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Start-up Costs

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Definition of Start-up Costs

Start-up Costs Image 1

Start-up Costs

costs related to such onetime activities as opening a new facility, introducing
a new product or service, commencing activities in a new territory, pursuing a new class of customer,
or initiating a new process in an existing or new facility.



Related Terms:

Agency costs

The incremental costs of having an agent make decisions for a principal.


Aggregate Supply

Total quantity of goods and services supplied.


Aggregate Supply Curve

Combinations of price level and income for which the labor market is in equilibrium. The short-run aggregate supply curve incorporates information and price/wage inflexibilities in the labor market, whereas the long-run aggregate supply curve does not.


Avoidable costs

costs that are identifiable with and able to be influenced by decisions made at the business
unit (e.g. division) level.


Back-up

1) When bond yields and prices fall, the market is said to back-up.
2) When an investor swaps out of one security into another of shorter current maturity he is said to back up.



Bankruptcy

State of being unable to pay debts. Thus, the ownership of the firm's assets is transferred from
the stockholders to the bondholders.


bankruptcy

The reorganization or liquidation of a firm that cannot pay its debts.


Start-up Costs Image 2

Bankruptcy cost view

The argument that expected indirect and direct bankruptcy costs offset the other
benefits from leverage so that the optimal amount of leverage is less than 100% debt finaning.


Bankruptcy risk

The risk that a firm will be unable to meet its debt obligations. Also referred to as default or insolvency risk.


Bankruptcy view

The argument that expected bankruptcy costs preclude firms from being financed entirely
with debt.


Bottom-up equity management style

A management style that de-emphasizes the significance of economic
and market cycles, focusing instead on the analysis of individual stocks.


capitalization of costs

When a cost is recorded originally as an increase
to an asset account, it is said to be capitalized. This means that the outlay
is treated as a capital expenditure, which becomes part of the total
cost basis of the asset. The alternative is to record the cost as an expense
immediately in the period the cost is incurred. Capitalized costs refer
mainly to costs that are recorded in the long-term operating assets of a
business, such as buildings, machines, equipment, tools, and so on.


Carring costs

costs that increase with increases in the level of investment in current assets.


carrying costs

costs of maintaining current assets, including opportunity cost of capital.


Costs Capitalized in Stealth

A particularly egregious form of aggressive cost capitalization
where inappropriately capitalized costs are hidden within other unrelated account balances.


costs of financial distress

costs arising from bankruptcy or distorted business decisions before bankruptcy.


Coupon

The periodic interest payment made to the bondholders during the life of the bond.


Coupon

Detachable certificate attached to a bond that shows the amount of
interest payable at regular intervals, usually semi-annually.Originally
coupons were actually attached to the bonds and had to be cut off or “clipped”
to redeem them and receive the interest payment.



coupon

The interest payments paid to the bondholder.


Coupon

The annual interest payment associated with a bond.


Coupon Bond

Any bond with a coupon. Contrast with discount bond.


Coupon / Coupons

The periodic interest payment(s) made by the issuer of a bond
(debt security). Calculated by multiplying the face value of the
security by the coupon rate.


Coupon dates

The dates when the coupons are paid. Typically a bond pays
coupons annually or semi-annually.


Coupon equivalent yield

True interest cost expressed on the basis of a 365-day year.


Coupon payments

A bond's interest payments.


Coupon rate

In bonds, notes or other fixed income securities, the stated percentage rate of interest, usually
paid twice a year.


Coupon Rate

The rate of interest paid on a debt security. Generally stated on an
annual basis, even if the payments are made at some other
interval.


Coupon rate

The nominal interest rate that the issuer promises to pay the
buyer of a bond.



coupon rate

Annual interest payment as a percentage of face value.


Current coupon

A bond selling at or close to par, that is, a bond with a coupon close to the yields currently
offered on new bonds of a similar maturity and credit risk.


Current-coupon issues

Related: Benchmark issues


Direct costs

costs that are readily traceable to particular products or services.


Dupont system of financial control

Highlights the fact that return on assets (ROA) can be expressed in terms
of the profit margin and asset turnover.


equivalent units of production (EUP)

an approximation of the number of whole units of output that could have been
produced during a period from the actual effort expended
during that period; used in process costing systems to assign
costs to production


Evening up

Buying or selling to offset an existing market position.


Excess Supply

A situation in which supply exceeds demand.


Execution costs

The difference between the execution price of a security and the price that would have
existed in the absence of a trade, which can be further divided into market impact costs and market timing
costs.


