Dictionary - Corporate Finance & Accounting
# A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

10-K

The objective of the 10-K and other SEC-required forms is to provide shareholders and prospective shareholders with accurate, relevant, and timely information about the financial and operating performance of the company. The 10-K is just one of many forms a company that is publicly traded in the U.S. Read more

10-Q

A 10-Q is a report of a company's performance that must be submitted quarterly by all public companies to the Securities and Exchange Commission (SEC) A 10-Q contains similar information as a 10-K, but is not as comprehensive.A 10-Q must be submitted at the end of the first 3 quarters of a company's fiscal year, while a 10-K is submitted at the end of the 4th quarter. Read more

13-F

The Form 13-F must be filed by institutional investors who exercise discretion over at least $100 million in investments. Data reported on this form include the names of investment managers, the names and class of securities they manage, the CUSIP number, the number of shares owned, and the total market value of each security. Read more

Abandonment Value

Abandonment value refers to the value of a project or investment were it to be liquidated presently. Also called liquidation value, the abandonment value of a project or investment is the immediate value in cash that would be generated from liquidating a project or selling an investment.  A given project's abandonment value can be an important consideration for a company. Read more

Abatement Cost

An abatement cost refers to the cost associated with the voluntary or compulsory removal of an undesirable result of a production process. In many instances, companies produce goods or services that directly or indirectly result in a byproduct that may be medically or environmentally dangerous. Read more

Accelerated Cost Recovery System (ACRS)

The Accelerated Cost Recovery System (ACRS) is a depreciation method that assigns assets periods of cost recovery based on specific IRS criteria.Since 1986, the Modified Accelerated Cost Recovery System (MACRS) has been far more prevalent. Read more

Accelerated Depreciation

Accelerated depreciation is a depreciation method whereby an asset loses book value at a faster rate than the traditional straight-line method.Generally, this method allows greater deductions in the earlier years of an asset and is used to minimize taxable income. Read more

Accountant

An accountant is trained to compile, inspect, interpret, and/or report financial statements and tax returns that comply with governmental and regulatory authority requirements. Accountants often work in a company's accounting department, at an auditing firm, or in a private practice. Read more

Accountant's Opinion

An accountant's opinion is a concise written statement by a certified accountant concerning the accuracy of a company's financial records. An accountant's opinion is the first document in a company's financial report. Read more

Accounting

Accounting is the process of systematically recording, measuring, and communicating information about financial transactions.It’s a system of providing quantitative information about a business or person’s financial position. Read more

Accounting Convention

Accounting conventions are standards, customs or guidelines regarding the application of accounting rules. There are four widely recognized accounting conventions that guide accountants:1.  Be conservative. Read more

Accounting Earnings

Accounting earnings, or net income, represent the amount of money gained or lost after all costs, depreciation, interest , taxes and expenses have been deducted from a company's total sales. A simple formula for calculating accounting earnings is: Accounting Earnings = Revenue - Cost of Goods Sold (COGS) - General & Administrative Expenses - Depreciation - Interest Expense + Internet Income - Taxes - Preferred Dividends Let's assume that Company XYZ delivered the following financial results last year:   Revenue $1,000,000 Cost of Goods Sold $500,000 General Expenses $300,000 Depreciation $100,000 Interest Expense $5,000 Interest Income $1,000 Taxes $10,000 Preferred Dividends $10,000   Using the formula and the example information above, we can calculate Company XYZ's accounting earnings as follows: $1,000,000 -$500,000-$300,000-$100,000-$5,000+$1,000-$10,000-$10,000 = $76,000 In general, negative or low earnings might suggest a myriad of problems, ranging from insufficient gross profit margins to inadequacies in customer or expense management to unfavorable accounting methods. Read more

Accounting Error

An accounting error is an error in the process of systematically recording, measuring and communicating information about financial transactions. Mary is an accountant at Company XYZ. Read more

Accounting Period

An accounting period is the time interval reflected by the data in a financial statement. Firms prepare financial statements for publication and tax reporting based on an accounting period. Read more

Accounting Research Bulletins (ARB)

Accounting research bulletins (ARBs) are publications from the Accounting Principles Board of the American Institute of Chartered Public Accountants. ARBs recommend accounting procedures. Read more

Accounts Payable Turnover Ratio

The accounts payable turnover ratio is a company's purchases made on credit as a percentage of average accounts payable.The formula for accounts payable turnover ratio is: Accounts Payable Turnover = Net Credit Purchases/Average Accounts Payable Let's assume Company XYZ buys $10 million of widget parts this year. Read more

Accounts Receivable (AR)

Accounts receivable (AR) are the amounts owed by customers for goods or services purchased on credit.The money owed to the company is called “accounts receivable” and is tracked as an account in the general ledger, and then reported as a line on the balance sheet.  Look for accounts receivable on the company’s balance sheet under the current assets category. Read more

