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Financial Terms | |
judgmental method (of risk adjustment) |
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Definition of judgmental method (of risk adjustment)judgmental method (of risk adjustment)an informal method of adjusting for risk that allows the decision maker
Related Terms:algebraic methoda process of service department cost allocation Allowance methodA method of adjusting accounts receivable to the amount that is expected to be collected based on company experience. Asset-specific RiskThe amount of total risk that can be eliminated by diversification by Average-Cost Inventory MethodThe inventory cost-flow assumption that assigns the average Bankruptcy riskThe risk that a firm will be unable to meet its debt obligations. Also referred to as default or insolvency risk. Basis riskThe uncertainty about the basis at the time a hedge may be lifted. Hedging substitutes basis risk for Benefit Ratio MethodThe proportion of unemployment benefits paid to a company’s ![]() Benefit Wage Ratio MethodThe proportion of total taxable wages for laid off Beta riskrisk of a firm measured from the standpoint of an investor who holds a highly diversified portfolio. Bootstrapping, bootstrap methodAn arithmetic method for backing an Business riskThe risk that the cash flow of an issuer will be impaired because of adverse economic Call riskThe combination of cash flow uncertainty and reinvestment risk introduced by a call provision. Capitalization methodA method of constructing a replicating portfolio in which the manager purchases a Commercial riskThe risk that a foreign debtor will be unable to pay its debts because of business events, Company-specific riskRelated: Unsystematic risk Companyspecific RiskSee asset-specific risk ![]() Completed-Contract MethodA contract accounting method that recognizes contract revenue Completion riskThe risk that a project will not be brought into operation successfully. Counterparty riskThe risk that the other party to an agreement will default. In an options contract, the risk Country financial riskThe ability of the national economy to generate enough foreign exchange to meet Country risk GeneralLevel of political and economic uncertainty in a country affecting the value of loans or Credit riskThe risk that an issuer of debt securities or a borrower may default on his obligations, or that the Credit RiskFinancial and moral risk that an obligation will not be paid and a loss will result. Cross-border riskRefers to the volatility of returns on international investments caused by events associated Cumulative-Effect AdjustmentThe cumulative, after-tax, prior-year effect of a change in accounting Cumulative Translation Adjustment (CTA) accountAn entry in a translated balance sheet in which gains Currency riskRelated: Exchange rate risk Currency risk sharingAn agreement by the parties to a transaction to share the currency risk associated with Current rate methodUnder this currency translation method, all foreign currency balance-sheet and income Default riskAlso referred to as credit risk (as gauged by commercial rating companies), the risk that an Direct estimate methodA method of cash budgeting based on detailed estimates of cash receipts and cash Direct methodA method of preparing the operating section of the Statement of Cash Flows that uses the company’s actual cash inflows and cash outflows. direct methoda service department cost allocation approach Direct-Method FormatA format for the operating section of the cash-flow statement that reports actual cash receipts and cash disbursements from operating activities. Direct write-off methodA method of adjusting accounts receivable to the amount that is expected to be collected by eliminating the account balances of specific nonpaying customers. Diversifiable riskRelated: unsystematic risk. dividend growth methoda method of computing the cost Economic riskIn project financing, the risk that the project's output will not be salable at a price that will Equilibrium market price of riskThe slope of the capital market line (CML). Since the CML represents the Equity MethodAccounting method for an equity security in cases where the investor has sufficient Event riskThe risk that the ability of an issuer to make interest and principal payments will change because Exchange rate riskAlso called currency risk, the risk of an investment's value changing because of currency Exchange riskThe variability of a firm's value that results from unexpected exchange rate changes or the Fallout riskA type of mortgage pipeline risk that is generally created when the terms of the loan to be FIFO method (of process costing)the method of cost assignment that computes an average cost per equivalent Financial riskThe risk that the cash flow of an issuer will not be adequate to meet its financial obligations. financial riskrisk to shareholders resulting from the use of debt. Firm-specific riskSee:diversifiable risk or unsystematic risk. First in, first-out costing method (FIFO)A process costing methodology that assigns the earliest First-In, First-Out (FIFO) Inventory MethodThe inventory cost-flow assumption that Flat price riskTaking a position either long or short that does not involve spreading. Flow-through methodThe practice of reporting