers to one of the four cut points that divide ranked data into five equal 20% groups, used alongside quartiles and deciles to describe distributions of income or performance.
Quota samplingQuota sampling is a non-probability method that fills fixed quotas for a population's subgroups, such as age or gender, without randomly selecting who fills each quota, so it cannot support formal confidence intervals.
R58 terms
R-squaredR-squared measures what proportion of variation in the dependent variable the regression model explains, on a scale from 0 to 1.
Random variableRandom variable is a rule that assigns a number to each outcome of a random process, making probability analysis tractable. It is uncertain before the outcome occurs.
Random walkA random walk is a process where each value equals the previous value, plus drift in the version with a trend, plus an unpredictable shock — so the best forecast of the next value is simply the last one, adjusted for drift.
RangeThe range is the simplest measure of spread: the highest value in a data set minus the lowest. It uses only two observations and is highly sensitive to outliers.
Ratchet effectThe ratchet effect is the tendency for this year's actual performance to become next year's budget target, which pushes managers to just beat rather than significantly exceed their budget.
Raw materials inventoryRaw materials inventory is the stock of unprocessed inputs held ready for use in production, recognised as a current asset. Costs transfer to work-in-progress as materials are issued to the factory floor.
Real interest rateReal interest rate is the nominal rate adjusted for inflation, linked by (1 + nominal) = (1 + real)(1 + inflation); it measures true growth in purchasing power.
Real optionsReal options are the value of managerial flexibility in a project — the option to expand, delay, or abandon it — which a static NPV calculation ignores.
S100 terms
SWOT analysisA SWOT analysis sorts an organisation's internal strengths and weaknesses and external opportunities and threats into a two-by-two grid, giving strategy-setting a specific, evidenced starting picture rather than an assumed one.
Safety stockSafety stock is the buffer inventory held above expected demand to absorb spikes in usage or supplier delays during the lead time.
Sale and leasebackSale and leaseback is a transaction in which a firm sells an asset it owns and immediately leases it back, raising cash while keeping continued use of that asset.
Sales forecastSales forecast: a prediction of future sales built from market and trend data, distinct from the sales budget, which is the committed plan for revenue and volume derived from it.
Sales mixSales mix is the proportions in which a company sells its different products. It determines the overall contribution margin and where the break-even point falls, because each product contributes differently.
Sales returns and allowancesSales returns and allowances is a contra-revenue account that reduces reported sales for goods returned or price reductions granted, kept separate from the original sale so managers can see return rates directly.
Sales-mix varianceSales-mix variance is the portion of the sales-volume variance caused by selling products in different proportions from budget, holding total units sold constant. A shift toward higher-margin products produces a favourable variance.
Sales-price varianceSales-price variance is the impact on profit of selling at a price different from budget, calculated as the difference between actual and standard price multiplied by actual units sold. It isolates price from volume effects.
T48 terms
T-accountT-account is a simple visual diagram for tracking all entries in a single ledger account. Debits sit on the left, credits on the right. The balance equals the larger side minus the smaller.
Tableau de bordA tableau de bord is a French management-control dashboard in which each manager selects a small set of physical and financial indicators tied to their own objectives, rather than a fixed template from above.
Takt timeTakt time is the pace production must hold to match customer demand: available production time divided by units of customer demand for the same period.
Target cost gapTarget cost gap is the shortfall between a product's currently estimated cost and its target cost (target price minus required margin), which value engineering must close before launch.
Target costingTarget costing derives the maximum allowable cost for a product by subtracting the required profit from the market price customers will accept. This reverses the conventional cost-plus logic.
Target profitTarget profit analysis extends break-even analysis by asking how many units must be sold to cover all costs and earn a specific profit goal.
Tax baseThe tax base of an asset or liability is the amount attributed to it for tax purposes; it determines the temporary difference that gives rise to deferred tax by comparing it with the accounting carrying amount.
Terminal valueTerminal value is the estimated worth of a business at the end of an explicit forecast period, capturing all cash flows expected beyond that horizon, typically modelled as a perpetuity growing at a constant rate.
U7 terms
Uncontrollable costUncontrollable cost: a cost a manager cannot influence within the reporting period, such as an allocated head-office charge, excluded from that manager's performance appraisal.
UnderwritingUnderwriting is an investment bank's guarantee to buy a new securities issue from the issuer at an agreed price and resell it to investors, earning the underwriting spread for bearing that risk.
Uniform distributionA uniform distribution assigns equal probability to every outcome over a defined range. In the continuous case on [a, b], the density is f(x) = 1/(b−a); in the discrete case with n outcomes, each has probability 1/n.
