An allocation is the principle of dividing amounts based on a specific criteria also referred to as a driver. For example, when a company is allocating monthly operating expenses to the revenue, overhead cost is allocated based on historical demand trends which is the driver
Fixed Asset is a long-term asset or property that is used in the production of goods or services and cannot easily be converted into cash. A fixed asset may be land, buildings, equipment, or machinery.
Interest Coverage Ratio
The Interest Coverage Ratio measures whether a company is able to meet the interest payments on its debt obligations.
The monthly deadline after which no further entries can be made to accounts.
Accounts Payable (AP)
A company's obligation to pay off its short-term debt to creditors.
Accounts Receivable (AR)
Money owed to a company from sales that have been made but not yet paid for.
An accrual is the basis of the accrual principle of accounting that adjusts the revenues earned and expenses incurred by a company at the end of a period when no cash has been exchanged.
Actuals refer to actual numbers experienced through a period in time, as opposed to numbers that are budgeted or projected into the future.
A Balance Sheet is a statement that summarizes all of an entity's assets, liabilities, and capital at a given point in time.
Bottom-up budgeting is a budgeting method that starts at the department level, moving up to the top level. Each department within the organization is required to compile a list of the things it needs, the projects it plans to carry out in the next financial period, and cost estimates.
Break-even analysis refers to the point in which total cost and total revenue are equal. A break-even point analysis is used to determine the number of units or dollars of revenue needed to cover total costs.
Budgeting is an estimated figure of the revenue and expenses over a period of time. Budget assumptions are based on historical data from the previous year and project the figures onto the next Fiscal year.
Business analytics is the process that allows companies to use statistics and historical data to improve their decision making. It is composed of the following:
1- Data Gathering: Prior to analytics, relevant data must be gathered, cleaned and organized
2- Historical analysis: Data analysis for historical trends is critical as it allows a business to project itself in the future
3- Forecasting: Based on the historical data, an informed estimate figure can be made to anticipate future events
4- Optimization: Once historical trends have been identified, businesses can create scenarios to simulate outcomes (best case vs. worst case)
5- Data Visualization: Trends and scenarios are represented in charts and graphs for easier analysis
Business drivers are the elements that influence performance. For example, sales can be influenced by the following drivers: supply, demand, price, competition and target market. Identifying and adjusting to key drivers is pivotal to planning.
Business intelligence (BI) is the use of software and technology to transform data into strategies and actionable insights. BI uses different tools to collect data, prepare it for analysis and create reports with data visualization.
Capex planning is the process by which a business budgets for the money that's invested in fixed assets that have a useful life spanning more than one accounting period.
Cash Flow Statement
A Cash Flow Statement provides a summary of the cash generated or used by a company in a given period.
Consolidation is the aggregation of financial performance of multiple business units into a single view or model.
Corporate Performance Management (CPM)
Corporate Performance Management (CPM) is a category of finance and analytics software that tracks and measures the financial and operational key performance indicators of an organization. One benefit of CPM software is its ability to streamline all aspects of financial data analysis, budgeting, forecasting, building dashboards, and making more informed decisions.
A Cost Center is a part of an organization, often a department, that does not directly add to profit but still incurs expenses and needs money to operate.
Data lake is a centralized location that allows users to store all data in an unstructured format. When prompted, machines structure the data based on the desired analysis.
A data warehouse contains data collected from various sources and provides a business acumen. It is the principal source for the BI systems used in FP&A.
Debt Equity Ratio
The Debt Equity Ratio is a measure of how much debt a company is using to finance its assets relative to the amount of capital contributed by shareholders.
Dimensions are specific objects within the business such as region, department, customer, etc. Similar information types are grouped under the same dimension. For example, all locations are grouped under the Region dimension.
Driver-Based Planning is a method of planning where financial performance is forecasted based on variables and formulas within models that influence and have a significant impact on an organization's key financial results.
Earnings Before Interest and Taxes (EBIT) is a measure of an organization's profitability before factoring in interest and taxes.
EBITDA is a common accounting measure of a company's earnings before interest, taxes, depreciation, and amortization.
