MBA Questions Answers

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Be Superior in Accounting / Finance

Wednesday, 18 May 2011

MBA (Finance) Important Viva Questions & Answers of AIOU, Pakistan

Ratio Analysis

Liquidity Analysis Ratios

Current Ratio

Current AssetsCurrent Ratio = ------------------------

Current Liabilities

QuickRatio

Quick Assets

Quick Ratio = ----------------------

Current Liabilities

Quick Assets = Current Assets - Inventories

Net Working Capital Ratio

Net Working Capital

Net Working Capital Ratio = --------------------------

Total Assets

Net Working Capital = Current Assets - Current Liabilities

Profitability Analysis Ratios

Return on Assets (ROA)

Net Income

Return on Assets (ROA) = ----------------------------------

Average Total Assets
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Average Total Assets = (Beginning Total Assets + Ending Total Assets) / 2

Return on Equity (ROE)

Net Income

Return on Equity (ROE) = --------------------------------------------

Average Stockholders' Equity

Average Stockholders' Equity= (Beginning Stockholders' Equity + Ending Stockholders' Equity) / 2

Return on Common Equity (ROCE)

Net Income

Return on Common Equity = --------------------------------------------

Average Common Stockholders' Equity

Average Common Stockholders' Equity

= (Beginning Common Stockholders' Equity + Ending Common Stockholders' Equity) / 2

Profit Margin

Net Income

Profit Margin = -----------------

Sales

Earnings Per Share (EPS)

Net Income

Earnings Per Share = ---------------------------------------------

Number of Common Shares Outstanding

Activity Analysis Ratios


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Assets Turnover Ratio

Sales

Assets Turnover Ratio = ----------------------------

Average Total Assets

Average Total Assets = (Beginning Total Assets + Ending Total Assets) / 2

Accounts Receivable Turnover Ratio

Sales

Accounts Receivable Turnover Ratio = -----------------------------------

Average Accounts Receivable

Average Accounts Receivable

= (Beginning Accounts Receivable + Ending Accounts Receivable) / 2

Inventory Turnover Ratio

Cost of Goods Sold

Inventory Turnover Ratio = ---------------------------

Average Inventories

Average Inventories = (Beginning Inventories + Ending Inventories) / 2

Capital Structure Analysis Ratios

Debt to Equity Ratio

Total Liabilities

Debt to Equity Ratio = ----------------------------------

Total Stockholders' Equity

Interest Coverage Ratio

Income Before Interest and Income Tax Expenses

Interest Coverage Ratio = -------------------------------------------------------

Interest Expense


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Income Before Interest and Income Tax Expenses= Income Before Income Taxes + Interest Expense

Capital Market Analysis Ratios

Price Earnings (PE) Ratio

Market Price of Common Stock Per Share

Price Earnings Ratio = ------------------------------------------------------

Earnings Per Share

Market to Book Ratio


Market to Book Ratio = -------------------------------------------------------

Book Value of Equity Per Common Share

Book Value of Equity Per Common Share

= Book Value of Equity for Common Stock / Number of Common Shares

Dividend Yield

Annual Dividends Per Common Share

Dividend Yield = ------------------------------------------------


Book Value of Equity Per Common Share= Book Value of Equity for Common Stock / Number of Common Shares

Dividend Payout Ratio

Cash Dividends

Dividend Payout Ratio = --------------------

Net Income


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Net Income Net Income Sales

ROA = ------------------------ = -------------- X ---------------

Average Total Assets Sales Average Tota

Profit Margin = Net Income / SalesAssets Turnover Ratio = Sales / Averages Total Assets

1) Capital budgeting techniques.

Internal Rate Of Return And Mutually ExclusiveProjects

Internal Rate Of Return And Mutually Exclusive Projects. Whats the Concern?

While considering the mutually exclusive projects, IRR technique can be misleading. Investment projects are

said to be mutually exclusive if only one project could be accepted and others would have to be rejected.

NPV and IRR methods for project evaluation leads to conflicting results under following conditions:

1. The pattern of cash inflows plays an important role in project evaluation while using IRR method. i.e. Thecash flows of one project may increase over time, while those of others may decrease and vice versa. The

major drawback with the IRR method is that for mutually exclusive projects, it can give contradictory

investment decision when compared with NPV.

