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Definition of CVP
see cost-volume-profit analysis
A method for understanding the relationship between revenue, cost and sales volume.
analysis a procedure that examines
Schedule of depreciation rates allowed for tax purposes.
The ratio of net income to net sales.
The argument that specifies that the various agency costs create a complex environment in
The incremental costs of having an agent make decisions for a principal.
Total costs, explicit and implicit.
A firm's required payout to the bondholders and to the stockholders expressed as a
The argument that expected indirect and direct bankruptcy costs offset the other
A method developed by BARRA, a consulting firm in
The ratio of net income before taxes to net sales.
The cumulative book income plus any gain or loss on disposition of the assets on termination of the SAT.
An analysis of the level of sales at which a project would make zero profit.
costs that increase with increases in the level of investment in current assets.
A statistical technique that identifies clusters of stocks whose returns are highly correlated
The representing of accounting information over multiple years as percentages
Comparative credit analysis
A method of analysis in which a firm is compared to others that have a desired
Cost company arrangement
Arrangement whereby the shareholders of a project receive output free of
Cost of capital
The required return for a capital budgeting project.
Cost of carry
Related: Net financing cost
Cost of funds
Interest rate associated with borrowing money.
Cost of lease financing
A lease's internal rate of return.
Cost of limited partner capital
The discount rate that equates the after-tax inflows with outflows for capital
The net present value of an investment divided by the investment's initial cost. Also called
The process of analyzing information on companies and bond issues in order to estimate the
A statistical process that links the probability of default to a specified set of financial ratios.
Equivalent annual cost
The equivalent cost per year of owning an asset over its entire life.
The difference between the execution price of a security and the price that would have
A statistical procedure that seeks to explain a certain phenomenon, such as the return on a
Financial distress costs
Legal and administrative costs of liquidation or reorganization. Also includes
A cost that is fixed in total for a given period of time and for given production levels.
costs, both implied and direct, associated with a transaction. Such costs include time, effort,
Security analysis that seeks to detect misvalued securities by an analysis of the firm's
Gross profit margin
Gross profit divided by sales, which is equal to each sales dollar left over after paying
An analysis of returns using total return to assess performance over some investment horizon.
The process of dividing each expense item of a given year by the same expense item in
Incremental costs and benefits
costs and benefits that would occur if a particular course of action were
Transaction costs that include the assessment of the investment merits of a financial asset.
Market impact costs
Also called price impact costs, the result of a bid/ask spread and a dealer's price concession.
Market timing costs
costs that arise from price movement of the stock during the time of the transaction
Evaluation of risky prospects based on the expected value and variance of possible outcomes.
Multiple-discriminant analysis (MDA)
Statistical technique for distinguishing between two groups on the
Net financing cost
Also called the cost of carry or, simply, carry, the difference between the cost of financing
Net profit margin
Net income divided by sales; the amount of each sales dollar left over after all expenses
Operating profit margin
The ratio of operating margin to net sales.
Opportunity cost of capital
Expected return that is foregone by investing in a project rather than in
The difference in the performance of an actual investment and a desired investment
Performance attribution analysis
The decomposition of a money manager's performance results to explain
Price impact costs
Related: market impact costs
A relationship espoused by some technical analysts that signals continuing rises
Pro forma capital structure analysis
A method of analyzing the impact of alternative capital structure
Indicator of profitability. The ratio of earnings available to stockholders to net sales.
The present value of the future cash flows divided by the initial investment. Also called
Ratios that focus on the profitability of the firm. profit margins measure performance
A statistical technique that can be used to estimate relationships between variables.
cost to replace a firm's assets.
A probability used to determine a "sure" expected value (sometimes called a
Round-trip transactions costs
costs of completing a transaction, including commissions, market impact
The use of horizon analysis to project bond total returns under different reinvestment rates
costs associated with locating a counterparty to a trade, including explicit costs (such as
analysis of the effect on a project's profitability due to changes in sales, cost, and so on.
costs that fall with increases in the level of investment in current assets.
costs that have been incurred and cannot be reversed.
Security analysis that seeks to detect and interpret patterns in past security prices.
costs of buying and selling marketable securities and borrowing. Trading costs include
The time, effort, and money necessary, including such things as commission fees and the
True interest cost
For a security such as commercial paper that is sold on a discount basis, the coupon rate
A cost that is directly proportional to the volume of output produced. When production is zero,
The process of dividing each expense item in the income statement of a given year by net
This is the daily number of shares of a security that change hands between a buyer and a seller.
Weighted average cost of capital
Expected return on a portfolio of all the firm's securities. Used as a hurdle
An asset’s purchase price, plus costs associated with the purchase, like installation fees, taxes, etc.
Cost of goods sold
The cost of merchandise that a company sold this year. For manufacturing companies, the cost of raw
The profit a company makes before expenses and taxes are taken away.
MACRS (Modified Accelerated Cost Recovery System)
A depreciation method created by the IRS under the Tax Reform Act of 1986. Companies must use it to depreciate all plant and equipment assets installed after December 31, 1986 (for tax purposes).
What’s left over after you subtract the cost of goods sold and all your expenses from sales.
A financial analysis technique that relates key amounts on the income statement and balance sheet to a 100 percent or base figure for the present and previous year.
A method of costing in which all fixed and variable production costs are charged to products or services using an allocation base.
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
costs that are identifiable with and able to be influenced by decisions made at the business
The amount of cash expended.
The profit made by a division after deducting only those expenses that can be controlled by the
A resource sacrificed or forgone to achieve a specific objective (Horngren et al.), defined
The idea that fixed costs and variable costs react differently to changes in the volume of
A division or unit of an organization that is responsible for controlling costs.
The process of either reducing costs while maintaining the same level of productivity or maintaining costs while increasing productivity.
The most significant cause of the cost of an activity, a measure of the demand for an activity
Anything for which a measurement of cost is required – inputs, processes, outputs or responsibility centres.
Cost of capital
The costs incurred by an organization to fund all its investments, comprising the risk-adjusted
Cost of goods sold
See cost of sales.
Cost of manufacture
The cost of goods manufactured for subsequent sale.
Cost of quality
The difference between the actual costs of production, selling and service and the costs that would be incurred if there were no failures during production or usage of products or services.
Cost of sales
The manufacture or purchase price of goods sold in a period or the cost of providing a service.
A method of pricing in which a mark-up is added to the total product/service cost.
The costs of (cross-functional) business processes, irrespective of the organizational structure of the business.
costs that are readily traceable to particular products or services.
costs that do not change with increases or decreases in the volume of goods or services
The cost of a product/service that includes an allocation of all the (production and
The difference between the price at which goods or services are sold and the cost of sales.
costs that are necessary to produce a product/service but are not readily traceable to particular products or services – see overhead.
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