Accounts Receivable Aging

Accounts receivable aging is a report showing the various amounts customers owe a company and the length of time the amounts have been outstanding. Here is sample of an aging report:   Notice that the report shows how much each customer owes in total ("Amount Receivable"), how much is owed for the current month, and how late any other previous months' payments are. Read more

Accounts Uncollectible

Accounts uncollectible, also called allowance for doubtful accounts (ADA), is a reduction in a company's accounts receivable.Accounts uncollectible equals the amount of those receivables that the company's management does not expect to actually collect.  Let's assume Company XYZ sells $1 million of goods to 10 different customers.  Accordingly, Company XYZ increases its revenue account by $1 million and increases its accounts receivable account by $1 million (we are assuming the customers have 60 days to pay). Read more

Accretive

To be accretive is to increase earnings per share. This term is most often used in the context of acquisitions. Read more

Accrual Accounting

Accrual accounting is an accounting method whereby revenue and expenses are recorded in the periods in which they are incurred. Accrual accounting is the opposite of cash accounting, which recognizes economic events only when cash is exchanged. Read more

Accruals

Accruals are records of revenue and expenses in the periods in which they are incurred.They are a key component of the accrual method of accounting. Read more

Accrue

To accrue is to record revenue and expenses in the periods in which they are incurred.Accruals, the result of accruing, are key components of the accrual method of accounting. Read more

Accrued Expense

An accrued expense refers to any expense incurred and reported during an accounting period, but for which payment has not yet been made. There are certain expenses which a company may incur over the course of an accounting period (usually a quarter), but which may not actually be paid until a later time. Read more

Accrued Interest

Accrued interest refers to interest that builds up on a company's outstanding payables and receivables. This interest has been accounted for, but not yet transacted. Read more

Accrued Market Discount

Accrued market discount refers to the steady increase in value of a discounted bond from the time of purchase until maturity. The accrued market discount is a discount bond's increase in value resulting from the approach of its maturity date rather than a drop in interest rates. Read more

Accumulated Depreciation

Accumulated depreciation is the sum total of the depreciation recorded for certain assets. Let's assume Company XYZ bought a MegaWidget for $100,000 three years ago. Read more

Accumulated Earnings

Accumulated earnings is the sum of a company's profits, after dividend payments, since the company's inception.It can also be called retained earnings, earned surplus, or retained capital. Read more

Accumulated Earnings Tax

The accumulated earnings tax is a charge levied on a company's retained earnings.Also called the accumulated profits tax, it is applied when tax authorities determine the cash on hand to be an excessively high amount. Read more

Activity Based Management (ABM)

Activity based management (ABM) is an administrative method which examines how a company incurs costs from the standpoint of its activities rather than its final products. Companies have ordinarily managed costs from the perspective of the labor and capital which go into their final products. Read more

Adjusted Basis

Adjusted basis refers to the increase or decrease in an asset's value due to depreciation or capital enhancements. From the time an asset is acquired until the time it is sold, an asset experiences a number of events which affect its value. Read more

Adjusted Present Value (APV)

Adjusted present value (APV) refers to the net present value (NPV) or investment adjusted for the interest and tax advantages of leveraging debt provided that equity is the only source of financing. A company may finance a project or investment using shareholders' equity alone (i.e., without leveraged, or borrowed, cash flows). Read more

Adverse Opinion

An adverse opinion refers to the conclusion by an auditor that a company's financial statements inaccurately characterize the company's financial standing. An adverse opinion is an internal or independent auditor's official written statement of no-confidence in a company's financial statements insofar as it reflects the company's true financial status and adherence to generally accepted accounting principles (GAAP) and disclosure of information. Read more

After-Tax Operating Income (ATOI)

After-tax operating income (ATOI) is a company's operating income after taxes.ATOI is very similar to net operating profit after tax (NOPAT) The formula for ATOI is: ATOI = Gross Revenue - Operating Expenses - Depreciation - Taxes Let's assume Company XYZ reported the following information for the fiscal year: Using the formula and the information above, we can calculate that Company XYZ's ATOI was: $1,000,000 - $500,000 - $300,000 - $100,000 - $10,000 = $90,000 ATOI is a non-GAAP measure, meaning that what is included and excluded differs by company and industry. Read more

After-Tax Profit Margin

After-tax profit margin is the percentage of revenue remaining after all operating expenses, interest, taxes and preferred stock dividends (but not common stock dividends) have been deducted from a company's total revenue.  The formula for after-tax profit margin is: (Total Revenue – Total Expenses)/Total Revenue = Net Profit/Total Revenue = After-Tax Profit Margin By dividing net profit by total revenue, we can see what percentage of revenue made it all the way to the bottom line, which is good for investors.  Let's look at a hypothetical income statement for Company XYZ: Using the formula and the information above, we can calculate that Company XYZ's after-tax profit margin was $30,000/$100,000 = 30% After-tax profit margin is one of the most closely followed numbers in finance.Shareholders look at after-tax profit margin closely because it shows how good a company is at converting revenue into profits available for shareholders.  One of the most important concepts to understand is that net profit is not a measure of how much cash a company earned during a given period. Read more

