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What If Scenarios

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Definition of What If Scenarios

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What If Scenarios

Analysis of the economic effect of possible future situations such as economic downturns, loss of key customers, changes in interest rates or price levels, new competitors or technologies.



Related Terms:

Accrued interest

The accumulated coupon interest earned but not yet paid to the seller of a bond by the
buyer (unless the bond is in default).


Accrued Interest

The amount of interest accumulated on a debt security between
interest paying dates


Accrued Interest

The amount of interest owing but not paid.


activity analysis

the process of detailing the various repetitive actions that are performed in making a product or
providing a service, classifying them as value-added and
non-value-added, and devising ways of minimizing or eliminating
non-value-added activities


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.



Amortizing interest rate swap

Swap in which the principal or national amount rises (falls) as interest rates
rise (decline).


Antidilutive effect

Result of a transaction that increases earnings per common share (e.g. by decreasing the
number of shares outstanding).


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Arm's length price

The price at which a willing buyer and a willing unrelated seller would freely agree to
transact.


Ask price

A dealer's price to sell a security; also called the offer price.


Bargain-purchase-price option

Gives the lessee the option to purchase the asset at a price below fair market
value when the lease expires.


BARRA's performance analysis (PERFAN)

A method developed by BARRA, a consulting firm in
Berkeley, Calif. It is commonly used by institutional investors applying performance attribution Analysis to
evaluate their money managers' performances.


Base interest rate

Related: Benchmark interest rate.


Base probability of loss

The probability of not achieving a portfolio expected return.


Basis price

price expressed in terms of yield to maturity or annual rate of return.


Benchmark interest rate

Also called the base interest rate, it is the minimum interest rate investors will
demand for investing in a non-Treasury security. It is also tied to the yield to maturity offered on a
comparable-maturity Treasury security that was most recently issued ("on-the-run").


Best-interests-of-creditors test

The requirement that a claim holder voting against a plan of reorganization
must receive at least as much as he would have if the debtor were liquidated.


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Bid price

This is the quoted bid, or the highest price an investor is willing to pay to buy a security. Practically
speaking, this is the available price at which an investor can sell shares of stock. Related: Ask , offer.


Blue Ribbon Committee on Improving the Effectiveness of Corporate Audit Committees

A committee formed in response to SEC chairman Arthur Levitt's initiative to improve the financial
reporting environment in the United States. In a report dated February 1999, the committee
made recommendations for new rules for regulation of financial reporting in the United States that
either duplicated or carried forward the recommendations of the Treadway Commission.



Break-even analysis

An Analysis of the level of sales at which a project would make zero profit.


break-even analysis

Analysis of the level of sales at which the company breaks even.


Break-Even Analysis

An analytical technique for studying the relationships between fixed cost, variable cost, and profits. A breakeven chart graphically depicts the nature of breakeven Analysis. The breakeven point represents the volume of sales at which total costs equal total revenues (that is, profits equal zero).


Calendar effect

The tendency of stocks to perform differently at different times, including such anomalies as
the January effect, month-of-the-year effect, day-of-the-week effect, and holiday effect.


Call price

The price, specified at issuance, at which the issuer of a bond may retire part of the bond at a
specified call date.


Call price

The price for which a bond can be repaid before maturity under a call provision.


capital investment analysis

Refers to various techniques and procedures
used to determine or to analyze future returns from an investment
of capital in order to evaluate the capital recovery pattern and the
periodic earnings from the investment. The two basic tools for capital
investment Analysis are (1) spreadsheet models (which I strongly prefer)
and (2) mathematical equations for calculating the present value or
internal rate of return of an investment. Mathematical methods suffer
from a lack of information that the decision maker ought to consider. A
spreadsheet model supplies all the needed information and has other
advantages as well.


Capital loss

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


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.


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Capitalized interest

interest that is not immediately expensed, but rather is considered as an asset and is then
amortized through the income statement over time.



Capitalized Interest

interest incurred during the construction period on monies invested in
assets under construction that is added to the cost of the assets.