In the above example A and B are mutually exclusive projects. Both projects require an initial outlay of $

1,000,000.00 but the pattern of cash inflows is different. Cash inflows for Project A are increasing over the

period of time while for Project B these are declining. IRR decision rule leads to select Project A as Project A

IRR>Project B IRR. But decision on the basis of NPV evaluation implies that project B is more viable. Thus

on the basis of mere IRR the company may select less profitable project.

OA = Profit Margin X Assets Turnover Ratio

ROA = Profit Margin X Assets Turnover Ratio


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1. The cash outflow of the projects may differ. i.e. a project may need capital outlay not only at the time ofinvestment but after regular intervals during its expected life. Consider the following example:

Project A requires an initial outlay at the beginning of the project while Project B needs cash outflow in year

2 and year 4 also. Decision based on IRR method leads to select project B but NPV of project B is less than

of Project A. again under such circumstances IRR method plays a deceive role.

Summarizing the above discussion the timings and pattern of cash flows can produce conflicting

results in the NPV and IRR methods of project evaluation.

There are a number of capital budgeting techniques available to an analyst. For our purposes, wewill only review net present value and internal rate of return.Net Present Value

The Net Present Value technique involves discounting net cash flows for a project, then subtractingnet investment from the discounted net cash flows. The result is called the Net PresentValue(NPV). If the net present value is positive, adopting the project would add to the value of the

company. Whether the company chooses to do that will depend on their selection strategies. Ifthey pick all projects that add to the value of the company they would choose all projects withpositive net present values, even if that value is just $1. On the other hand, if they have limitedresources, they will rank the projects and pick those with the highest NPV's.The discount rate used most frequently is the company's cost of capital.For Example:

What would the net present value for a project with a net investment of $40,000 and the followingnet cash flows be if the company's cost of capital is 5%? NCF's for year one is $25,000, for yeartwo is $36,000 and for year three is $5000.

YrNet

Cash Flows x PVIF@5%DiscountedCash Flows

1 $25,000 .952 $23,800

2 $36,000 .907 $32,652

3 $5,000 .864 $4,320

Total Discounted Cash Flows Discounted at 5%

Less: Net Investment

Net Present Value

$60,772

$40,000

$20,772

The internal rate of return (IRR) on a project is the rate of return where the cash inflows (net cashflows) equals the cash outflows (net investment.) The easiest way to find IRR is to use a financialcalculator or spreadsheet program.

An example of a project with a net investment of $10,000, net cash flows of $5,000,$4,000, $3,000, $2,000, $1,000 for years 1-5 returns an IRR of 20.27%.

To determine this using Microsoft Excel, enter the numbers in a column with the net investmentshown as a negative number.The column of data appears:

A B

1 -10000

2 5000

3 4000

Once you have entered the column of numbers as detailed,position the cursor in an adjacent, empty cell and insert afunction by selecting Function... from the Insert menu onthe menu bar at the top of the screen.In the Paste Function dialog box you will notice twocolumns, Function category and Function name. SelectFinancial as the category and IRR as the name and clickOK. Once doing this, you will notice a IRR dialog box


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4 3000

5 2000

6 1000

7

appearing which asks you for Values. Values is thereference to cells that contain numbers for which you wantto calculate IRR; in this case cells A1 through A6. Entercells A1 through A6 as A1:A6 and click OK. You will noticethe IRR is returned as 20%.

In our example, we calculate the IRR to two decimal places. So to do this, select the cell containingthe IRR and click Format on the menu bar at the top of the screen. Then click Cells... and theCategory Percentage should be highlighted. On the right you will notice a box allowing you tochange the Decimal places. In this box, enter 2 and click OK. The IRR is now 20.27%.

Capital Budgeting

What Does Capital BudgetingMean?

The process in which a business determines whether projects such as building a new plant orinvesting in a long-term venture are worth pursuing. Oftentimes, a prospective project's lifetimecash inflows and outflows are assessed in order to determine whether the returns generated

meet a sufficient target benchmark.

Also known as "investment appraisal".

Investopedia explains Capital Budgeting

Ideally, businesses should pursue all projects and opportunities that enhance shareholder value.However, because the amount of capital available at any given time for new projects is limited,management needs to use capital budgeting techniques to determine which projects will yield themost return over an applicable period of time.

Popular methods of capital budgeting include net present value (NPV), internal rate of return

(IRR), discounted cash flow (DCF) and payback period.