Aggressive Accounting

Aggressive accounting refers to an accounting department's deliberate and purposeful tampering with its company's financials in order to outwardly characterize its revenues as higher than they truly are. The practice of aggressive accounting seeks to report a company's revenues as higher than they truly are in order to increase the market value of company stock by presenting attractive figures to current and prospective investors. Read more

Allowance for Doubtful Accounts (ADA)

An allowance for doubtful accounts (ADA) is a reduction in a company's accounts receivable.The ADA equals the amount of those receivables that the company's management does not expect to actually collect. Read more

Altman Z-Score

The Altman Z-Score (named after Edward Altman, the New York University professor who devised it) is a statistical tool used to measure the likelihood that a company will go bankrupt.Though Altman devised the Z-Score in the 1960s, the notion of trying to predict which companies would fail was far from new at that time. Read more

Amortization

Amortization is an accounting term that refers to the process of allocating the cost of an intangible asset over a period of time.It also refers to the repayment of loan principal over time. Read more

Analyst

An analyst gathers and interprets data about securities, companies, corporate strategies, economies or financial markets.Analysts are sometimes called financial analysts, securities analysts, equity analysts or investment analysts (although there is a distinction among these titles). Read more

Annual Report

An annual report is an audited corporate document that details the business activity and financial status of a publicly-held company over the previous year.  The Securities and Exchange Commission (SEC) requires all public companies to distribute an annual report to shareholders at the end of each fiscal year.Each report contains the three main financial statements -- the Income Statement, Cash Flow Statement and Balance Sheet -- as well as a host of other company-related data. Read more

Asset

An asset is an economic resource that can be owned by an individual, company, or country.Assets are expected to provide future economic benefits like:  Increased value for a company or country Increased net worth for an individual  Assets accomplish this by providing cash flow, reducing expenses, and/or increasing sales. Read more

Audit

In the tax world, an audit refers to the review of a taxpayer's tax return for accuracy.  In the accounting world, an audit is the examination and verification of a company's financial statements and records, and in the United States, examination for their compliance with Generally Accepted Accounting Principles (GAAP). Read more

Audit Trail

An audit trail refers to the complete record of events that occurred in the execution of a transaction. When a transaction is executed (e.g. Read more

Auditor's Report

An auditor's report is a statement included in a company's annual financial report that certifies the validity of a company's financial statements according to an outside auditor. By law, companies in the U.S. Read more

Back Charge

A back charge is an unpaid bill attributable to a prior period. For example, let's say that Company XYZ sells $1,000 worth of auto parts to Store ABC every month. Read more

Backflush Costing

An accounting method whereby the costs associated with producing a good or service are recorded only after the good or service is actually produced, completed or sold. For example, let's assume that Company XYZ manufactures widgets. Read more

Bad Debt Expense

Bad debt expense is the portion of accounts receivable that became uncollectable during a given period. Let's assume that Company XYZ sells $1,000,000 worth of goods to 10 different customers. Read more

Bad Debt Reserve

Bad debt reserve, also called an allowance for doubtful accounts (ADA), is a reduction in a company's accounts receivable.The bad debt reserve is the amount of receivables that the company does not expect to actually collect. Read more

Beginning Inventory

Beginning inventory refers to the value of goods that a company has for its use or sale at the start of an inventory accounting period. Say Company XYZ produces 5,000 units during the course of a year and sells 2,000 units. Read more

Book Value

The meaning of book value varies, depending on the context.When referring to assets, the term book value means the original cost of an asset minus accumulated depreciation. Read more

Bottom Line

The bottom line represents the number of sales dollars remaining after all operating expenses, interest, taxes and preferred stock dividends (but not common stock dividends) have been deducted from a company's total revenue.  The bottom line is also referred to as net income, net profit, or net earnings.The formula for the bottom line is as follows:Total Revenue -Total Expenses = Net Income The bottom line is found on the last line of the income statement, which is why it's called the bottom line.  Let's look at a hypothetical income statement for Company XYZ:Income Statement for Company XYZ, Inc.for the year ended December 31, 2008Total Revenue                        $100,000Cost of Goods Sold               ($ 20,000)Gross Profit                             $ 80,000Operating Expenses      Salaries               $10,000     Rent                    $10,000 Utilities                 $  5,000 Depreciation        $  5,000Total Operating Expenses    ($ 30,000)Interest Expense                   ($ 10,000)Taxes                                       ($ 10,000)Bottom Line                              $ 30,000By using the formula we can see that the bottom line = $100,000 - $20,000 - $30,000, - $10,000 - $10,000 = $30,000  The bottom line is one of the most closely followed numbers in finance, and it plays a large role in ratio analysis and financial statement analysis. Read more