Enterprise Resource Planning (ERP)
Enterprise Resource Planning (ERP) is a business software that integrates the core functions of accounting, human resources, and manufacturing to centralize information across an organization and improve efficiency.
ETL or Extract, transform, and load is the process of copying data from one or several sources into a destination system. The ETL process starts with extracting data from the source, transforming the data to match the destination format, and finally, loading it into the destination.
Expenses are the cost an organization incurs as a result of conducting business. There are various categories of expenses including fixed and variable, direct and indirect, and operating and non-operating expenses.
Financial planning is the process of strategizing for a business to reach certain goals and objectives. Financial planning is based on the 3 main financial statements: Balance sheet, Income Statement and Cash Flow statement.
Financial Planning and Analysis (FP&A)
FP&A helps businesses assess their current financial standpoint and structure plans for future financial performance. FP&A consists of measurements, data analysis, and financial reporting.
Fixed Cost is a cost that does not change no matter the increase or decrease in the number of goods or services produced or sold.
Forecasting consists of estimating future performance based on the current performance. It is a vital process in decision-making as it helps businesses make the right decisions in a timely manner.
Full-Time Equivalent (FTE)
Full-Time Equivalent (FTE) is a measure of hours worked by one employee on a full-time basis.
General Ledger (GL)
The General Ledger (GL) is an accounting record used to track and summarize all financial transactions within an organization.
Goal seeking allows users to determine the inputs based on the output result. For example, a business can use the revenue amount it wishes to achieve to determine the price per unit as well as the target sales volume.
Gross Sales are the total amount of revenue generated by all sales in an organization.
Human Capital Management (HCM)
Human Capital Management (HCM) is a view of employees as assets and seeks to acquire, train, manage and retain those assets in such a way that they can provide future benefits and efficiencies to the organization.
Intangible Assets are non-physical assets like intellectual property, goodwill, trade secrets, and brand recognition that are considered useful beyond one year.
Internal Rate of Return (IRR)
Internal Rate of Return (IRR) is a measure to determine the estimated return of an investment compared to an organization's cost of capital.
Key performance indicators are a measure of performance. They allow management to make appropriate decisions and can be categorized as follows:
1- Revenue growth
2- Net Profit Margin
3- Gross Profit Margin
4- Operational Cash Flow
6- Liquidity Ratios
Machine learning, also known as Deep Learning or AI, is an analytical approach that learns from various data inputs. The more inputs and outputs analyzed, the more the mode becomes accurate. As an example, FP&A machine learning can analyze historical sales, social media and weather to determine their impacts on sales.
Modeling is the process of simulating the effect of specific variables on a financial outcome to improve financial decisions.
Modified Cash Basis Accounting
Modified Cash Basis Accounting is a hybrid accounting methodology that combines accrual and cash-based accounting.
Net Income is an organization's income minus the total costs of doing business (direct, indirect, capital, financing, and depreciation), expenses, and taxes.
Net Income Before Tax (PBT)
Net Income Before Tax (PBT) is a company's profits before paying corporate income tax.
Net Present Value (NPV)
Net Present Value (NPV) is the value of all future cash flows (positive and negative) over the entire life of an investment discounted to the present.
Operating Expenditures (OPEX)
Operating Expenditures are the recurring costs of doing business, such as salaries, utilities, commissions, employee benefits, and inventory.
Operating Profit Margin
Operating Profit Margin (Return on Sales) is the amount of revenue remaining once all variable costs of production, distribution, and sales are paid for.
Operational planning is a detailed plan that defines how a department or team contributes to reaching company goals. It also allows each manager and employee to know their specific tasks and timelines.
Overhead Costs are the indirect costs and other fixed expenses related to the cost of doing business that cannot be traced directly to the manufacturing of a product or delivery of a service.
Period is a specified duration of time covered by a financial statement or report.
Period Costs are costs that cannot be attributed to a particular product or inventory. A period cost is charged to an expense account during the period it was incurred and is typically included within the selling, general, and administrative (SG&A) expenses section of the income statement.
Point of view (POV)
POV is a filter to allow you to focus your query on a specific set of data. For example, if the data set contains sales by store, the point of view would be "Sales".
