Financial Analysis and Interpretation in OHADA
Expert-defined terms from the Executive Certificate in OHADA Accounting course at Stanmore School of Business. Free to read, free to share, paired with a professional course.
Asset Turnover Ratio (ATR) #
A financial metric that shows how many dollars of sales are generated per dollar of assets. Related terms: Revenue, Total Assets. Example: Sales = 500,000; Assets = 250,000; ATR = 2.0. Practical use: assesses efficiency of asset utilization. Challenge: varies widely across industries.
Auditing Standards (OHADA) #
The set of principles governing the conduct of audits in OHADA member states. Related terms: Independent Auditor, Audit Report. Example: An auditor follows the “Normes OHADA” when examining financial statements. Practical use: ensures credibility of financial information. Challenge: harmonizing practices across jurisdictions.
Balance Sheet (Bilan) #
A snapshot of a company’s financial position at a specific date, showing assets, liabilities, and equity. Related terms: Assets, Liabilities, Equity. Example: The 31 December 2025 balance sheet lists cash, inventory, debt, and retained earnings. Practical use: foundation for ratio analysis. Challenge: accurate valuation of non‑current assets under OHADA rules.
Bank Reconciliation Statement (BRS) #
A document that matches the cash balance per the company’s books with the bank statement. Related terms: Cash Book, Outstanding Checks. Example: The BRS reveals a €5,000 deposit in transit. Practical use: detects errors and fraud. Challenge: time‑consuming for high‑transaction entities.
Benchmarking (Financial) #
The process of comparing a firm’s performance metrics with industry standards or best‑practice peers. Related terms: Key Performance Indicators, Peer Group. Example: Comparing the debt‑to‑equity ratio with the OHADA average of 0.6. Practical use: identifies improvement areas. Challenge: obtaining reliable peer data.
Break‑Even Analysis #
A technique that determines the sales volume at which total revenues equal total costs, yielding zero profit. Related terms: Fixed Costs, Variable Costs. Example: Break‑even point = Fixed Costs ÷ (Price – Variable Cost per unit). Practical use: planning new product launches. Challenge: assumes linear cost behavior.
Cash Flow Statement (Tableau des Flux de Trésorerie) #
A report that shows inflows and outflows of cash categorized by operating, investing, and financing activities. Related terms: Operating Cash Flow, Free Cash Flow. Example: Operating cash flow of €120,000; investing cash flow of –€30,000. Practical use: evaluates liquidity and solvency. Challenge: reconciling with accrual‑based income statement.
Cash Ratio #
The most conservative liquidity metric, calculated as cash and cash equivalents divided by current liabilities. Related terms: Current Ratio, Quick Ratio. Example: Cash = €80,000; Current Liabilities = €200,000; Cash Ratio = 0.40. Practical use: assesses ability to meet obligations without asset sales. Challenge: may be overly stringent for firms with strong cash‑flow cycles.
Common‑Size Statement #
A financial statement in which each line item is expressed as a percentage of a base figure (e.g., total assets for the balance sheet). Related terms: Vertical Analysis, Trend Analysis. Example: Inventory = 15% of total assets. Practical use: facilitates comparison across periods and firms. Challenge: distortions when base figure fluctuates significantly.
Cost of Capital (CoC) #
The weighted average rate that a company must earn on its investments to satisfy creditors and equity holders. Related terms: WACC, Cost of Equity, Cost of Debt. Example: WACC = 8.5% based on 60% equity (cost = 10%) and 40% debt (cost = 6%). Practical use: discount rate for net present value calculations. Challenge: estimating market risk premium under OHADA markets.
Current Ratio #
A liquidity metric computed as current assets divided by current liabilities. Related terms: Cash Ratio, Quick Ratio. Example: Current Assets = €150,000; Current Liabilities = €100,000; Current Ratio = 1.5. Practical use: indicates short‑term solvency. Challenge: includes inventory, which may not be readily liquid.
Debt‑to‑Equity Ratio (D/E) #
A leverage indicator that compares total debt to shareholders’ equity. Related terms: Financial Leverage, Capital Structure. Example: Debt = €300,000; Equity = €200,000; D/E = 1.5. Practical use: gauges risk to creditors and investors. Challenge: differing definitions of debt under OHADA accounting.