Financialposition/PerformanceThe level ofperformance of a business over a specified period of time, expressedin terms ofoverallprofits and losses during that time. Evaluatingthe financial performance of a business allows decision-makerstojudge the results of business strategies and activities in objectivemonetaryterms.

PPP (purchasing power parity)

The theory that, in the long run, identical products and services in

different countries should cost the same in different countries. This is

based on the belief that exchange rates will adjust to eliminate the

arbitrageopportunity of buying a product or service in one country and
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selling it in another. For example, consider a laptop computer that

costs 1,500 Euros in Germany and an exchange rate of 2 Euros to 1

U.S. Dollar. If the same laptop cost 1,000 dollars in the United States,

U.S. consumers would buy the laptop in Germany. If done on a large

scale, the influx ofU.S. dollars would drive up the price of the Euro,

until it equalized at 1.5 Euros to 1 U.S. Dollar - the same ratio of the

price of the laptop in Germany to the price of the laptop in the U.S.

The theory only applies to tradable goods, not to immobile goods or

local services. The theory also discounts several real world factors,

such as transportation costs, tariffs and transaction costs. It also

assumes there are competitivemarkets for the goods and services in

both countries.

Zero base budgeting

Budgeting method for a corporation or government in which all

expenditures must be justified each year, not just amounts in excess

of the previous year.

Lender of loss resort

A function of a central bank, such as the Federal Reserve, in which it

lends money to a bank which is facing unusually heavywithdrawals.

Libor & kibor

Libor

London Inter-Bank Offer Rate. The interest rate that the bankscharge

each other for loans (usually in Eurodollars). This rate is applicable to
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the short-term international inter bank market, and applies to very

large loans borrowed for anywhere from one day to five years. This

market allows banks with liquidityrequirements toborrow quickly from

other banks with surpluses, enabling banks to avoid holding

excessively large amounts of their asset base as liquid assets. The

LIBOR is officially fixed once a day by a small group of large London

banks, but the rate changes throughout the day.

Kibor (Karachi Inter-bank offer rate)

It is Karachi Inter Bank Offer Rate (KIBOR), given by specialized institution

on daily, weekly, monthly and on 1, 2 and 3 yearly basis to all the

commercial banks of Pakistan so that they charge interest to their customers

on that basis. This rate is inflation adjusted rate and then banks by adding 2

or 3% in KIBOR rate charge their customers for their profit.

Capital Asset pricing Model (CAPM)

CAPM. An economic model for valuing stocks by relating risk and

expected return. Based on the idea that investorsdemandadditional

expected return(called the risk premium) ifasked to accept additional

risk.

Credit management/Credit Control

Activity aimed at serving the dual purpose of (1) increasing sales revenue by

extending credit to customers who are deemed a good credit risk, and (2)

minimizing risk of loss from bad debts by restricting or denying credit to

customers who are not a good credit risk.
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Effectiveness of credit control lies in proceduresemployed for judging

a prospect'screditworthiness, rather than in procedures used in extracting the

owed money. Also called credit management.

Market data

Data reflecting current trading information to include pricing andvolume and other additional information related to the trade. Marketdata helps traders and investors learn as much as possible about dailytrades. In finance, market data is associated with investmentinstruments.

Matching principal

The principle inbusiness accounting that states that revenues

generated during an accounting period should be matched to expenses

from that period, in order to capture the cause-and-effect relationship

between them. Adherence to this principle produces accounting

records that capture meaningful connections between incomesources

and expenditures.

Risk & return

A concept whereby an investor must realize the impossibility ofachieving a return on their investment without facing the certainamount of risk involved the process.

E Banking/Home Banking

Facility to securely accessfunds, accountinformation, and other banking

services through a PC over a wide area network or internet. Also called electronic

banking.

Private & public limited

Private Ltd. Company
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11/17

A type of company that offerslimited liability to its shareholders but

that places certain restrictionson its ownership. These restrictions are spelled

out in the companys articles of association or bylaws and are meant to prevent

any hostile takeover attempt.

The major ownership restriction are: (1) shareholders

cannot sell or transfer their shares without offering them first to the other

shareholders for purchase, (2) shareholders cannot offer their shares

or debentures to the generalpublic over a stock exchange, (3) the number of

shareholders cannot exceed a fixed figure (commonly 50).

Public Limited Company

A company whose securities are traded on a stock exchange and can

be bought and sold by anyone. Public companies are strictly regulated, and

are required by law to publish their complete and true financial position so

thatinvestors can determine the true worth of its stock(shares). Also

called publicly held company. Publiclimited company and its abbreviation Plc

are commonly used in the UK in the way that corporation and Inc. is used in

the United States.

