Lessons in Corporate Finance

Glossary

 

abandonment costs

costs that can’t be avoided relating to ending or abandoning a project or investment.

accrued liability

a liability for an expense that has occurred but has not yet been paid.

amortization

an accounting procedure that reduces the cost of an intangible item, including the premium or discount of debt, over time. It is similar to the accounting charge for depreciation on a fixed asset.

arbitrage

buying an asset in one place and simultaneously (or in a very short period of time) selling it at a higher price elsewhere where the transaction cost of buying and selling is less than the difference in the prices.

asymmetric information

the situation where one party has more information about a firm’s prospects than another.

balance sheet

an accounting statement representing the firm’s assets, liabilities, and net worth (equity) at a point in time. Assets are listed on the left side (or sometimes top) of the page. Liabilities and net worth or owners’ equity are listed on the right side (or sometimes bottom) of the page. The accounting equation is: assets = liabilities + owners’ equity.

bankruptcy

a legal process to determine how to restructure or liquidate a firm when it is in violation of its debt contracts.

basic business risk (BBR)

a descriptive term describing the risk of a firm’s operations. It is related to the probability that a firm’s cash flows will fluctuate. The fluctuations may be due to general economic conditions, competitive conditions ...