Depreciation (Amortissement) #
The systematic allocation of the cost of a tangible asset over its useful life. Related terms: Straight‑Line Method, Residual Value. Example: A machine costing €50,000 with a 5‑year life and no salvage value yields €10,000 annual depreciation. Practical use: matches expense with revenue generation. Challenge: selecting appropriate useful life in volatile environments.
Discounted Cash Flow (DCF) Analysis #
A valuation technique that projects future cash flows and discounts them back to present value using the cost of capital. Related terms: Terminal Value, Net Present Value. Example: Forecasted cash flows of €100,000 per year for 5 years discounted at 8% yield a present value of €398,000. Practical use: investment appraisal. Challenge: sensitivity to assumptions about growth and discount rate.
Dividend Payout Ratio #
The proportion of earnings distributed to shareholders as dividends. Related terms: Retained Earnings, Dividend Yield. Example: Earnings = €200,000; Dividends = €50,000; Payout Ratio = 25%. Practical use: signals management’s confidence in future earnings. Challenge: balancing reinvestment needs with shareholder expectations.
Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) #
An indicator of operating performance that excludes financing and non‑cash expenses. Related terms: Operating Income, Net Income. Example: Revenue = €800,000; Operating Expenses = €500,000; EBITDA = €300,000. Practical use: comparable measure across firms with different capital structures. Challenge: can mask cash‑flow problems if working capital is weak.
Equity Ratio #
The proportion of total assets financed by shareholders’ equity, calculated as equity divided by total assets. Related terms: Debt Ratio, Leverage Ratio. Example: Equity = €250,000; Total Assets = €500,000; Equity Ratio = 0.5. Practical use: assesses financial independence. Challenge: may be inflated by asset revaluation.
Financial Covenants #
Contractual clauses in loan agreements that require borrowers to maintain certain financial ratios. Related terms: Debt Service Coverage Ratio, Liquidity Covenant. Example: Lender requires a minimum DSCR of 1.2. Practical use: protects creditor interests. Challenge: strict covenants can trigger defaults during economic downturns.
Financial Statement Analysis (Analyse des États Financiers) #
The process of reviewing and interpreting financial reports to assess performance, stability, and prospects. Related terms: Ratio Analysis, Trend Analysis. Example: An analyst examines profitability, liquidity, and solvency metrics of a manufacturing firm. Practical use: informs investment and credit decisions. Challenge: reliance on historical data may not reflect future conditions.
Fiscal Year (Exercice Fiscal) #
The 12‑month period for which a company prepares its financial statements, which may differ from the calendar year. Related terms: Reporting Period, Year‑End. Example: The fiscal year runs from 1 July to 30 June. Practical use: aligns reporting with industry cycles. Challenge: comparability with firms using different fiscal years.
Fixed Assets (Immobilisations Corporelles) #
Long‑term tangible assets used in production, such as land, buildings, and machinery. Related terms: Depreciation, Asset Revaluation. Example: A factory building recorded at €1 million. Practical use: basis for collateral and capacity analysis. Challenge: accurate valuation under OHADA valuation rules.
Gross Profit Margin #
The percentage of revenue remaining after deducting cost of goods sold (COGS). Related terms: Net Profit Margin, Operating Margin. Example: Revenue = €500,000; COGS = €300,000; Gross Margin = 40%. Practical use: evaluates production efficiency. Challenge: can be distorted by aggressive pricing strategies.
Income Statement (Compte de Résultat) #
A report that presents revenues, expenses, and profit over a specific period. Related terms: Revenue Recognition, Expense Matching. Example: The 2025 income statement shows sales of €1 million and net profit of €120,000. Practical use: core document for profitability analysis. Challenge: ensuring consistent accounting policies across periods.
Interest Coverage Ratio (ICR) #
A solvency metric that measures a company's ability to meet interest payments, calculated as EBIT divided by interest expense. Related terms: Debt Service Coverage Ratio, Leverage Ratio. Example: EBIT = €200,000; Interest = €40,000; ICR = 5.0. Practical use: assesses risk to lenders. Challenge: volatile earnings can cause sudden covenant breaches.
