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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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A46 terms
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.
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.
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.
Accounting cycleThe accounting cycle is the repeating sequence of steps — journalise, post, trial balance, adjust, prepare statements, close — that turns a period's transactions into a fresh set of accounts.
Accounting equationAccounting equation is the core identity of double-entry bookkeeping: assets equal liabilities plus equity. Every transaction, without exception, preserves this balance.
Accounting periodAccounting period is the defined span of time a set of financial statements covers — typically one month, one quarter, or one year. Revenue, expenses, and profit figures only make sense relative to a period.
Accounting policyAn accounting policy is the specific method a company chooses to apply an accounting rule, such as FIFO versus weighted average for inventory, disclosed in the notes and changed only retrospectively.
B37 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.
Basic standardBasic standard: a standard cost held unchanged for many years purely to show cost trends over time, unlike ideal or attainable standards, which are reset regularly for current variance analysis.
C119 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.
D49 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.
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.
Deferred revenueDeferred revenue is cash received from a customer before the related goods or services are delivered, recorded as a current liability rather than revenue until the performance obligation is fulfilled; also called unearned revenue.
E32 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.
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 value addedEconomic value added is net operating profit after tax minus a capital charge: invested capital multiplied by the weighted average cost of capital. It measures whether a business creates or destroys value above its financing costs.
Effect sizeEffect size measures the practical importance of a result independently of sample size. A finding can be statistically significant yet trivially small. Cohen's d is the most widely used index for mean comparisons.
F37 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.
G13 terms
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.
Goal congruenceGoal congruence is the alignment between a manager's personal incentives and the organisation's objectives, such that decisions that benefit the manager also benefit the firm.
Going concernThe going concern assumption holds that a business will continue operating for the foreseeable future, justifying assets being carried at cost; if the assumption is seriously in doubt, disclosure and restatement are required.
GoodwillGoodwill is the excess paid to acquire a business over the fair value of its identifiable net assets, reflecting unrecorded value such as reputation and customer loyalty; it is subject to annual impairment testing rather than amortisation.
H12 terms
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.
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.
Holding period returnHolding period return is the total return earned while an investment is held, equal to (ending price − beginning price + income received) ÷ beginning price.
Homemade leverageHomemade leverage is an investor's personal borrowing or lending used to replicate or cancel out a firm's own capital structure, so a company's debt-equity mix alone cannot change the return an investor can achieve.
Homogeneous cost poolA homogeneous cost pool groups overheads sharing a single causal link with one cost driver; pooling only costs driven by the same activity prevents the distortion that occurs when unrelated overheads are blended into one broad pool.
I39 terms
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 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.
Income statementIncome statement is the financial report measuring performance over a defined period by subtracting all costs from revenue to arrive at net income or net loss.
Incremental budgetingIncremental budgeting sets each year's budget by adjusting the prior period's figures for expected changes such as inflation or growth. It is quick to prepare but risks perpetuating past inefficiencies and waste.
J9 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.
L26 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.
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.
Lead indicatorA lead indicator is a performance measure that predicts a future outcome and allows managers to intervene before results are finalised — for example, staff training hours or customer complaint resolution time — contrasted with lag.
M52 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.
N26 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.
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 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.
Net present valueNet present value (NPV) is the sum of a project's discounted cash inflows minus its initial investment, using the firm's required rate of return. A positive NPV means the project adds value.
Net profit marginNet profit margin is net income expressed as a percentage of revenue, showing what share of each euro of sales flows through to the bottom line after all costs, interest and tax.
O22 terms
OLS assumptionsOLS assumptions are the conditions data and errors must satisfy for ordinary least squares to deliver unbiased, efficient estimates.
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.
Operating activitiesOperating activities is the first section of the cash flow statement, showing cash generated or consumed by core trading operations including receipts from customers and payments to suppliers and employees.
Operating cycleOperating cycle is the average number of days between buying inventory and collecting cash from its sale, equal to days inventory outstanding plus days sales outstanding.
Operating incomeOperating income is the profit a business earns from core operations after deducting operating expenses from gross profit, but before interest and income tax. It is also called EBIT.
P64 terms
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.
Payback periodPayback period is the time taken for cumulative cash inflows to recover a project's initial outlay. It is a quick liquidity screen but ignores the time value of money and any post-payback flows.
Payoff tablePayoff table is a matrix showing the profit or cost outcome of each decision option under every possible state of nature, used to choose under uncertainty via maximin or expected value.
Q3 terms
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.
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.
R49 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.
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.
Reciprocal methodReciprocal method allocates service department costs by solving simultaneous equations that fully capture mutual services between support departments before distributing totals to production, making it the most theoretically accurate of.
S85 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.
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.
Sales-quantity varianceSales-quantity variance is the portion of the sales-volume variance caused by total units sold differing from budget, holding the budgeted mix constant. Together with the sales-mix variance, it fully explains the volume effect on profit.
T38 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.
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.
Test statisticTest statistic is a number derived from sample data that measures how far the observed result departs from the null hypothesis in standard-error units.
U5 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.
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.
V17 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 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 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.
Variable costVariable cost is a cost whose total rises in direct proportion to activity volume while the unit cost remains constant. Direct materials, piece-rate wages, and sales commissions are typical examples.
Variable cost ratioVariable cost ratio: variable costs expressed as a percentage of sales revenue, equal to one minus the contribution margin ratio — used to move quickly between sales and cost figures.
W8 terms
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.
Wilcoxon signed-rank testThe Wilcoxon signed-rank test is a non-parametric alternative to the paired t-test: it ranks absolute paired differences and compares the summed positive and negative ranks to test whether the median difference is zero.
Work-in-progressWork-in-progress is the accumulated cost of partially completed units still on the production floor. Recognised as a current asset, it is transferred to finished goods inventory once manufacturing is complete.
Working capitalWorking capital is the difference between a firm's current assets and its current liabilities. Current assets include cash, accounts receivable, and inventory; current liabilities include trade payables and short-term debt.
Y2 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 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.