Financial distress costs

Legal and administrative costs of liquidation or reorganization. Also includes
implied costs associated with impaired ability to do business (indirect costs).


Fixed costs

costs that do not change with increases or decreases in the volume of goods or services
produced, within the relevant range.


fixed costs

costs that do not depend on the level of output.


fixed expenses (costs)

Expenses or costs that remain the same in amount,
or fixed, over the short run and do not vary with changes in sales volume
or sales revenue or other measures of business activity. Over the
longer run, however, these costs increase or decrease as the business
grows or declines. Fixed operating costs provide capacity to carry on
operations and make sales. Fixed manufacturing overhead costs provide
production capacity. Fixed expenses are a key pivot point for the analysis
of profit behavior, especially for determining the breakeven point and for
analyzing strategies to improve profit performance.


Floating supply

The amount of securities believed to be available for immediate purchase, that is, in the
hands of dealers and investors wanting to sell.


Foreign Corrupt Practices Act (FCPA)

a law passed by U.S. Congress in 1977 that makes it illegal for a U.S. company to engage in various “questionable” foreign payments and
makes it mandatory for a U.S. company to maintain accurate
accounting records and a reasonable system of internal
control


Friction costs

costs, both implied and direct, associated with a transaction. Such costs include time, effort,
money, and associated tax effects of gathering information and making a transaction.


Full coupon bond

A bond with a coupon equal to the going market rate, thereby, the bond is selling at par.


Funding Costs

The price of obtaining capital, either borrowed or equity, with intent to carry on business operations.


Give up

The loss in yield that occurs when a block of bonds is swapped for another block of lower-coupon
bonds. Can also be referred to as "after-tax give up" when the implications of the profit or loss on taxes are
considered.


Group Life Insurance

This is a very common form of life insurance which is found in employee benefit plans and bank mortgage insurance. In employee benefit plans the form of this insurance is usually one year renewable term insurance. The cost of this coverage is based on the average age of everyone in the group. Therefore a group of young people would have inexpensive rates and an older group would have more expensive rates.
Some people rely on this kind of insurance as their primary coverage forgetting that group life insurance is a condition of employment with their employer. The coverage is not portable and cannot be taken with you if you change jobs. If you have a change in health, you may not qualify for new coverage at your new place of employment.
Bank mortgage insurance is also usually group insurance and you can tell this by virtue of the fact that you only receive a certificate of insurance, and not a complete policy. The only form in which bank mortgage insurance is sold is reducing term insurance, matching the declining mortgage balance. The only beneficiary that can be chosen for this kind of insurance is the bank. In both cases, employee benefit plan group insurance and bank mortgage insurance, the coverage is not guaranteed. This means that coverage can be cancelled by the insurance company underwriting that particular plan, if they are experiencing excessive claims.


Group of five (G5/G-5)

The five leading countries (France, Germany, Japan, United Kingdom, and the U.S.) that
meet periodically to achieve some cooperative effort on international economic issues. When currency issues
are discussed, the monetary authorities of these nations hold the meeting.


Group of seven (G7/G-7)

The G-5 countries plus Canada and Italy.


Group rotation manager

A top-down manager who infers the phases of the business cycle and allocates
assets accordingly.


High-coupon bond refunding

Refunding of a high-coupon bond with a new, lower coupon bond.


Housing Start

A new house on which construction has just begun.


Incremental costs and benefits

costs and benefits that would occur if a particular course of action were
taken compared to those that would occur if that course of action were not taken.


Indirect costs

costs that are necessary to produce a product/service but are not readily traceable to particular products or services – see overhead.


Information costs

Transaction costs that include the assessment of the investment merits of a financial asset.
Related: search costs.


Legal bankruptcy

A legal proceeding for liquidating or reorganizing a business.


Level-coupon bond

Bond with a stream of coupon payments that are the same throughout the life of the bond.


Lock-up CDs

CDs that are issued with the tacit understanding that the buyer will not trade the certificate.
Quite often, the issuing bank will insist that the certificate be safekept by it to ensure that the understanding is
honored by the buyer.


Long coupons

1) Bonds or notes with a long current maturity.
2) A bond on which one of the coupon periods, usually the first, is longer than the other periods or the standard period.


Long coupons

1) Bonds or notes with a long current maturity.
2) A bond on which one of the coupon
periods, usually the first, is longer than the other periods or the standard period.


Low-coupon bond refunding

Refunding of a low coupon bond with a new, higher coupon bond.