Present Value (PV)
Present Value is the current worth of a future sum of money or stream of cash flows that are discounted by an expected rate of return (usually interest rate).
A Pro Forma is a financial report or statement that combines historical values with estimates of future or hypothetical events and conditions.
Profit and Loss Statement (P&L)
A Profit and Loss Statement is a financial statement that summarizes financial performance by showing revenue, costs, and expenses incurred during a period of time. Also known as the income statement.
A Profit Center is a department, division or group within a business that is responsible for generating profits from its own operations. It is measured as if it were its own business within the company and measures its revenues, expenses, and profit separately.
Profitability Analysis is divided into two types of reporting that focuses on how effectively a project, product, or company generates profit. Internally, profitability analysis will look at the underlying segments or factors that are the primary drivers of profitability. Externally, profitability analysis uses various ratio measurements comparing a firm's profits to its revenues, assets, and level of investment. This allows users to determine how efficiently a company generates profits compared to others or its opportunity costs. Profitability Analysis consists of determining a company's capacity to generate profit. Analysts can drill down to analyze profitability drivers such as region, product, sales volume and price. Common drivers are:
1- Business Segment
2- Product Type
3- Sales Channel
Profitability Ratios are a set of ratios used to measure how effectively a company can generate revenue against expenses, financing, and other relevant costs. The most common profitability ratios are: Return on Assets (ROA) Return on Equity (ROE) Return on Capital Employed (ROCE) Net Profit Margin Gross Margin Ratio
Retained Earnings are the accumulated portion of a business’s profits that are not distributed as dividends to shareholders but instead are reserved for reinvestment back into the business.
Return on Equity (ROE)
Return on Equity is the measure of a company’s annual return (net income) divided by the value of its total shareholders’ equity, expressed as a percentage.
Revenue is the value of all sales of goods and services recognized by a company in a period.
A rolling forecast is a report that uses historical data to predict future values. It is an essential process in making sound business decisions. As their name suggests, rolling forecasts keep forecasting the next month automatically, allowing the business to plan continuously. Rolling forecasts are useful in a dynamic environment as they allow users to make fast and precise decisions.
Scenario Planning is a method of planning that analyzes the outcomes of a financial model based on different circumstances to the model.
In Scenario-Based Planning, alternative scenarios are created with different assumptions based on key driving factors. For each scenario, financial impact and action plan, a budget and scenario are created to support the decision-making process.
Selling, General, and Administrative Expenses (SG&A)
SG&A includes all non-production expenses incurred by a company in any given period. It includes expenses such as rent, advertising, marketing, accounting, litigation, travel, meals, management salaries, bonuses, and more.
Sensitivity analysis is used to assess the impact of a small variable change on the financial model. For example, it can determine the financial impact of oil price changes for airline companies.
Statement of Shareholders' Equity
Statement of Shareholders' Equity is a financial statement that details the changes in shareholder equity due to net income, dividends paid, or the repurchasing of stock.
Strategic planning is a long-term vision that uses resource allocations to pursue and reach company goals.
The Required Rate of Return (RRR)
The Required Rate of Return is the minimum return an investor would accept from an investment in a project or company.
Top-down budgeting refers to a budgeting method where senior management prepares a high-level budget for the company. The company’s senior management prepares the budget based on its objectives and then passes it on to department managers for implementation.
A trial balance is a report that lists the balances of all general ledger accounts of a company at a certain point in time.
Unallocated amounts or costs are not associated with any particular activity. They are the costs not directly or indirectly associated with the production, sale, or delivery of a good or service.
Variable Costs are production costs that change directly depending on a company's production volume.
Variance Reporting is a report where income and expenditures are evaluated against the budget or forecast.
Technique used to determine how an action or event will impact the performance or outputs. It is used to compare different scenarios where different actions are taken in order to choose the most appropriate one.
Working Capital is a ratio that measures a company's efficiency and its ability to cover its short-term debts. It is calculated by subtracting current liabilities from current assets.
Zero-Based Budgeting is a method of preparing budgets without carrying over numbers from previous years.