Calendar Year

A calendar year is the period between January 1 and December 31. If Company XYZ starts its fiscal year on January 1 and ends its fiscal year on December 31, then Company XYZ's fiscal year is said to be on a calendar year basis. Read more

Capital Asset

For firms, a capital asset is an asset that has a useful life longer than one year and is not intended for sale during the normal course of business.For individuals, capital asset typically refers to anything the individual owns for personal or investment purposes. Read more

Capital Expenditures

Capital expenditures, or capex, is money used to purchase, upgrade, improve, or extend the life of long-term assets.Long-term assets are typically property, infrastructure, or equipment with a useful life of more than one year. Read more

Capitalization

In the business world, capitalization has two meanings.The first meaning, also called market capitalization, refers to the value of a company's outstanding shares. Read more

Capitalize

Capitalizing refers to the accounting practice of characterizing the costs of an asset purchase as a long-term asset on the balance sheet instead of an expense on the income statement.  Companies capitalize the cost of asset purchases in order to spread out the cost of the assets over many reporting periods.This way, net income is not affected disproportionately in the reporting period in which the asset was purchased.  Rather than being listed as one large expense in one reporting period, a capitalized asset cost will be expensed via depreciation over many reporting periods. Read more

Cash Accounting

Under cash accounting, a business records revenue and expenses in the period in which they are actually received or paid, rather than in the period in which they are incurred. Let's assume Company XYZ sold 1,000 widgets in December for $1,000 each and that its customers usually take 60 days to pay for their widgets. Read more

Cash and Cash Equivalents (CCE)

Cash and cash equivalents (CCE) are company assets in cash form or in a form that can be easily converted to cash. The balance sheet shows the amount of cash and cash equivalents at a given point in time, and the cash flow statement explains the change in cash and cash equivalents over time. Read more

Cash Budget

Cash budget is a review or projection of cash inflows and outflows.It can be used as a tool for analyzing the revenues and costs of a company or individual. Read more

Cash Conversion Cycle (CCC)

The cash conversion cycle, also called the net operating cycle, is the number of days it takes a company to generate revenues with assets. Analysts can determine the length of the cycle using the following formula: Cash Conversiion Cycle = Days Inventory Outstanding + Days Sales Outstanding + Days Payables Outstanding note that DPO is a negative number. Read more

Cash Flow

Cash flow is simply the cash expected to be generated by an investment, asset or business.  As an investor, you buy a dividend-paying stock.You purchase the stock for $10 and the company pays you a $0.50 dividend each year. Read more

Cash Flow After Taxes (CFAT)

Cash flow after taxes (CFAT) is a measure of a company's ability to generate positive cash flow after deducting taxes. The general formula for CFAT is: CFAT = Net Income + Depreciation + Amortization Sometimes analysts also add back other non-cash items and proceeds from debt or equity issuance. Read more

Cash Flow from Financing Activities

The section of the cash flow statement titled Cash Flow from Financing Activities accounts for inflows and outflows of cash resulting from debt issuance and financing, the issuance of any new stock, dividend payments, and any repurchase of existing stock. The cash flow from financing activities section expresses the total net cash flow from the total of any of the financing activities described above. Read more

Cash Flow from Investing Activities

Cash from investing activities is a section of the cash flow statement that provides information regarding a company's purchases or sales of capital assets. A statement of cash flows typically breaks out a company's cash sources and uses for the period into three categories: cash flow from operating activities, cash flow from investing activities, and cash flow from financing activities.  Cash flow from investing activities primarily reflect the company's purchases or sales of capital assets (that is, assets that appear on the balance sheet and have a useful life of more than one year). Read more

Cash Flow from Operating Activities

Cash flow from operating activities measures the cash-generating abilities of a company's core operations (rather than its ability to raise capital or buy assets).  Put another way, cash flow from operations is the amount of money a company brings in from their day-to-day business operations (e.g.selling goods, making products). Read more

Cash Flow per Share

Cash flow per share represents the portion of a company's cash flow allocated to each share of common stock. Cash flow per share can be calculated by dividing cash flow earned in a given reporting period (usually quarterly or annually) by the total number of shares outstanding during the same term. Read more

Cash Flow Statement

A cash flow statement is the financial statement that measures the cash generated or used by a company in a given period. A cash flow statement typically breaks out a company's cash sources and uses for the period into three categories: cash flow from operating activities, cash flow from investing activities, and cash flow from financing activities. Read more

