Financial Terms Base probability of loss

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Definition of Base probability of loss

Base probability of loss

The probability of not achieving a portfolio expected return.

Related Terms:

Asset-based financing

Methods of financing in which lenders and equity investors look principally to the
cash flow from a particular asset or set of assets for a return on, and the return of, their financing.

Base interest rate

Related: Benchmark interest rate.

Capital loss

The difference between the net cost of a security and the net sale price, if that security is sold at a loss.

Common-base-year analysis

The representing of accounting information over multiple years as percentages
of amounts in an initial year.
Common-size analysis The representing of balance sheet items as percentages of assets and of income
statement items as percentages of sales.

Cumulative probability distribution

A function that shows the probability that the random variable will
attain a value less than or equal to each value that the random variable can take on.

Money base

Composed of currency and coins outside the banking system plus liabilities to the deposit money banks.

Net operating losses

losses that a firm can take advantage of to reduce taxes.

Normal probability distribution

A probability distribution for a continuous random variable that is forms a
symmetrical bell-shaped curve around the mean.

Paper gain (loss)

Unrealized capital gain (loss) on securities held in portfolio, based on a comparison of
current market price to original cost.

Probability

The relative likelihood of a particular outcome among all possible outcomes.

Probability density function

The probability function for a continuous random variable.

Probability distribution

Also called a probability function, a function that describes all the values that the random variable can
take and the probability associated with each.

Probability function

A function that assigns a probability to each and every possible outcome.

Residual losses

Lost wealth of the shareholders due to divergent behavior of the managers.

Stop-loss order

An order to sell a stock when the price falls to a specified level.

Activity-based budgeting

A method of budgeting that develops budgets based on expected activities and cost drivers â€“ see also activity-based costing.

Activity-based costing

A method of costing that uses cost pools to accumulate the cost of significant business activities and then assigns the costs from the cost pools to products or services based on cost drivers.

Allocation base A measure of activity or volume such as labour

hours, machine hours or volume of production
used to apportion overheads to products and
services.

Priority-based budget

A budget that allocates funds in line with strategies.

Profit and Loss account

A financial statement measuring the profit or loss of a business â€“ income less expenses â€“ for an accounting period.

Value-based management

A variety of approaches that emphasize increasing shareholder value as the primary goal of every business.

Zero-based budgeting

A method of budgeting that ignores historical budgetary allocations and identifies the costs that are necessary to implement agreed strategies.

activity based costing (ABC)

A relatively new method advocated for the
allocation of indirect costs. The key idea is to classify indirect costs,
many of which are fixed in amount for a period of time, into separate
activities and to develop a measure for each activity called a cost driver.
The products or other functions in the business that benefit from the
activity are allocated shares of the total indirect cost for the period based
on their usage as measured by the cost driver.

extraordinary gains and losses

No pun intended, but these types of gains
and losses are extraordinarily important to understand. These are nonrecurring,
onetime, unusual, nonoperating gains or losses that are
recorded by a business during the period. The amount of each of these
gains or losses, net of the income tax effect, is reported separately in the
income statement. Net income is reported before and after these gains
and losses. These gains and losses should not be recorded very often, but
in fact many businesses record them every other year or so, causing
much consternation to investors. In addition to evaluating the regular
stream of sales and expenses that produce operating profit, investors
also have to factor into their profit performance analysis the perturbations
of these irregular gains and losses reported by a business.

profit and loss statement (P&L statement)

This is an alternative moniker
for an income statement or for an internal management profit report.
Actually, itâ€™s a misnomer because a business has either a profit or a loss
for a period. Accordingly, it should be profit or loss statement, but the
term has caught on and undoubtedly will continue to be profit and loss
statement.

Probability Distribution

A list of all possible outcomes and the chance of each outcome
occurring

activity-based budgeting (ABB)

planning approach applying activity drivers to estimate the levels and costs of activities necessary to provide the budgeted quantity and
quality of production

activity-based costing (ABC)

a process using multiple cost drivers to predict and allocate costs to products and services;
an accounting system collecting financial and operational
data on the basis of the underlying nature and extent
of business activities; an accounting information and
costing system that identifies the various activities performed
in an organization, collects costs on the basis of
the underlying nature and extent of those activities, and
assigns costs to products and services based on consumption
of those activities by the products and services

activity-based management (ABM)

a discipline that focuses on the activities incurred during the production/performance process as the way to improve the value received
by a customer and the resulting profit achieved by providing
this value

attribute-based costing (ABC II)

an extension of activitybased costing using cost-benefit analysis (based on increased customer utility) to choose the product attribute
enhancements that the company wants to integrate into a product

continuous loss

any reduction in units that occurs uniformly
throughout a production process

discrete loss

a reduction in units that occurs at a specific
point in a production process

loss

an expired cost that was unintentionally incurred; a cost
that does not relate to the generation of revenues

normal loss

an expected decline in units during the production process

probability distribution

a range of possible values for which each value has an assigned likelihood of occurrence

zero-base budgeting

a comprehensive budgeting process
that systematically considers the priorities and alternatives
for current and proposed activities in relation to organization
objectives; it requires the rejustification of ongoing activities

Activity-based costing (ABC)

A cost allocation system that compiles costs and assigns
them to activities based on relevant activity drivers. The cost of these activities can
then be charged to products or customers to arrive at a much more relevant allocation
of costs than was previously the case.

Loss

An excess of expenses over revenues, either for a single business transaction or in
reference to the sum of all transactions for an accounting period.

Loss carryback

The offsetting of a current year loss against the reported taxable
income of previous years.

Loss carryforward

The offsetting of a current year loss against the reported taxable
income for future years.

Base Year

The reference year when constructing a price index. By tradition it is given the value 100.

See money base.

Money Base

Cash plus deposits of the commercial banks with the central bank.

Extraordinary Gain or Loss

Gains and losses that are judged to be both unusual and nonrecurring.

Impairment Loss

A special, nonrecurring charge taken to write down an asset with an overstated
book value. Generally an asset is considered to be value-impaired when its book value
exceeds the future net cash flows expected to be received from its use. An impairment write-down
reduces an overstated book value to fair value.

Realized Gains and Losses

Increases or decreases in the fair value of an asset or a liability that
are realized through sale or settlement.

Asset-Based Financing

Loans granted usually by a financial institution where the asset being financed constitutes the sole security given to the lender.

Credit Loss

A loan receivable that has proven uncollectible and is written off.

capital loss

The negative difference between the adjusted cost base of an investment held as a capital property and the proceeds of disposition you receive when you sell it. When you sell such an investment for less than you paid, you incur a capital loss.

Equity-based insurance

Life insurance or annuity product in which the cash value and benefit level fluctuate according to the performance of an equity portfolio.

Job Loss Insurance (Credit Insurance)

Coverage that can pay down your debt should you become involuntarily unemployed. The payment is made to your creditors to reduce your debt owing.

Value-at-Risk model (VAR)

Procedure for estimating the probability of portfolio losses exceeding some
specified proportion based on a statistical analysis of historical market price trends, correlations, and volatilities.

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