IFA Business Finance & Investment Flashcards

What is a 'venture capital' investment?

Answer: High-risk equity financing provided to early-stage or high-growth companies in exchange for an ownership stake

Venture capital is private equity financing provided to startups and early-stage companies with high growth potential in exchange for equity, carrying high risk but potentially high returns.

What is the purpose of a share buyback program?

Answer: To return cash to shareholders by repurchasing and canceling outstanding shares, often increasing EPS

A share buyback reduces the number of outstanding shares, which returns capital to shareholders and typically increases earnings per share by dividing earnings among fewer shares.

What is the 'efficient market hypothesis' (EMH)?

Answer: All available information is reflected in asset prices, making it impossible to consistently outperform the market

The EMH states that asset prices incorporate all available information, so it is not possible to consistently achieve above-average risk-adjusted returns through trading strategies.

What is a 'callable bond'?

Answer: A bond that the issuer has the right to redeem before the stated maturity date

A callable bond gives the issuer the right to repay the principal before the maturity date, typically exercised when interest rates fall and cheaper refinancing is available.

What does 'gearing' (leverage) ratio measure in UK/IFA terminology?

Answer: The proportion of a company's capital that is financed by debt relative to equity

Gearing measures the ratio of debt to equity (or debt to total capital), indicating the degree to which a company is financed by borrowing versus shareholders' funds.

Which metric measures the return a company earns relative to the total assets it employs?

Answer: Return on assets (ROA)

Return on assets (Net Income ÷ Total Assets) measures how efficiently management uses all assets — regardless of how they are financed — to generate profit.