Certified Public Accountant (CPA)

The certified public accountant (CPA) designation is a professional designation granted by the American Institute of Certified Public Accountants (AICPA).It is given to individuals who pass the Uniform CPA Examination and meet additional education, experience, and state licensing requirements that allow them to provide accounting services to the public. Read more

Common-Size Balance Sheet

A common-size balance sheet is a balance sheet in which each line item is expressed as a percentage of assets. For example, let's assume that Company XYZ's balance sheet looks like this: The right-most column on this balance sheet, which shows each line item as a percentage of assets, is a common-size balance sheet. Read more

Common-Size Financial Statement

A common-size financial statement is an income statement or balance sheet in which each line items are expressed as a percentage of sales or assets, respectively. For example, let's assume that Company XYZ's income statement looks like this: The right side of the income statement, which shows each expense as a percentage of sales, is a common-size income statement. Read more

Common-Size Income Statement

A common-size income statement is an income statement in which each line item is expressed as a percentage of sales. For example, let's assume that Company XYZ’s income statement looks like this: The right side of the income statement, which shows each expense as a percentage of sales, is a common-size income statement. Read more

Consolidate

In the accounting world, to consolidate means to combine the financial statements of a company and all of its subsidiaries, divisions or suborganizations. Let's assume Company XYZ is a holding company that owns four other companies: Company A, Company B, Company C and Company D. Read more

Consolidated Financial Statements

Consolidated financial statements are the combined financial statements of a company and all of its subsidiaries, divisions or suborganizations. Let's assume Company XYZ is a holding company that owns four other companies: Company A, Company B, Company C and Company D. Read more

Consolidated Financial Statements

Consolidated financial statements are the combined financial statements of a company and all of its subsidiaries, divisions, or suborganizations. Let's assume Company XYZ is a holding company that owns four other companies: Company A, Company B, Company C, and Company D. Read more

Contribution Margin

Contribution margin is a measure of profit per unit; it is used to tell a business how profitable each of their products is by calculating how much each product can contribute to revenues.The contribution is the difference between the market price of the product and its variable cost, where variable cost is the production cost excluding the company’s own fixed costs of operating the business.  Variable costs are the material and labor costs of making the product. Read more

Core Earnings

Core earnings are the net income a company generates from the principle products and services it provides. The concept of core earnings was developed by Standard & Poor's (S&P) in order to measure the income a company generates from its daily operations. Read more

Cost of Capital

Cost of capital is an important business term for both investors and companies.Cost of capital can best be described as the ability to cover both asset and liability expenditures while generating a profit.  In a nutshell, it’s a rate of return that can help companies decide to move forward on a project or help an investor determine the risk of investing in a company. Read more

Cost of Goods Sold (COGS)

Cost of goods sold (COGS) is an accounting term to describe the direct expenses related to producing a good or service.COGS is listed on the income statement. Read more

Cost Per Unit

Cost per unit is a measure of a company's cost to build or create one unit of product. For example, let's assume it costs Company XYZ $10,000 to purchase 5,000 widgets that it will resell in its retail outlets. Read more

Current Assets

Current assets (sometimes called current accounts) are any company assets that can be converted into cash within one fiscal year.There are multiple ways these assets can be converted, including sale, consumption, utilization, and exhaustion through standard operations.  Current assets are highly liquid and include categories such as: Cash and Cash Equivalents Marketable Securities Accounts Receivable Inventory and Supplies Prepaid Expenses Other Liquid Assets Current assets generally fall into five categories, sorted from most to least liquid: Cash and Cash Equivalents: Short-term commitments that are easily convertible into known cash amounts. Read more

Days Sales of Inventory (DSI)

Days sales of inventory is a ratio of inventory to sales.The formula is: Days Sales of Inventory = (Inventory/Cost of Sales) x 365 For example, let's say that XYZ Company had $15 million cost of sales for the year and $50,000 in inventory today. Read more

Days Sales Outstanding (DSO)

Days sales outstanding (DSO) is the ratio of receivables to the daily average of credit sales. The formula for daily sales oustanding is: DSO = Receivables / (Net Annual Sales on Credit / 360) If a company does not sell on credit (that is, the customer must pay immediately), then total sales is used in the denominator. Read more

Days Working Capital

Days working capital is the ratio of working capital to sales.The formula is: Days Working Capital = (Average Working Capital x 365)/Annual Sales Working capital is money available to a company for day-to-day operations. Read more

Debt Load

Debt load is the total amount of debt that a company has on its balance sheet.All publicly traded companies must file financial statements, including balance sheets, every quarter. Read more

Deferred Revenue

Deferred revenue refers to payments received in advance for services which have not yet been performed or goods which have not yet been delivered.These revenues are classified on the company's balance sheet as a liability and not as an asset.  For reporting purposes, a business must classify all items as either assets or liabilities. Read more