Inventories (Stocks) #
Goods held for sale or used in production, reported at the lower of cost or net realizable value. Related terms: Cost of Goods Sold, Inventory Turnover. Example: Raw material inventory valued at €80,000. Practical use: key component of working capital. Challenge: obsolescence risk in fast‑changing markets.
Liquidity Ratio #
Any metric that evaluates a firm’s ability to meet short‑term obligations, such as current ratio, quick ratio, or cash ratio. Related terms: Working Capital, Cash Flow. Example: A quick ratio of 1.2 indicates adequate liquid assets after excluding inventory. Practical use: early warning of cash shortages. Challenge: over‑reliance on a single ratio may mislead.
Long‑Term Debt (Dettes à Long Terme) #
Borrowings with maturities beyond one year, including bonds and bank loans. Related terms: Short‑Term Debt, Debt Service. Example: A €500,000 10‑year loan at 5% interest. Practical use: funds capital‑intensive projects. Challenge: managing covenant compliance and refinancing risk.
Net Income (Résultat Net) #
The residual profit after all expenses, taxes, and interest have been deducted from revenues. Related terms: EBITDA, Earnings Per Share. Example: Net income for 2025 is €150,000. Practical use: primary indicator of profitability. Challenge: one‑time items can distort true performance.
Operating Cash Flow (Flux de Trésorerie d'Exploitation) #
Cash generated from core business activities, excluding financing and investing cash flows. Related terms: Free Cash Flow, Cash Flow from Operations. Example: Operating cash flow of €200,000 indicates strong cash generation. Practical use: assesses ability to sustain operations without external financing. Challenge: differences between accrual accounting and cash reality.
Operating Margin #
The ratio of operating income to revenue, reflecting the efficiency of core operations. Related terms: Gross Margin, Net Margin. Example: Operating income = €120,000; Revenue = €800,000; Operating Margin = 15%. Practical use: benchmark for operational performance. Challenge: high fixed costs can compress margin in low‑demand periods.
Operating Ratio #
The proportion of operating expenses to net sales, often used in the transport and utility sectors. Related terms: Operating Efficiency, Cost Management. Example: Operating expenses = €450,000; Net sales = €600,000; Operating Ratio = 75%. Practical use: identifies cost control opportunities. Challenge: seasonal fluctuations affect comparability.
Payables Turnover Ratio (Accounts Payable Turnover) #
Measures how quickly a company pays its suppliers, calculated as purchases divided by average accounts payable. Related terms: Days Payable Outstanding, Cash Conversion Cycle. Example: Purchases = €300,000; Average Payables = €50,000; Turnover = 6.0. Practical use: evaluates supplier relationship management. Challenge: aggressive payment terms may strain cash flow.
Performance Dashboard (Tableau de Performance) #
A visual tool that aggregates key financial and non‑financial indicators for quick monitoring. Related terms: KPI, Balanced Scorecard. Example: Dashboard displays current ratio, EBITDA margin, and customer satisfaction scores. Practical use: supports real‑time decision making. Challenge: data integration across multiple systems.
Profitability Ratio #
Any ratio that assesses a company’s ability to generate earnings relative to revenue, assets, or equity, such as ROA, ROE, or gross margin. Related terms: Return on Assets, Return on Equity. Example: ROE of 12% indicates efficient use of shareholders’ capital. Practical use: compares earnings generation across firms. Challenge: high profitability may mask underlying liquidity issues.
Quick Ratio (Acid‑Test Ratio) #
A liquidity metric that excludes inventory from current assets, calculated as (current assets – inventory) ÷ current liabilities. Related terms: Current Ratio, Cash Ratio. Example: Quick assets = €120,000; Current Liabilities = €100,000; Quick Ratio = 1.2. Practical use: stricter test of short‑term solvency. Challenge: may be too conservative for inventory‑intensive businesses.
Return on Assets (ROA) #
An efficiency indicator that measures net income relative to total assets. Related terms: Return on Equity, Asset Turnover. Example: Net income = €80,000; Total assets = €1 million; ROA = 8%. Practical use: assesses how well assets generate profit. Challenge: asset revaluation can inflate denominator.
Return on Equity (ROE) #
A profitability metric that compares net income to shareholders’ equity, indicating the return earned on owners’ investment. Related terms: DuPont Analysis, Financial Leverage. Example: Net income = €100,000; Equity = €500,000; ROE = 20%. Practical use: key figure for equity investors. Challenge: high ROE may result from excessive debt.