Units-of-production depreciationUnits-of-production depreciation charges an asset's depreciable cost in proportion to actual usage, such as units made or hours run, rather than in equal amounts over time as under straight-line.
Unlevered betaUnlevered beta is a firm's equity beta stripped of financial leverage, reflecting only operating risk. It is derived from the observed equity beta and re-levered when estimating the cost of equity at a different target capital structure.
Unsystematic riskUnsystematic risk is firm-specific or industry-specific risk that can be diversified away by holding a broad portfolio. Because it is avoidable at no cost, markets pay no premium for bearing it.
Useful lifeUseful life is the period over which an asset is expected to generate economic benefits for its owner, forming the denominator of its depreciation or amortisation charge and reviewed at each year end.
V20 terms
Value added taxValue added tax is a consumption tax that a business collects on most sales on behalf of the tax authority, tracked through separate input and output VAT accounts rather than as revenue or an expense.
Value at riskValue at risk (VaR) is the maximum loss a portfolio is expected to suffer over a set time horizon at a given confidence level, expressed as one euro figure.
Value chain analysisValue chain analysis examines activities from raw-material sourcing to after-sales service to identify where cost is incurred and where value is created for customers, guiding cost reduction, improvement and outsourcing decisions.
Value engineeringValue engineering is a systematic review of a product's design and processes that asks whether each element creates value customers actually perceive and pay for.
Value for moneyValue for money: a performance framework judging results on economy, efficiency and effectiveness, the '3 Es', used where profit is not the objective, such as public services.
Value-added activityA value-added activity contributes to a product's utility in a way customers recognise and are willing to pay for; in activity-based management these activities are retained and optimised while non-value-added work is targeted for.
Value-based managementValue-based management steers planning, performance measurement and pay around long-run owner value, typically using residual-income-style metrics such as EVA, rather than short-run accounting profit.
Value-based pricingValue-based pricing sets a price from the value customers place on a product rather than from its production cost. It is contrasted with cost-plus pricing, where cost is the starting point rather than just a floor beneath the price.
W12 terms
WarrantA warrant gives the holder the right to buy new shares from the issuing company at a fixed price before expiry, like a long-dated call option, except exercise creates new shares and dilutes existing owners.
WasteWaste is input material lost during production with no recovery value at all, such as evaporation or dust, unlike scrap, which can still be sold for something, however small the amount.
Weighted average contribution marginThe weighted average contribution margin blends a multi-product range's different contribution margins into one figure, weighted by each product's share of the sales mix, to find a single break-even point.
Weighted average cost of capitalWeighted average cost of capital (WACC) is the blended required return on a firm's financing, weighting after-tax cost of debt and cost of equity by their market-value proportions.
Weighted average method (process costing)Weighted average method (process costing) pools opening work-in-progress cost with the current period's cost and spreads the total over all equivalent units, unlike FIFO, which keeps the two layers separate.
Weighted meanThe weighted mean multiplies each value by a weight reflecting its relative importance, then divides by the total weight. It applies when observations do not contribute equally — for example, combining department averages of unequal size.
Weighted-average cost methodThe weighted-average cost method (AVCO) values all units sold and remaining stock at the average cost of goods available for sale, recalculated as new purchases arrive. It smooths the distortion of fluctuating purchase prices.
White's testWhite's test for heteroskedasticity regresses squared OLS residuals on predictors, their squares, and cross-products, requiring no functional form assumption for the variance.
Y3 terms
Yield curveThe yield curve plots yield to maturity against time to maturity for bonds of similar credit quality, usually sloping upward but sometimes inverted ahead of an economic slowdown.
Yield to callYield to call (YTC) is the annualised return an investor earns on a callable bond if it is redeemed by the issuer at the first call date and call price, rather than held to maturity.
Yield to maturityYield to maturity (YTM) is the single discount rate that equates a bond's current market price with the present value of all its remaining cash flows, representing the total annualised return earned if the bond is held to maturity.
Z4 terms
Z-scoreZ-score measures how many standard deviations a value lies from its mean: z = (x − μ) / σ. It standardises values onto a common scale, enabling comparison across different variables and use of normal tables.
Z-testA z-test uses the standard normal distribution to test a hypothesis about a mean or proportion when the sample is large or the population variance is known. The test statistic is z = (x̄ − μ₀) / (σ / √n).
Zero-based budgetingZero-based budgeting starts each budget cycle from scratch, requiring managers to justify every item of expenditure rather than rolling forward prior-year figures. It challenges entrenched spending but is resource-intensive to prepare.
Zero-coupon bondA zero-coupon bond pays no periodic interest; it is issued at a discount and repays only face value at maturity, so its entire return comes from the gap between purchase price and face value.