to shareholders using straight-line depreciation and Force majeure riskThe risk that there will be an interruption of operations for a prolonged period after a Foreign exchange riskThe risk that a long or short position in a foreign currency might have to be closed out Full-Cost MethodA method of accounting for petroleum exploration and development expenditures Funding riskRelated: interest rate risk Geographic riskrisk that arises when an issuer has policies concentrated within certain geographic areas, Herstatt riskThe risk of loss in foreign exchange trading that one party will deliver foreign exchange but the counterparty financial institution will fail to deliver its end of the contract. It is also referred to as settlement risk. high-low methoda technique used to determine the fixed High-Risk Small BusinessFirm viewed as being particularly subject to risk from an investors perspective. Idiosyncratic RiskUnsystematic risk or risk that is uncorrelated to the overall market risk. In other words, Indirect methodA method of preparing the operating section of the Statement of Cash Flows that does not use the company’s actual cash inflows and cash outflows, but instead arrives at the net cash flow by taking net income and adjusting it for noncash expenses and the changes from last year in the current assets and current liabilities. Indirect-Method FormatA format for the operating section of the cash-flow statement that Inflation riskAlso called purchasing-power risk, the risk that changes in the real return the investor will Insolvency riskThe risk that a firm will be unable to satisfy its debts. Also known as bankruptcy risk. Interest rate riskThe risk that a security's value changes due to a change in interest rates. For example, a Interest Rate RiskPossibility that interest rates will rise during the term of a loan thereby increasing the annual cost of borrowing. Inventory adjustmentA transaction used to adjust the book balance of an inventory Last-In, First-Out (LIFO) Inventory MethodThe inventory cost-flow assumption that assigns the most recent inventory acquisition costs to cost of goods sold. The earliest inventory Liquidity riskThe risk that arises from the difficulty of selling an asset. It can be thought of as the difference Log-linear least-squares methodA statistical technique for fitting a curve to a set of data points. One of the Market price of riskA measure of the extra return, or risk premium, that investors demand to bear risk. The Market riskrisk that cannot be diversified away. Related: systematic risk Market RiskThe amount of total risk that cannot be eliminated by portfolio market riskEconomywide (macroeconomic) sources of risk that affect the overall stock market. Also called systematic risk. Market RiskThe part of security's risk that cannot be eliminated by diversification. It is measured by the beta coefficient. market risk premiumrisk premium of market portfolio. Difference between market return and return on risk-free Treasury bills. method of least squaressee least squares regression analysis method of neglecta method of treating spoiled units in the modified FIFO method (of process costing)the method of cost assignment that uses FIFO to compute a cost per Monetary / non-monetary methodUnder this translation method, monetary items (e.g. cash, accounts Mortgage-pipeline riskThe risk associated with taking applications from prospective mortgage borrowers Moving average inventory methodAn inventory costing methodology that calls for the re-calculation of the average cost of all parts in stock after every purchase. net present value methoda process that uses the discounted Net Present Value (NPV) MethodA method of ranking investment proposals. NPV is equal to the present value of the future returns, discounted at the marginal cost of capital, minus the present value of the cost of the investment. Nondiversifiable riskrisk that cannot be eliminated by diversification. Nonsystematic riskNonmarket or firm-specific risk factors that can be eliminated by diversification. Also Normalizing methodThe practice of making a charge in the income account equivalent to the tax savings Operating riskThe inherent or fundamental risk of a firm, without regard to financial risk. The risk that is operating risk (business risk)risk in firm’s operating income. Overnight delivery riskA risk brought about because differences in time zones between settlement centers Payback methodA capital budgeting analysis method that calculates the amount of Percentage-of-Completion MethodA contract accounting method that recognizes contract Political riskPossibility of the expropriation of assets, changes in tax policy, restrictions on the exchange of Price riskThe risk that the value of a security (or a portfolio) will decline in the future. Or, a type of Product riskA type of mortgage-pipeline risk that occurs when a lender has an unusual loan in production or Purchase methodAccounting for an acquisition using market value for the consolidation of the two entities' Purchase methodAn accounting method used to combine the financial statements of Purchasing-power riskRelated: inflation risk Related to : financial, finance, business, accounting, payroll, inventory, investment, money, inventory control, stock trading, financial advisor, tax advisor, credit. |