Glossary of Finance Terms

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Balance Sheet
A statement of the firm's financial position at a specific point in time.
Base Case
An analysis in which all of the input variables are set at their most likely values.
Base-Case NPV
The NPV when sales and other input variables are set equal to their most likely (or base-case) values.
Basic Earning Power (BEP) Ratio
This ratio indicates the ability of the firm's assets to generate operating income; calculated by dividing EBIT by total assets.
The process of comparing a particular company with a group of "benchmark" companies.
Best-Case Scenario
An analysis in which all of the input variables are set at their best reasonably forecasted values.
Beta coefficient, b
A measure of the extent to which the returns on a given stock move with the stock market.
Bird-in-the-Hand Theory
MM's name for the theory that a firm's value will be maximized by setting a high dividend payout ratio.
A long-term debt instrument.
Bracket Creep
A situation that occurs when progressive tax rates combine with inflation to cause a greater portion of each taxpayer's real income to be paid as taxes.
Break Point (BP)
The dollar value of new capital that can be raised before an increase in the firm's weighted average cost of capital occurs.
Breakeven Point
The volume of sales at which total costs equal total revenues, causing operating profits (or EBIT) to equal zero.
Breakup Value
A firm's value if its assets are sold off in pieces.
Business Ethics
A company's attitude and conduct toward its employees, customers, community, and stockholders
Business Risk
The risk associated with projections of a firm's future returns on assets.

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