Revenue Recognition (Comptabilisation des Produits) #
The accounting principle that determines when and how revenue is recorded in the financial statements. Related terms: Accrual Basis, Deferred Revenue. Example: A contract for €50,000 is recognized when service is performed, not when cash is received. Practical use: ensures matching of revenue with related expenses. Challenge: complex multi‑element arrangements.
Risk Assessment (Évaluation des Risques) #
The systematic identification and analysis of potential events that could affect the achievement of financial objectives. Related terms: Credit Risk, Market Risk. Example: Assessing the likelihood of default on a €1 million loan. Practical use: informs risk‑adjusted pricing and capital allocation. Challenge: limited historical data in emerging OHADA markets.
Statement of Changes in Equity (État des Variations des Capitaux Propres) #
A report that details movements in equity components, such as share capital, retained earnings, and reserves. Related terms: Retained Earnings, Comprehensive Income. Example: The 2025 statement shows a €30,000 increase in retained earnings after dividend distribution. Practical use: tracks ownership value over time. Challenge: reconciling with multiple capital accounts under OHADA statutes.
Working Capital (Fonds de Roulement) #
The difference between current assets and current liabilities, representing the short‑term financial buffer. Related terms: Current Ratio, Cash Conversion Cycle. Example: Working capital = €150,000 – €100,000 = €50,000. Practical use: indicates operational liquidity. Challenge: seasonal demand can cause large swings.
Cash Conversion Cycle (CCC) #
The number of days it takes for a company to convert its investments in inventory and other resources into cash flows from sales. Related terms: Days Inventory Outstanding, Days Sales Outstanding. Example: CCC = 30 + 45 – 20 = 55 days. Practical use: highlights efficiency of working‑capital management. Challenge: improving CCC may require costly supply‑chain changes.
Days Sales Outstanding (DSO) #
The average number of days that receivables remain outstanding before collection. Related terms: Accounts Receivable Turnover, Cash Flow Management. Example: DSO = (Accounts Receivable ÷ Credit Sales) × 365 = 40 days. Practical use: measures effectiveness of credit policies. Challenge: extending credit to boost sales may increase DSO.
Days Inventory Outstanding (DIO) #
The average number of days that inventory is held before it is sold. Related terms: Inventory Turnover Ratio, Supply Chain Efficiency. Example: DIO = (Inventory ÷ Cost of Goods Sold) × 365 = 60 days. Practical use: identifies excess stock levels. Challenge: reducing DIO can risk stock‑outs.
Days Payable Outstanding (DPO) #
The average number of days a company takes to pay its suppliers. Related terms: Accounts Payable Turnover, Cash Management. Example: DPO = (Accounts Payable ÷ Purchases) × 365 = 35 days. Practical use: leverages supplier credit to improve cash flow. Challenge: overly long DPO may strain supplier relationships.
DuPont Analysis #
A framework that decomposes ROE into profit margin, asset turnover, and financial leverage components. Related terms: Return on Equity, ROA. Example: ROE = (Net Profit ÷ Revenue) × (Revenue ÷ Assets) × (Assets ÷ Equity). Practical use: pinpoints drivers of equity returns. Challenge: requires consistent data across periods.
Economic Value Added (EVA) #
A performance measure that calculates net operating profit after taxes minus a charge for the capital employed. Related terms: Cost of Capital, Shareholder Value. Example: NOPAT = €150,000; Capital = €1 million; WACC = 8%; EVA = €150,000 – €80,000 = €70,000. Practical use: aligns management incentives with value creation. Challenge: accurate capital cost estimation under OHADA is complex.
Equity Multiplier #
A leverage ratio that shows the proportion of assets financed by equity, calculated as total assets divided by total equity. Related terms: Financial Leverage, Return on Equity. Example: Assets = €800,000; Equity = €400,000; Multiplier = 2.0. Practical use: indicates degree of debt financing. Challenge: high multiplier can amplify earnings volatility.
Expense Ratio #
The proportion of operating expenses to total revenue, often used in the insurance sector. Related terms: Loss Ratio, Combined Ratio. Example: Expense ratio = €120,000 ÷ €600,000 = 20%. Practical use: assesses cost control effectiveness. Challenge: may be distorted by one‑off expense items.