Deferred Tax Liability (DTL)

Deferred tax liability (DTL) is a balance sheet line item that accounts for the temporary difference between taxes that will come due in the future and taxes paid today.  Because of accrual accounting rules, a company may be able to defer taxes on some of its income.This "unrealized" tax debt is put into an account on the balance sheet called deferred tax liability.  You can find DTL on the balance sheet or on a fund's statement of assets and liabilities. Read more

Depletion Allowance

A depletion allowance is a tax deduction allowed in order to compensate for the depletion or "using up" of natural resource deposits such as oil, natural gas, iron, timber etc.  The allowance is a form of cost recovery for capital investment which, unlike income, is not taxable. There are two basic forms of depletion allowance, cost depletion and percentage depletion.  Under the cost method, the original investment is recouped by deducting a portion of the capital investment each year from gross income over the estimated life of the resource deposit.  Cost depletion can be illustrated in this way: An oil company invests $15 million in a property with an estimated oil reserve life of 15 years.  The company deducts approximately $1,000,000 ($15 million/15 years) from taxable earnings each year until the initial investment is recouped in tax benefits. Read more

Depreciated Cost

Depreciated cost is the cost of an asset minus its accumulated depreciation.Another term for this concept is net book value. Read more

Depreciation

Depreciation is an accounting method that measures the reduction in an asset’s value over the course of its useful life.It also represents how much of an asset’s value is depleted due to usage, wear and tear, or obsolescence. Read more

Diluted Earnings per Share

Diluted earnings per share is a measure of profit.The formula for diluted earnings per share is: Fully Diluted Earnings Per Share = (Net Income - Preferred Stock Dividends) / (Common Shares Outstanding + Unexercised Employee Stock Options + Convertible Preferred Shares + Convertible Debt + Warrants) Let's assume Company XYZ had $10,000,000 of net income this year. Read more

Earned Surplus

Earned surplus is the sum of a company's profits, after dividend payments, since the company's inception.It can also be called retained earnings, retained capital, or accumulated earnings. Read more

Earnings

Earnings are the corporate profits of a company over a specific time period after taxes and other expenses have been paid. The net (after-tax) earnings of a company are calculated by deducting such factors as operating expenses, cost of sales, taxes, and the like. Read more

Earnings Announcement

An earnings announcement is a public statement of a company's profits, usually on a quarterly basis. For example, let's say Company XYZ is a public company. Read more

Earnings Before Interest After Taxes (EBIAT)

Earnings before interest after taxes (EBIAT) is a measure of a company's operating performance.EBIAT is a measure of how profitable a company would be if it paid taxes on its operating profit without the benefit of the tax shelter that is created by using debt. Read more

Earnings Before Interest and Depreciation (EBID)

Earnings before interest and depreciation (EBID) are a post-tax measure of a company's operating performance. The formula for EBID is: EBID = EBIT + Depreciation - Taxes EBID can be easily derived from the company's income statement. Read more

Earnings Before Interest and Taxes (EBIT)

Earnings Before Interest and Taxes (EBIT) measures the profitability of a company without taking into account its cost of capital or tax implications. EBIT is calculated using information provided on a company’s income statement. Read more

Earnings Before Interest, Tax, Depreciation and Amortization (EBITDA)

Earnings before interest, tax, depreciation, and amortization (EBITDA) is a measure of a company's operating performance.It's a way to evaluate a company's performance without having to factor in financing/accounting decisions or tax environments. Read more

Earnings Before Tax (EBT)

Earnings before tax (EBT) measures a company's operating and non-operating profits before taxes are considered.It is the same as profit before taxes. Read more

Earnings Multiplier

The earnings multiplier, also called the price-to-earnings ratio (P/E), is a valuation method used to compare a company’s current share price to its per-share earnings. The market value per share is the current trading price for one share in a company, a relatively straightforward definition. Read more

Earnings Per Share (EPS)

The term earnings per share (EPS) represents the portion of a company's earnings, net of taxes and preferred stock dividends, that is allocated to each share of common stock.The figure can be calculated simply by dividing net income earned in a given reporting period (usually quarterly or annually) by the total number of shares outstanding during the same term. Read more

EBIDA Definition - Earnings Before Interest, Depreciation and Amortization

Earnings before Interest, Depreciation, and Amortization (EBIDA) is a post-tax measure of a company's operating performance. The formula for EBIDA is: EBIDA = EBIT + Depreciation + Amortization - Taxes EBIDA can easily be derived using the company's income statement. Read more

EBITD - Earnings Before Interest, Taxes and Depreciation

Earnings before interest, tax and depreciation (EBITD) is a pre-tax measure of a company's operating performance.Essentially, it's a way to evaluate a company's performance without having to factor in many financing decisions, accounting decisions, or tax differences. Read more