Cash flow after interest and taxes

Net income plus depreciation.


Changes in Financial Position

Sources of funds internally provided from operations that alter a company's
cash flow position: depreciation, deferred taxes, other sources, and capital expenditures.


Classical Macroeconomics

The school of macroeconomic thought prior to the rise of keynesianism.


Clean price

Bond price excluding accrued interest.


Clientele effect

The grouping of investors who have a preference that the firm follow a particular financing
policy, such as the amount of leverage it uses.


Cluster analysis

A statistical technique that identifies clusters of stocks whose returns are highly correlated
within each cluster and relatively uncorrelated between clusters. Cluster Analysis has identified groupings
such as growth, cyclical, stable and energy stocks.


Coinsurance effect

Refers to the fact that the merger of two firms decreases the probability of default on
either firm's debt.


Cold-Turkey Policy

Decreasing inflation by immediately decreasing the money growth rate to a new, low rate. Contrast with gradualism.


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.


Comparative credit analysis

A method of Analysis in which a firm is compared to others that have a desired
target debt rating in order to infer an appropriate financial ratio target.


Compound interest

interest paid on previously earned interest as well as on the principal.


Compound Interest

interest paid on principal and on interest earned in previous
periods


compound interest

a method of determining interest in which interest that was earned in prior periods is added to the original investment so that, in each successive period, interest is earned on both principal and interest


compound interest

interest earned on interest.


Compound Interest

interest earned on an investment at periodic intervals and added to principal and previous interest earned. Each time new interest earned is calculated it is on a combined total of principal and previous interest earned. Essentially, interest is paid on top of interest.


Consumer Price Index (CPI)

The CPI, as it is called, measures the prices of consumer goods and services and is a
measure of the pace of U.S. inflation. The U.S.Department of Labor publishes the CPI very month.


Consumer Price Index (CPI)

An index calculated by tracking the cost of a typical bundle of consumer goods and services over time. It is commonly used to measure inflation.


continuous loss

any reduction in units that occurs uniformly
throughout a production process


Conversion parity price

Related:Market conversion price


Convertible price

The contractually specified price per share at which a convertible security can be
converted into shares of common stock.


correlation analysis

an analytical technique that uses statistical
measures of dispersion to reveal the strength of the
relationship between variables


Cost-Benefit Analysis

The calculation and comparison of the costs and benefits of a policy or project.


cost-benefit analysis the analytical process of comparing the

relative costs and benefits that result from a specific course
of action (such as providing information or investing in a
project)


cost driver analysis

the process of investigating, quantifying,
and explaining the relationships of cost drivers and
their related costs


Cost–volume–profit analysis (CVP)

A method for understanding the relationship between revenue, cost and sales volume.


Covered interest arbitrage

A portfolio manager invests dollars in an instrument denominated in a foreign
currency and hedges his resulting foreign exchange risk by selling the proceeds of the investment forward for
dollars.


Credit analysis

The process of analyzing information on companies and bond issues in order to estimate the
ability of the issuer to live up to its future contractual obligations. Related: default risk


credit analysis

Procedure to determine the likelihood a customer will pay its bills.


Credit Loss

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


Cross rates

The exchange rate between two currencies expressed as the ratio of two foreign exchange rates
that are both expressed in terms of a third currency.


Cumulative-Effect Adjustment

The cumulative, after-tax, prior-year effect of a change in accounting
principle. It is reported as a single line item on the income statement in the year of the
change in accounting principle. The cumulative-effect-type adjustment is the most common accounting
treatment afforded changes in accounting principle.


Cumulative Effect of a Change in Accounting Principle

The change in earnings of previous years
based on the assumption that a newly adopted accounting principle had previously been in use.


Cumulative Effect of Accounting Change

The change in earnings of previous years assuming
that the newly adopted accounting principle had previously been in use.


Currency future

A financial future contract for the delivery of a specified foreign currency.


Daily Interest Accumulation

Account in which interest is accrued daily and credited to the account at the end of a specified time.


