Definition Of

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Definition of 'Leverage'
1. The use of various financial instruments or borrowed capital, such as margin, to increase the potential return of an investment. 2. The amount of debt used to finance a firm's assets. A firm with significantly more debt than equity is considered to be highly leveraged. Leverage is most commonly used in real estate transactions through the use of mortgages to purchase a home.

Definition of 'Synergy'
The idea that the value and performance of two companies combined will be greater than the sum of the separate individual parts.

Definition of 'Required Rate Of Return - RRR'
The minimum annual percentage earned by an investment that will induce individuals or companies to put money into a particular security or project. The required rate of return (RRR) is used in both equity valuation and in corporate finance. Investors use the RRR to decide where to put their money. They compare the return of an investment to all other available options, taking the risk-free rate of return, inflation and liquidity into consideration in their calculation. For investors using the dividend discount model to pick stocks, the RRR affects the maximum price they are willing to pay for a stock. The RRR is also used in calculations of net present value in discounted cash flow analysis. Corporations use the RRR to decide if they should pursue a new project or business expansion; in corporate finance, the RRR is equal to the weighted average cost of capital (WACC).

internal financing
Surplus funds generated through a firm's operations and available for capital investment. These funds are shown as retained-earnings and depreciation in the firm's financial statements.

Cash Breakeven Point
Formula to calculate cash breakeven point:

Cash Breakeven Point = (fixed costs depreciation) / contribution margin per unit. Cash breakeven point definition and explanation: The cash breakeven point indicates the minimum amount of sales required to contribute to a positive cash flow. The cash breakeven point is included in the financial statement ratio analysis spreadsheets highlighted in the left column, which provide formulas, definitions, calculation, charts and explanations of each ratio.

financial break-even point
Level of earnings before interest and tax (EBIT) at which a firm's earnings per share equal zero. The higher this point, the higher the financial risk of investment in the firm's stock (shares).

Definition of 'Business Risk'
The possibility that a company will have lower than anticipated profits, or that it will experience a loss rather than a profit. Business risk is influenced by numerous factors, including sales volume, per-unit price, input costs, competition, overall economic climate and government regulations. A company with a higher business risk should choose a capital structure that has a lower debt ratio to ensure that it can meet its financial obligations at all times.

Definition of 'Financial Risk'
The possibility that shareholders will lose money when they invest in a company that has debt, if the company's cash flow proves inadequate to meet its financial obligations. When a company uses debt financing, its creditors will be repaid before its shareholders if the company becomes insolvent.

internal financing

Definition
Surplus funds generated through a firm's operations and available for capital investment. These funds are shown as retained-earnings and depreciation in the firm's financial statements.

marginal cost of capital

Definition
The cost associated with raising one additional dollar of capital. The marginal cost will vary according to the type of capital used. For example, raising funds through the use of unsecured or subordinated debt, or through debt that requires higher interest rates to offset risk, will be more expensive than debt that is backed by collateral, such as a secured bond.

Definition of 'Break-Even Analysis'
An analysis to determine the point at which revenue received equals the costs associated with receiving the revenue. Break-even analysis calculates what is known as a margin of safety, the amount that revenues exceed the break-even point. This is the amount that revenues can fall while still staying above the break-even point.

Read more: http://www.investopedia.com/terms/b/breakevenanalysis.asp#ixzz1vlGW21wp

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