Glossary

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Risk The likely variability associated with expected revenue or income streams. Business risk The relative dispersion in the firm's expected earnings before interest and taxes. Financial risk The additional variability in earnings available to the firm's common stockholder, and the additional chance of insolvency borne by the common stockholder caused by the use of financial leverage. Financial leverage Financing a portion of the firm's assets with securities bearing a fixed or limited rate of return. Operating leverage The incurrence of fixed operating costs in the firm's income stream. Fixed costs (indirect costs) Costs that do not vary in total dollar amount as sales volume or quantity of output changes. Variable costs (direct costs) Costs that are fixed per unit of output but vary in total as output changes. Semivariable costs (semifixed costs) Costs that exhibit the joint characteristics of both fixed and variable costs over different ranges of output. Total revenue= Total sales dollars. Volume of output The firm's level of operations expressed either in sales dollars or as units of output. Contribution margin Unit sales price minus unit variable cost. Analytical income statement A Financial statement used by internal analysts that differs in composition from audited or published financial statements. Cash breakeven analysis A variation from traditional breakeven analysis that removes (deducts) noncash expenses from the cost items. http://www.toolkit.cch.com/text/P10_3500.asp