Exchange rate

Price for which the currency of a country can be exchanged for

another country's currency. Factors that influence

exchange rateinclude (1) interest rates, (2) inflation rate, (3) trade balance, (4)

political stability, (5) internal harmony, (6) highdegree oftransparency in

the conduct of leaders and administrators, (7) general state ofeconomy, and

(8) quality ofgovernance.

Internal audit
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12/17

Frequent or ongoing audit conducted by a firm'sown (as opposed

to independent) accountants to (1) monitor operatingresults, (2)

verify financialrecords, (3) evaluate internal controls, (4) assist with

increasing efficiency and effectiveness ofoperations and, (5) to detect fraud.

Internal audit can identify controlproblems, and aims at correcting lapses before

they are discovered during an external audit. Although the internal auditors arethe firm's employees, they normally do not audit themselves or their

own departments, but entrust it usually to independent auditors.

Downsizing & right sizing

Downsizing

1. Computing: Adapting mainframe computer based software to a desktop

or personal computer (PC) based architecture, without too

many compromises in system integrity, security, and control.

2. Management: Intentional reduction in the size of a workforce at

all staffinglevels, to survive a down turn, improveefficiencies, or become a

more attractivecandidate for acquisition or merger. Used often as a euphemism

for indiscriminately firing the employees. See also rationalization.

Rightsizing

The process of a corporation reorganizing or restructuring their business by cost-

cutting, reduction ofworkforce, or reorganizing upper-level management.

The goal is to get the company molded properly to achieve the maximumprofit.

The term rightsizing is often used by companies instead ofdownsizing because it

sounds less drastic. "The company felt that rightsizing was necessary after four

quarters of losses."