EBITDA Margin

EBITDA margin is a measurement of a company's EBITDA (its earnings before interest, taxes, depreciation, and amortization) as a percentage of its total revenue.  The formula for EBITDA margin is: EBITDA Margin = EBITDA / Total Revenue  A widely-used financial ratio, EBITDA margin provides investors with a better understanding of how much cash profit a company brought into its business in a given time period relative to its total revenue. Read more

EBITDAE - Earnings Before Interest, Taxes, Depreciation, Amortization and Exceptional Items

Earnings before interest, taxes, depreciation, amortization and exceptional items (EBITDAE) are a measure of a company's operating performance. The formula for EBITDAE is: EBITDAE = EBIT + Depreciation + Amortization + Exceptional Items Essentially, the EBITDAE provides a way to evaluate a company's performance without having to factor in financing decisions, accounting decisions, unusual events, or tax environments. Read more

EBITDAL - Earnings Before Interest, Taxes, Depreciation, Amortization And Special Losses

Earnings before interest, taxes, depreciation, amortization, and special losses (EBITDAL) is a measure of a company's operating performance.Essentially, it's a way to evaluate a company's performance without having to factor in financing decisions, accounting decisions, unusual events or tax environments. Read more

EBITDAR - Earnings Before Interest, Tax, Depreciation, Amortization, and Restructuring or Rent Costs

EBITDAR, which stands for earnings before interest, tax, depreciation, and either restructuring or rent costs (depending on what you're measuring) measures a company's profitability without taking into account its capital structure, tax rate, or primary non-cash items such as depreciation or amortization.It also backs out restructuring or rent costs, so that a company or analyst can approximate the cash available before either of these costs are paid for. Read more

EBITDAX - Earnings Before Interest, Tax, Depreciation, Amortization and Exploration

A variation of EBITDA, EBITDAX is a measure used by natural resource exploration companies to reflect ongoing or core profitability.The acronym stands for earnings before interest, taxes, depreciation, amortization and exploration expense. Read more

Economic Profit

Economic profit is a measure of performance that compares net operating profit to total cost of capital Economic profit is also referred to as economic value added (EVA), which is a trademarked concept originally devised by Stern Stewart & Co.The formula for economic profit is: Economic Profit = Net Operating Profit After Tax - (Capital Invested x WACC) As shown in the formula, there are three components necessary to solve economic profit: net operating profit after tax (NOPAT), invested capital, and the weighted average cost of capital (WACC).  The net operating profit after tax (NOPAT) can be found on the corporation's income statement, or calculated if preferred. Read more

Economic Value Added (EVA)

Economic value added (EVA) is an internal management performance measure that compares net operating profit to total cost of capital.Stern Stewart & Co. Read more

EDGAR Public Dissemination Service (PDS) System

The EDGAR Public Dissemination Service (PDS) System is an electronic system that receives SEC filings. Keane Federal Systems operates the EDGAR Public Dissemination Service (PDS) System. Read more

Electronic Data Gathering, Analysis and Retrieval (EDGAR)

EDGAR, the Electronic Data Gathering, Analysis and Retrieval system, is an automated system of submission used by public companies required to file forms with the U.S.Securities and Exchange Commission (SEC) In 1984, EDGAR was created by the SEC to improve the quality and speed of information available to investors and corporations. Read more

Ending Inventory

Ending inventory is the book value of inventory at the end of a financial or accounting reporting period. Ending inventory equals the beginning inventory balance plus the cost of any inventory purchases minus the cost of any inventory sold and shrinkage. Read more

Enterprise Multiple

Enterprise multiple is a financial indicator used to determine the value of a company.It is equal to a company’s enterprise value divided by its EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization). Read more

Enterprise Value (EV)

  Enterprise value represents the entire economic value of a company.More specifically, it is a measure of the theoretical takeover price that an investor would have to pay in order to acquire a particular firm. Read more

Enterprise Value to Cash Flow from Operations (EV/CFO)

Enterprise value to cash flow from operations (EV/CFO) is the ratio of the entire economic value of a company to the cash it produces.The formula for EV/CFO is: EV/CFO = (Market Capitalization + Total Debt – Cash)/Cash from Operations Some analysts adjust the debt portion of the formula to include preferred stock; they may also adjust the cash portion of the formula to include current accounts receivable and liquid inventory. Read more

Exceptional Item

An exceptional item is an unusually large and uncommon transaction charge that must be disclosed on the balance sheet in accordance with GAAP. Let's assume Company ABC is experiencing poor business. Read more

Extraordinary Item

An extraordinary item is an accounting term used to describe expenses that are infrequent, unusual and significant in size. Let's assume that Company XYZ, an American company, operates a chain of beach resorts in the Florida Keys, and the resorts are hit by a blizzard. Read more