Mark-up

The amount added to a lower figure to reach a higher figure, expressed as a percentage of the
lower figure, e.g. cost is marked up by a percentage to cover the desired profit to determine a selling price.


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
which is attributed to other activity in the stock.


markup

the period after an announcement of a takeover bid in which stock prices typically rise until a merger or acquisition is made (or until it falls through).


Markup

An increase in the cost of a product to arrive at its selling price.


Menu Costs

The costs to firms of changing their prices.


Money supply

M1-A: Currency plus demand deposits
M1-B: M1-A plus other checkable deposits.
M2: M1-B plus overnight repos, money market funds, savings, and small (less than $100M) time deposits.
M3: M-2 plus large time deposits and term repos.
L: M-3 plus other liquid assets.


Office supplies

The cost of the supplies used in running an office.


Opportunity costs

The difference in the performance of an actual investment and a desired investment
adjusted for fixed costs and execution costs. The performance differential is a consequence of not being able
to implement all desired trades. Most valuable alternative that is given up.


overhead costs

Overhead generally refers to indirect, in contrast to direct,
costs. Indirect means that a cost cannot be matched or coupled in any
obvious or objective manner with particular products, specific revenue
sources, or a particular organizational unit. Manufacturing overhead
costs are the indirect costs in making products, which are in addition to
the direct costs of raw materials and labor. Manufacturing overhead
costs include both variable costs (electricity, gas, water, etc.), which vary
with total production output, and fixed costs, which do not vary with
increases or decreases in actual production output.


Paid-Up Additions

A type of insurance policy or annuity in which the owner receives dividends, typically increases the death.


Paid-up Capital

That part of the issued capital of a company that has been paid up by the shareholders.


Pass-through coupon rate

The interest rate paid on a securitized pool of assets, which is less than the rate
paid on the underlying loans by an amount equal to the servicing and guaranteeing fees.


Pay-up

The loss of cash resulting from a swap into higher price bonds or the need/willingness of a bank or
other borrower to pay a higher rate of interest to get funds.


Period costs

The costs that relate to a period of time.


Pickup

The gain in yield that occurs when a block of bonds is swapped for another block of higher-coupon bonds.


Policy Acquisition Costs

costs incurred by insurance companies in signing new policies, including expenditures on commissions and other selling expenses, promotion expenses, premium
taxes, and certain underwriting expenses. Refer also to customer, member, or subscriber
acquisition costs.


Political Costs

The costs of additional regulation, including higher taxes, borne by large and
high-profile firms.


Preopening Costs

A form of start-up cost incurred in preparing for the opening of a new store or facility.


Prepackaged bankruptcy

A bankruptcy in which a debtor and its creditors pre-negotiate a plan or
reorganization and then file it along with the bankruptcy petition.


Price impact costs

Related: market impact costs


Pure yield pickup swap

Moving to higher yield bonds.


Raw material supply agreement

As used in connection with project financing, an agreement to furnish a
specified amount per period of a specified raw material.


Real Money Supply

Money supply expressed in base-year dollars, calculated by dividing the money supply by a price index.


Round-trip transactions costs

costs of completing a transaction, including commissions, market impact
costs, and taxes.


runup

the period before a formal announcement of a takeover bid in which one or more bidders are either preparing to make an announcement or speculating that someone else will.


Search costs

costs associated with locating a counterparty to a trade, including explicit costs (such as
advertising) and implicit costs (such as the value of time). Related:information costs.


Selling group

All banks involved in selling or marketing a new issue of stock or bonds


Semi-fixed costs

costs that are constant within a defined level of activity but that can increase or decrease when
activity reaches upper and lower levels.


Semi-variable costs

costs that have both fixed and variable components.


Set-up

The time required to make ready a machine or process for production, e.g. changing equipment
settings.


setup cost

the direct or indirect cost of getting equipment
ready for each new production run


Setup cost

The cluster of one-time costs incurred whenever a production batch is run,
which includes the cost to configure a machine for new production and all batchrelated
paperwork.


shortage costs

costs incurred from shortages in current assets.


Standard costs

A budget cost for materials and labour used for decision-making, usually expressed as a per unit cost that is applied to standard quantities from a bill of materials and to standard times from a
routing.


Step-up

To increase, as in step up the tax basis of an asset.


Step-up bond

A bond that pays a lower coupon rate for an initial period which then increases to a higher
coupon rate. Related: Deferred-interest bond, Payment-in-kind bond



 

 

 

 

 

 

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