Financial Leverage #
The use of borrowed funds to increase the potential return on equity. Related terms: Debt‑to‑Equity Ratio, Equity Multiplier. Example: Leveraging a €500,000 loan to finance a project that yields a 12% return on assets. Practical use: magnifies earnings for shareholders. Challenge: raises financial risk and covenant exposure.
Fiscal Consolidation (Consolidation Fiscale) #
The process of aggregating the financial statements of a parent company and its subsidiaries for tax reporting under OHADA law. Related terms: Group Accounting, Elimination Entries. Example: Consolidated taxable income of the group is €2 million after inter‑company profit elimination. Practical use: ensures compliance with unified tax obligations. Challenge: aligning diverse accounting policies across subsidiaries.
Fixed‑Charge Coverage Ratio (FCCR) #
A solvency metric that measures a firm’s ability to meet fixed financial obligations, calculated as (EBIT + Fixed Charges) ÷ (Fixed Charges + Interest). Related terms: Interest Coverage Ratio, Debt Service Coverage Ratio. Example: EBIT = €250,000; Fixed Charges = €50,000; Interest = €30,000; FCCR = (250,000+50,000) ÷ (50,000+30,000) = 3.75. Practical use: evaluates capacity to service debt and lease payments. Challenge: volatile earnings can lower coverage quickly.
Forecasting (Prévision) #
The process of estimating future financial outcomes based on historical data, assumptions, and statistical techniques. Related terms: Budgeting, Scenario Analysis. Example: Projecting sales growth of 8% per annum for the next three years. Practical use: informs strategic planning and capital budgeting. Challenge: forecast errors increase with longer horizons.
Gross Profit (Marge Brute) #
The difference between revenue and cost of goods sold, reflecting the profit before operating expenses. Related terms: Gross Margin, Operating Income. Example: Revenue = €500,000; COGS = €300,000; Gross Profit = €200,000. Practical use: indicates core production profitability. Challenge: price pressure can erode gross profit rapidly.
Growth Rate (Taux de Croissance) #
The percentage increase in a financial metric over a specific period. Related terms: Compound Annual Growth Rate, Trend Analysis. Example: Revenue grew from €400,000 to €500,000, a growth rate of 25% YoY. Practical use: benchmarks expansion performance. Challenge: high growth may be unsustainable without adequate financing.
Impairment Loss (Perte de Valeur) #
A reduction in the carrying amount of an asset when its recoverable amount falls below its book value. Related terms: Asset Revaluation, Write‑Down. Example: An equipment’s recoverable amount is €70,000, but its book value is €100,000, resulting in a €30,000 impairment loss. Practical use: reflects realistic asset values. Challenge: determining recoverable amount under uncertain market conditions.
Interest Expense (Charges d'Intérêt) #
The cost incurred by an entity for borrowed funds, recorded in the income statement. Related terms: Interest Income, Interest Coverage Ratio. Example: Annual interest expense on a €1 million loan at 6% is €60,000. Practical use: affects profitability and leverage metrics. Challenge: fluctuating rates can impact cash flow.
Inventory Management (Gestion des Stocks) #
The set of practices for ordering, storing, and using inventory efficiently. Related terms: Just‑In‑Time, Economic Order Quantity. Example: Implementing a reorder point system reduces stock‑outs by 15%. Practical use: optimizes working capital. Challenge: balancing holding costs against service level requirements.
Liquidity Management (Gestion de Liquidité) #
The strategic oversight of cash inflows and outflows to ensure sufficient funds for obligations. Related terms: Cash Forecasting, Working Capital. Example: Maintaining a cash buffer of 20% of monthly operating expenses. Practical use: prevents solvency crises. Challenge: unpredictable collections in volatile markets.
Margin of Safety (Marge de Sécurité) #
The difference between actual sales and break‑even sales, expressed in units or percentage, indicating risk cushion. Related terms: Break‑Even Point, Profitability Analysis. Example: Expected sales = €600,000; Break‑Even = €450,000; Margin of Safety = 33%. Practical use: assesses risk of loss. Challenge: over‑optimistic forecasts can shrink the margin.