Economic Cycle

Recurring, fairly predictable, generalpattern ofperiodic fluctuations (as

measured by gross national product) in national economies. Left to themselves,

all market economies repeatedly (typically every five years) move through

four stages of (1) expansion, (2) peak, (3)recession, and (4) recovery. Despite

numerous attempts to explain causes of economic cycles, no theory is

universally accepted or applicable. Also called business cycle or trade cycle.
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it.htmlhttp://www.investorwords.com/1967/firm.htmlhttp://www.investorwords.com/3563/own.htmlhttp://www.businessdictionary.com/definition/independent.htmlhttp://www.businessdictionary.com/definition/accountant.htmlhttp://www.businessdictionary.com/definition/monitor.htmlhttp://www.investorwords.com/3455/operating.htmlhttp://www.businessdictionary.com/definition/result.htmlhttp://www.investorwords.com/5572/financial.htmlhttp://www.businessdictionary.com/definition/record.htmlhttp://www.investorwords.com/9612/evaluate.htmlhttp://www.businessdictionary.com/definition/internal-control.htmlhttp://www.businessdictionary.com/definition/efficiency.htmlhttp://www.businessdictionary.com/definition/effectiveness.htmlhttp://www.businessdictionary.com/definition/operations.htmlhttp://www.businessdictionary.com/definition/fraud.htmlhttp://www.investorwords.com/10073/internal.htmlhttp://www.businessdictionary.com/definition/control.htmlhttp://www.businessdictionary.com/definition/problem.htmlhttp://www.businessdictionary.com/definition/aim.htmlhttp://www.businessdictionary.com/definition/lapse.htmlhttp://www.businessdictionary.com/definition/external-audit.htmlhttp://www.investorwords.com/7994/internal_auditor.htmlhttp://www.businessdictionary.com/definition/employee.htmlhttp://www.businessdictionary.com/definition/department.htmlhttp://www.businessdictionary.com/definition/independent-auditor.htmlhttp://www.businessdictionary.com/definition/computing.htmlhttp://www.businessdictionary.com/definition/mainframe-computer.htmlhttp://www.businessdictionary.com/definition/software.htmlhttp://www.businessdictionary.com/definition/personal-computer-PC.htmlhttp://www.businessdictionary.com/definition/architecture.htmlhttp://www.businessdictionary.com/definition/compromise.htmlhttp://www.businessdictionary.com/definition/system-integrity.htmlhttp://www.businessdictionary.com/definition/security.htmlhttp://www.businessdictionary.com/definition/control.htmlhttp://www.businessdictionary.com/definition/management.htmlhttp://www.businessdictionary.com/definition/reduction.htmlhttp://www.investorwords.com/8392/size.htmlhttp://www.businessdictionary.com/definition/workforce.htmlhttp://www.businessdictionary.com/definition/staffing.htmlhttp://www.investorwords.com/10180/level.htmlhttp://www.businessdictionary.com/definition/downturn.htmlhttp://www.businessdictionary.com/definition/improve.htmlhttp://www.businessdictionary.com/definition/efficiency.htmlhttp://www.investorwords.com/8877/attractive.htmlhttp://www.businessdictionary.com/definition/candidate.htmlhttp://www.businessdictionary.com/definition/acquisition.htmlhttp://www.businessdictionary.com/definition/merger.htmlhttp://www.businessdictionary.com/definition/employee.htmlhttp://www.businessdictionary.com/definition/rationalization.htmlhttp://www.businessdictionary.com/definition/process.htmlhttp://www.businessdictionary.com/definition/corporation.htmlhttp://www.businessdictionary.com/definition/restructuring.htmlhttp://www.businessdictionary.com/definition/business.htmlhttp://www.investorwords.com/9316/cost_cutting.htmlhttp://www.investorwords.com/9316/cost_cutting.htmlhttp://www.businessdictionary.com/definition/reduction.htmlhttp://www.businessdictionary.com/definition/workforce.htmlhttp://www.businessdictionary.com/definition/management.htmlhttp://www.businessdictionary.com/definition/goal.htmlhttp://www.businessdictionary.com/definition/achieve.htmlhttp://www.investorwords.com/10294/maximum.htmlhttp://www.businessdictionary.com/definition/profit.htmlhttp://www.businessdictionary.com/definition/company.htmlhttp://www.businessdictionary.com/definition/downsizing.htmlhttp://www.investorwords.com/10174/less.htmlhttp://www.investorwords.com/5751/quarter.htmlhttp://www.investorwords.com/9661/fairly.htmlhttp://www.investorwords.com/9816/general.htmlhttp://www.businessdictionary.com/definition/pattern.htmlhttp://www.investorwords.com/10604/periodic.htmlhttp://www.businessdictionary.com/definition/fluctuation.htmlhttp://www.businessdictionary.com/definition/gross-national-product-GNP.htmlhttp://www.businessdictionary.com/definition/economy.htmlhttp://www.investorwords.com/10166/left.htmlhttp://www.businessdictionary.com/definition/market-economy.htmlhttp://www.investorwords.com/10366/move.htmlhttp://www.businessdictionary.com/definition/stages.htmlhttp://www.investorwords.com/1838/expansion.htmlhttp://www.businessdictionary.com/definition/peak.htmlhttp://www.businessdictionary.com/definition/recession.htmlhttp://www.businessdictionary.com/definition/recovery.htmlhttp://www.businessdictionary.com/definition/attempt.htmlhttp://www.businessdictionary.com/definition/cause.htmlhttp://www.investorwords.com/1270/cycle.htmlhttp://www.businessdictionary.com/definition/theory.htmlhttp://www.businessdictionary.com/definition/business-cycle.htmlhttp://www.businessdictionary.com/definition/trade-cycle.html


13/17

FOH (Factory over Head)

The costsassociated in the manufacturingprocess, like a

federalcontract to produce a new researchdrug.

Lifo & fifo

LIFO

Last In First Out. A method of valuing inventory in which the itemsacquired last are treated as the ones sold first.

FIFO

First In First Out. A method of valuing the cost of goods soldthat uses the cost of the oldest items in inventory first.

Sole Proprietorship

A business structure in which an individual and his/her company areconsidered a singleentity for tax and liability purposes. A soleproprietorship is a company which is not registered with the state as alimited liability company or corporation. The owner does not payincome tax separately for the company, but he/she reportsbusiness

income or losses on his/her individual income tax return. The owner isinseparable from the sole proprietorship, so he/she is liable for anybusinessdebts .also called proprietorship.

Retained earnings

Profits generated by a company that are not distributed to

stockholders (shareholders) as dividends but are either reinvested in

the business or kept as a reserve for specific objectives (such as to pay

offa debt or purchase a capital asset).

A balance sheet figure shown under the heading retained earnings is the sum of

all profits retained since the company'sinception. Retained earnings

are reduced by losses, and are also called accumulated earnings, accumulated

profit, accumulated income, accumulated surplus, earned surplus, undistributed

earnings, or undivided profits. See also retention ratio.
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Accrued income, deferred income & unearned income

Accrued Income

Amountearned in the currentaccounting period, but which will be received in asubsequent period.