Deferred futures

The most distant months of a futures contract. A bond that sells at a discount and does not
pay interest for an initial period, typically from three to seven years. Compare step-up bond and payment-inkind
bond.


Delivery price

The price fixed by the Clearing house at which deliveries on futures are in invoiced; also the
price at which the futures contract is settled when deliveries are made.


Devaluation A decrease in the spot price of the currency



Dilutive effect

Result of a transaction that decreases earnings per common share.


Dirty price

Bond price including accrued interest, i.e., the price paid by the bond buyer.


discrete loss

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


Discriminant analysis

A statistical process that links the probability of default to a specified set of financial ratios.


Dollar price of a bond

Percentage of face value at which a bond is quoted.


earnings before interest and income tax (EBIT)

A measure of profit that
equals sales revenue for the period minus cost-of-goods-sold expense
and all operating expenses—but before deducting interest and income
tax expenses. It is a measure of the operating profit of a business before
considering the cost of its debt capital and income tax.


Earnings before interest and taxes (EBIT)

A financial measure defined as revenues less cost of goods sold
and selling, general, and administrative expenses. In other words, operating and non-operating profit before
the deduction of interest and income taxes.


Earnings before interest and taxes (EBIT)

The operating profit before deducting interest and tax.


Earnings before interest, taxes, depreciation and amortization (EBITDA)

The operating profit before deducting interest, tax, depreciation and amortization.


Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)

An earningsbased measure that, for many, serves as a surrogate for cash flow. Actually consists of working
capital provided by operations before interest and taxes.


Economic assumptions

economic environment in which the firm expects to reside over the life of the
financial plan.


economic components model

Abrams’ model for calculating DLOM based on the interaction of discounts from four economic components.
This model consists of four components: the measure of the economic impact of the delay-to-sale, monopsony power to buyers, and incremental transactions costs to both buyers and sellers.


Economic defeasance

See: in-substance defeasance.


Economic dependence

Exists when the costs and/or revenues of one project depend on those of another.


Economic earnings

The real flow of cash that a firm could pay out forever in the absence of any change in
the firm's productive capacity.


Economic exposure

The extent to which the value of the firm will change because of an exchange rate change.


Economic income

Cash flow plus change in present value.


economic integration

the creation of multi-country markets
by developing transnational rules that reduce the fiscal and
physical barriers to trade as well as encourage greater economic
cooperation among countries


Economic life

The period over which a company expects to be able to use an asset.


economic order quantity

Order size that minimizes total inventory costs.


Economic order quantity (EOQ)

The order quantity that minimizes total inventory costs.


economic order quantity (EOQ)

an estimate of the number
of units per order that will be the least costly and provide
the optimal balance between the costs of ordering
and the costs of carrying inventory


economic production run (EPR)

an estimate of the number
of units to produce at one time that minimizes the total
costs of setting up production runs and carrying inventory


Economic rents

Profits in excess of the competitive level.


Economic risk

In project financing, the risk that the project's output will not be salable at a price that will
cover the project's operating and maintenance costs and its debt service requirements.


Economic surplus

For any entity, the difference between the market value of all its assets and the market
value of its liabilities.


Economic union

An agreement between two or more countries that allows the free movement of capital,
labor, all goods and services, and involves the harmonization and unification of social, fiscal, and monetary
policies.


Economic Value Added (EVA)

Operating profit, adjusted to remove distortions caused by certain accounting rules, less a charge
to cover the cost of capital invested in the business.


economic value added (EVA)

a measure of the extent to which income exceeds the dollar cost of capital; calculated
as income minus (invested capital times the cost of capital percentage)


economic value added (EVA)

Term used by the consulting firm Stern Stewart for profit remaining after deduction of the cost
of the capital employed.


economically reworked

when the incremental revenue from the sale of reworked defective units is greater than
the incremental cost of the rework


Economics

The study of the allocation and distribution of scare resources among competing wants.


Effective annual interest rate

An annual measure of the time value of money that fully reflects the effects of
compounding.



 

 

 

 

 

 

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