Net Present Value (NPV) #
The difference between the present value of cash inflows and outflows, used to evaluate investment projects. Related terms: Internal Rate of Return, Discount Rate. Example: NPV = PV (inflows) – PV (outflows) = €120,000. Practical use: decision rule—accept projects with positive NPV. Challenge: sensitivity to discount rate assumptions.
Operating Expense (Charges d'Exploitation) #
The costs incurred in the normal course of business, excluding cost of goods sold. Related terms: SG&A, Operating Margin. Example: Annual operating expenses of €350,000 for a firm with €800,000 revenue. Practical use: cost control driver. Challenge: distinguishing between fixed and variable components for analysis.
Operating Income (Résultat d'Exploitation) #
Earnings before interest and taxes, reflecting profit from core business activities. Related terms: EBIT, Operating Margin. Example: Operating income = €200,000 after deducting operating expenses from gross profit. Practical use: basis for many profitability ratios. Challenge: non‑operating items can distort comparability.
Operating Leverage #
The degree to which a firm’s operating income changes in response to a change in sales, driven by fixed cost structure. Related terms: Contribution Margin, Break‑Even Analysis. Example: High operating leverage means a 10% sales increase yields a 20% operating income increase. Practical use: strategic planning for cost structure. Challenge: high leverage amplifies loss during downturns.
Operating Ratio (Transport) #
Specific to transport companies; calculated as operating expenses divided by operating revenues. Related terms: Operating Efficiency, Cost Management. Example: Operating expenses = €900,000; Operating revenues = €1 million; Ratio = 90%. Practical use: gauges sector‑specific performance. Challenge: regulatory tariffs may limit expense control.
Operating Statement (Compte d'Exploitation) #
Synonymous with income statement; details revenues and expenses over a period. Related terms: Profit and Loss Statement, Revenue Recognition. Example: The 2025 operating statement shows a net profit of €110,000. Practical use: core analysis tool. Challenge: aligning with OHADA chart of accounts.
Overall Return on Assets (OROA) #
A comprehensive measure that includes both operating and non‑operating income relative to total assets. Related terms: ROA, Net Income. Example: Total income = €250,000; Assets = €1 million; OROA = 25%. Practical use: captures full asset performance. Challenge: comparability with pure operating ROA.
Performance Ratio (Ratio de Performance) #
Any ratio used to evaluate the effectiveness of a specific operational area, such as production yield or collection efficiency. Related terms: KPI, Benchmarking. Example: Collection efficiency ratio = 95% of invoices collected within 30 days. Practical use: targets improvement initiatives. Challenge: data reliability.
Profit Margin (Marge Bénéficiaire) #
General term for net profit expressed as a percentage of revenue. Related terms: Gross Margin, Operating Margin. Example: Net profit = €120,000; Revenue = €800,000; Profit Margin = 15%. Practical use: indicator of overall profitability. Challenge: margin compression from rising input costs.
Projected Financial Statements (États Financiers Prévisionnels) #
Estimates of future balance sheets, income statements, and cash flow statements based on assumptions. Related terms: Budgeting, Scenario Planning. Example: Forecasting a 10% revenue increase for 2026. Practical use: supports financing decisions and strategic planning. Challenge: assumptions may prove inaccurate.
Ratio Analysis (Analyse des Ratios) #
The examination of relationships among financial statement items to assess performance, liquidity, solvency, and profitability. Related terms: Trend Analysis, Comparative Analysis. Example: Calculating current ratio, debt‑to‑equity, and ROE for a manufacturing firm. Practical use: quick diagnostic tool. Challenge: ratios can be misleading if not contextualized.
Revenue (Produit) #
The total amount earned from selling goods or services before any expenses are deducted. Related terms: Net Sales, Gross Revenue. Example: Annual revenue of €2 million from product sales. Practical use: primary driver of profitability analysis. Challenge: recognizing revenue in accordance with OHADA standards.
Risk‑Adjusted Return (Rendement Ajusté au Risque) #
A measure that compares the expected return of an investment with its risk, often using metrics like Sharpe ratio. Related terms: Sharpe Ratio, Alpha. Example: Portfolio return = 12%; standard deviation = 4%; Sharpe ratio = 3.0. Practical use: aids asset allocation decisions. Challenge: limited market data in some OHADA economies.