Deferred Income

1. General: Income received after the period in which it was earned, such

as sales commission that is computed quarterly.

2. Accounting: Income received or recorded before it is earned, and shown in

the income statement only when it can be matched with the period in which it is

earned.

Unearned Income

1. Accounting: Income received before a good is sold or a service is provided.

Unearned income is classified as a currentliabilityon the balance sheet until it is

recognized as earned income during the accounting cycle.

2. Taxation: Income derived from means other than the

provision ofpersonal efforts, such as that derived as dividends, interest,

or rent. Pensions and royalties, however, are not considered unearned income.

Discount rate, hurdle rate

Discount Rate

1. Banking: Rate at which a bill of exchange or an accounts

receivable is paid (discounted) before its maturity date.

2. Commerce: Rate by which an invoiceamount is reduced when a condition is

complied with, such as paymenton delivery or an order amount that exceeds a

certain minimum figure.

3. Investment appraisal: Multiplier that converts anticipated returns from

an investment project to their current market value (present value). It is

always less than 1, and depends on the cost of capital (currentcompound
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interest rate) and the time interval between the investment date and the date

when returns start to flow. Formula: 1 (1 + r) ^n where 'r' is the required rate

of return (interest rate) and 'n' is the number of years. Also called discount

factor or present value factor. See also discounted cash flow.

4. Securitiestrading: Amount by which the market value of a bond, certificate

ofdeposit, or share (stock) is below its par value.

Hurdle Rate

Minimumreturn on investment necessary to cover all costsassociated witha project. If the expected rate of return is below the hurdle rate, the project isabandoned or is modified to increase the return. It must be equal to theincremental cost of capital and is also called break-even yield.

Incremental cost of capital

The average cost incurred for each additionalunit ofdebt or equityissued.

Initial Public Offering (IPO)

IPO. The first sale ofstock by a company to the public. The most commonreason for a company to initiate an IPO is in order to raise more capital. Oneof the most difficult parts of an IPO is to determine the properpriceto initiallyoffer the new stock; too high and investors won'tbe interested, but too low

and the company is sacrificing the amount ofmoney that might have beenmade if they priced it higher. There is generally a significant amount ofriskin an IPO, because the company going public is frequently small or relativelyunknown, and hasn't had a chance to prove itself to the public; as such, theyalso have the capacity for significant payoffs.

Contribution margin

The salesprice minus the variable cost.

Breakeven point

1. The price at which an option's cost is equal to the proceeds acquired byexercising the option. For a call option, it is the strike price plusthe premiumpaid. For a put option, it is the strike price minus the premium

paid.

2. The price at which a securitiestransactionproduces neither a gain nor a loss.

3. The volume ofsales at which a company'snet sales just equals its costs.
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Breakeven Analysis

A calculation of the approximatesales volumerequired to just covercosts,

below which production would be unprofitable and above which it would beprofitable. Break-even analysis focuses on the relationship between fixed

cost, variable cost, and profit.

Depreciation

1. A noncash expense that reduces the value of an asset as a result ofwear and

tear, age, or obsolescence. Most assets lose their value over time (inother words, they depreciate), and must be replaced once the end of their useful

life is reached. There are several accounting methods that are usedin order to write offan asset's depreciation cost over the period of its useful life.

Because it is a non-cash expense,depreciation lowers the company's reported earnings while increasing free cashflow.

2. A decline in the value of a given currency in comparison with other currencies.For instance, if the U.S. dollar depreciates against the Euro, buyers would haveto pay more dollars in order to obtain the originalamount of Euros beforedepreciation occurred.

Financial markets (money market, capital market, primary market, secondary

market)

Money market

Market for short-term debtsecurities, such as banker's acceptances, commercialpaper, repos, negotiablecertificates ofdeposit, and Treasury Bills witha maturity of one year or less and often 30 days or less. Money market securitiesare generally very safe investments which return a relatively low interestrate that is most appropriate for temporary cash storage or short-term timehorizons. Bid and askspreads are relatively small due to the large size andhigh liquidity of the market.

Capital Market

A market where debt or equity securities are traded.

Primary Market

The market for new securitiesissues. In the primary market the security ispurchased directly from the issuer. This differs from the secondary market.
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