Definition of Shrinkage factor

Shrinkage factor

The expected loss of some proportion of an item during the
production process, expressed as a percentage.

ADF (annuity discount factor)

the present value of a finite stream of cash flows for every beginning $1 of cash flow.

PPF (periodic perpetuity factor)

a generalization formula invented by Abrams that is the present value of regular but noncontiguous cash flows that have constant growth to perpetuity.

Amortization factor

The pool factor implied by the scheduled amortization assuming no prepayemts.

Annuity factor

Present value of $1 paid for each of t periods.

Conversion factors

Rules set by the Chicago Board of Trade for determining the invoice price of each
acceptable deliverable Treasury issue against the Treasury Bond futures contract.

Discount factor

Present value of $1 received at a stated future date.

Factor

A financial institution that buys a firm's accounts receivables and collects the debt.

Factor analysis

A statistical procedure that seeks to explain a certain phenomenon, such as the return on a
common stock, in terms of the behavior of a set of predictive factors.

Factor model

A way of decomposing the factors that influence a security's rate of return into common and
firm-specific influences.

Factor portfolio

A well-diversified portfolio constructed to have a beta of 1.0 on one factor and a beta of
zero on any other factors.

Factoring

Sale of a firm's accounts receivable to a financial institution known as a factor.

Maturity factoring

factoring arrangement that provides collection and insurance of accounts receivable.

Multifactor CAPM

A version of the capital asset pricing model derived by Merton that includes extramarket
sources of risk referred to as factor.

Net benefit to leverage factor

A linear approximation of a factor, T*, that enables one to operationalize the
total impact of leverage on firm value in the capital market imperfections view of capital structure.

Old-line factoring

factoring arrangement that provides collection, insurance, and finance for accounts receivable.

One-factor APT

A special case of the arbitrage pricing theory that is derived from the one-factor model by
using diversification and arbitrage. It shows the expected return on any risky asset is a linear function of a
single factor.

Pool factor

The outstanding principal balance divided by the original principal balance with the result
expressed as a decimal. Pool factors are published monthly by the Bond Buyer newspaper for Ginnie Mae,
Fannie Mae, and Freddie Mac(Federal Home Loan Mortgage Corporation) MBSs.

Present value factor

factor used to calculate an estimate of the present value of an amount to be received in
a future period.

Reported factor

The pool factor as reported by the bond buyer for a given amortization period.

Single factor model

A model of security returns that acknowledges only one common factor.
See: factor model.

Two-factor model

Black's zero-beta version of the capital asset pricing model.

Limiting factor

The production resource that, as a result of scarce resources, limits the production of goods
or services, i.e. a bottleneck.

inventory shrinkage

A term describing the loss of products from inventory
due to shoplifting by customers, employee theft, damaged and
spoiled products that are thrown away, and errors in recording the purchase
and sale of products. A business should make a physical count and
inspection of its inventory to determine this loss.

critical success factors (CSF)

any item (such as quality, customer
service, efficiency, cost control, or responsiveness
to change) so important that, without it, the organization
would cease to exist

shrinkage

a decrease in units arising from an inherent characteristic
of the production process; it includes decreases
caused by evaporation, leakage, and oxidation

Factoring

The sale of accounts receivable to a third party, with the third party bearing
the risk of loss if the accounts receivable cannot be collected.

Factory overhead

All the costs incurred during the manufacturing process, minus the
costs of direct labor and materials.

Shrinkage

The excess of inventory listed in the accounting books of record, but which
no longer exists in the actual inventory. Its disappearance may be due to theft, damage,
miscounting, or evaporation.

annuity factor

Present value of an annuity of $1 per period.

discount factor

Present value of a $1 future payment.

Factor of Production

A resource used to produce a good or service. The main macroeconomic factors of production are capital and labor.

Factoring

The discounting, or sale at a discount, of receivables on a nonrecourse, notification
basis. The purchaser of the accounts receivable, the factor, assumes full risk of collection and
credit losses, without recourse to the firms discounting the receivables. Customers are notified to
remit directly to the factor.

Inventory Shrinkage

A shortfall between inventory based on actual physical counts and inventory
based on book records. This shortfall may be due to such factors as theft, breakage, loss, or
poor recordkeeping.

Scrap factor

An anticipated loss percentage included in the bill of material and
used to order extra materials for a production run, in anticipation of scrap losses.

Shrinkage

Any uncontrolled loss of inventory, such as through evaporation or theft.

Factor

An agent who buys and sells goods on behalf of others for a commission.

Factoring

Type of financial service whereby a firm sells or transfers title to its accounts receivable to a factoring company, which then acts as principal, not as agent.

Interest Factor

Numbers found in compound interest and annuity tables. Usually called the FVIF or PVIF.

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