Return on Investment (ROI) #
The gain or loss generated on an investment relative to the amount of money invested. Related terms: Profitability Index, Payback Period. Example: ROI = (Profit ÷ Investment) × 100 = 15%. Practical use: evaluates efficiency of capital projects. Challenge: does not consider time value of money.
Sustainable Growth Rate (SGR) #
The maximum rate at which a company can grow its sales, earnings, and dividends without altering its financial leverage. Related terms: Retention Ratio, ROE. Example: SGR = ROE × Retention Ratio = 18% × 60% = 10.8%. Practical use: guides long‑term planning. Challenge: assumes constant financial policy.
Tax Shield (Bouclier Fiscal) #
The reduction in taxable income due to deductible expenses such as interest, depreciation, or amortization. Related terms: Interest Expense, Depreciation. Example: Interest expense of €40,000 provides a tax shield of €12,000 at a 30% tax rate. Practical use: enhances project NPV. Challenge: tax law differences across OHADA jurisdictions.
Total Debt (Dette Totale) #
The sum of short‑term and long‑term interest‑bearing liabilities. Related terms: Leverage Ratio, Debt Service. Example: Short‑term debt = €200,000; Long‑term debt = €800,000; Total debt = €1 million. Practical use: measures overall financial obligations. Challenge: hidden off‑balance‑sheet commitments.
Working Capital Ratio (Ratio de Fonds de Roulement) #
Another term for current ratio, emphasizing the relationship between current assets and current liabilities. Related terms: Current Ratio, Liquidity Ratio. Example: Working capital ratio = €180,000 ÷ €120,000 = 1.5. Practical use: assesses short‑term financial health. Challenge: high ratio may indicate underutilized assets.
Yield (Rendement) #
The earnings generated and realized on an investment over a particular period, expressed as a percentage of the investment’s cost. Related terms: Dividend Yield, Bond Yield. Example: A bond priced at €1,000 with an annual coupon of €70 has a yield of 7%. Practical use: compares attractiveness of different securities. Challenge: yields fluctuate with market interest rates.
Zero‑Based Budgeting (ZBB) #
A budgeting method that starts from a "zero base" and justifies every expense, rather than using prior budgets as a baseline. Related terms: Cost Management, Budget Variance. Example: Each department prepares a detailed justification for all projected costs for the next fiscal year. Practical use: promotes cost efficiency. Challenge: time‑intensive and may encounter resistance from staff.
Asset Revaluation (Réévaluation des Immobilisations) #
The adjustment of the carrying amount of an asset to reflect its fair market value, often resulting in an increase in equity. Related terms: Revaluation Reserve, Impairment. Example: Land originally recorded at €500,000 is revalued to €800,000, creating a €300,000 revaluation surplus. Practical use: improves balance‑sheet presentation. Challenge: must comply with OHADA revaluation rules and disclose in notes.
Accrual Accounting (Comptabilité d'Engagement) #
The accounting method that records revenues and expenses when they are earned or incurred, regardless of cash flow. Related terms: Cash Accounting, Revenue Recognition. Example: Recognizing a €10,000 service revenue when the service is performed, even if payment is received later. Practical use: provides a more accurate picture of financial performance. Challenge: requires robust tracking of receivables and payables.
Aggregate Financial Statements (États Financiers Agrégés) #
Consolidated financial reports that combine the results of a parent company and its subsidiaries into a single set of statements. Related terms: Group Reporting, Elimination Entries. Example: The group’s consolidated income statement shows total revenue of €5 million. Practical use: presents the financial position of the entire economic entity. Challenge: eliminating inter‑company transactions and aligning accounting policies.
Allowance for Doubtful Accounts (Provision pour Créances Douteuses) #
An estimate of the portion of accounts receivable that is expected to be uncollectible. Related terms: Bad Debt Expense, Provision for Losses. Example: Company estimates 2% of €200,000 receivables will be uncollectible, creating a €4,000 allowance. Practical use: improves accuracy of net receivables. Challenge: predicting default rates in emerging markets.
Annual General Meeting (AGM) (Assemblée Générale Annuelle) #
The yearly gathering of shareholders to discuss corporate performance, approve financial statements, and elect directors. Related terms: Corporate Governance, Shareholder Rights. Example: The