COMMON KEY

TERMS TO KNOW
FOR A CAREER IN
FP&A PROFILE
 FINANCIAL PLANNING &
ANALYSIS
Budgeting: The process of creating a financial plan for
a specific period, typically based on revenue and
expense projections.

Forecasting: Estimating future financial outcomes

based on historical data, market trends, and
assumptions.

Cost Allocation: Assigning costs to specific products,

services, or departments to determine their
profitability and make informed pricing decisions.

Variance Analysis: Comparing actual financial results

results with budgeted or forecasted figures to
 identify and explain differences.

Sensitivity Analysis: Assessing the impact of

changes in variables (e.g., sales volume, pricing) on
financial outcomes to understand potential risks
and opportunities.

Break-Even Analysis: Determining the point at

which revenue equals total costs, indicating the
level of sales needed to cover all expenses.

Key Performance Indicators (KPIs): Quantifiable

metrics used to measure and evaluate the
performance of a business.

Financial Modeling: Creating mathematical

representations of financial situations to make
informed decisions and projections.
 FINANCIAL STATEMENT &
ANALYSIS

Evaluating income statement, balance sheet to

assess a company's performance, profitability,
and financial health.

Evaluating cash flow statement that shows the

inflow and outflow of cash during a specific
period, providing insights into a company's
liquidity.
 PROFITABILITY AND
PERFORMANCE METRICS

Gross Margin: The difference between revenue

and COGS, expressed as a percentage, indicating
the profitability of a company's core operations

EBITDA: Earnings Before Interest, Taxes,

Depreciation, and Amortization, a measure of a
company's operating performance.

Contribution Margin: The difference between

sales revenue and variable costs, representing
the amount available to cover fixed costs and
contribute to profit.
 Return on Investment (ROI): A measure of
profitability, calculated by dividing net profit by
the initial investment, indicating the efficiency of
an investment.

Return on Equity (ROE): A measure of

profitability, calculated by dividing net income
by shareholders' equity, indicating the return
generated for shareholders' investments.
 WORKING CAPITAL AND
LIQUIDITY
Working Capital: The difference between current
assets (e.g., cash, inventory) and current liabilities
(e.g., accounts payable, short-term debt),
representing a company's short-term financial
health.

Working Capital Ratio: The ratio of current assets

to current liabilities, providing insights into a
company's ability to meet short-term obligations.

Cash Conversion Cycle (CCC): The time it takes for

a company to convert its investments in inventory
and other resources into cash flows from sales,
reflecting its efficiency in managing working
capital.
 COST & EXPENSES

Cost of Goods Sold (COGS): The direct costs

associated with producing goods or services,
including materials, labor, and overhead..

Operating Expenses: The costs incurred to run a

business, such as salaries, rent, utilities, and
marketing expenses.

Fixed Costs: Costs that do not vary with the level

of production or sales, such as rent and salaries.

Variable Costs: Costs that change in proportion to

the level of production or sales, such as raw
materials and direct labor.
 INVESTMENT EVALUATION
Capital Expenditure (CapEx): Investments made in
long-term assets, such as property, plant, and
equipment, to support business operations and
growth.

Payback Period: The time required to recover the

initial investment through cash flows generated by
the investment.

Cost of Capital: The required rate of return for an

investment, taking into account the cost of debt and
equity, used to evaluate investment opportunities.

Capital Structure: The mix of debt and equity

financing used by a company to fund its operations
and investments.
 OTHER TERMS

Risk Management: Identifying and mitigating

potential risks that could impact financial
performance, such as market volatility, regulatory
changes, or operational disruptions.
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