Financial Accounting Standards Board (FASB)

The Financial Accounting Standards Board (FASB) is an independent non-profit body responsible for the institution and interpretation of Generally Accepted Accounting Principles (GAAP). FASB was formed in 1973 and serves as the arm of the SEC responsible for governing the accounting standards for U.S. Read more

Financial Analyst

A financial analyst gathers and interprets data about securities, companies, corporate strategies, economies, or financial markets.Financial analysts are sometimes called securities analysts, equity analysts, or investment analysts (although there is a distinction among these titles). Read more

Financial Engineer

A financial engineer uses quantitative and technical skills to develop financial strategies and products. Financial engineers design, create and implement new financial instruments, models and processes to solve problems in finance and take advantage of new financial opportunities. Read more

Financial Engineering

Financial engineering is the quantitative, technical development of financial strategies and products. Financial engineers design, create and implement new financial instruments, models and processes to solve problems in finance and take advantage of new financial opportunities. Read more

First In, First Out (FIFO)

First in, first out (FIFO) is an accounting method for inventory valuation that assumes that goods are sold or used in the same chronological order in which they are acquired. The accounting method of first in, first out (FIFO) assumes that merchandise purchased first is sold first. Read more

Fiscal Quarter (Q1, Q2, Q3, Q4)

A fiscal quarter is a consecutive three-month period within a company’s fiscal year.These calendar divisions are used by publicly-traded companies to schedule the release of financial reports and the payment of stock dividends. Read more

Fiscal Year

A fiscal year is an accounting period of 365(6) days that does not necessarily correspond to the calendar year beginning on January 1st.The fiscal year is the established period of time when an organization's annual financial records commence and conclude. Read more

Fixed Asset

A fixed asset is anything that has commercial or exchange value, generates revenue, has a life longer than one year and has a physical form. Let’s assume XYZ Company intends to purchase an office building for $10 million. Read more

Forensic Accounting

Forensic accounting is a form of investigative accounting which examines financial records in order to find evidence for a lawsuit or criminal prosecution. Forensic Accounting is sometimes referred to as forensic auditing. Read more

Forensic Auditing

Forensic auditing examines individual or company financial records as an investigative measure that attempts to derive evidence suitable for use in litigation. Forensic auditing can sometimes be referred to as forensic accounting. Read more

Forward Earnings

Forward earnings are the profits a company (or companies) expect to generate during a future period of time. Companies and/or analysts calculate forward earnings using a variety of techniques that generally involve a review of past earnings performance and market conditions as well as a prognostication about the future direction of the economy and/or stock market.  Forward earnings are used to calculate the forward price-to-earnings ratio (P/E), an oft-cited metric in stock valuation. Read more

Forward Price-to-Earnings Ratio (Forward P/E)

The forward price-to-earnings ratio (forward P/E) is a valuation method used to compare a company’s current share price to its expected per-share earnings. The market value per share is the current trading price for one share in a company, a relatively straightforward definition. Read more

Free Cash Flow (FCF)

Free cash flow (FCF) is a measure of how much cash a business generates after accounting for capital expenditures such as buildings or equipment.This cash can be used for expansion, dividends, reducing debt, or other purposes.  The formula to calculate free cash flow is: FCF = Operating  Cash Flow - Capital Expenditures The data needed to calculate a company's free cash flow is usually on its cash flow statement under Operating Activities. Read more

Free Cash Flow to the Firm (FCFF)

Free cash flow to the firm (FCFF) is the cash available to pay investors after a company pays its costs of doing business, invests in short-term assets like inventory, and invests in long-term assets like property, plants and equipment.The firm's investors include both bondholders and stockholders. Read more

Full-Service Broker

A full-service broker executes trades for clients, but also provides research, advice, retirement planning and tax assistance. There are two general categories of brokers: discount and full-service.  In contrast to a discount broker, who only executes trades for customers, a full-service broker also provides service and expertise in wealth management services -- such as tax assistance, retirement planning and investment advice. Read more

Fully Depreciated Asset

With a fully depreciated asset, the accumulated depreciation equals the original cost of the asset. Let's assume Company XYZ bought a MegaWidget for $100,000 10 years ago. Read more

Fundamental Analysis

Fundamental analysis attempts to understand and predict the intrinsic value of stocks based on an in-depth analysis of various economic, financial, qualitative, and quantitative factors. Fundamental analysis observes numerous elements that affect stock prices such as sales, price to earnings (P/E) ratio, profits, earnings per share (EPS), as well as macroeconomic and industry specific factors. Read more

Funds from Operations (FFO)

Funds from Operations (FFO) is a measure of cash generated by a real estate investment trust (REIT).It is important to note that FFO is not the same as Cash from Operations, which is a key component of the indirect-method cash flow statement. Read more

Funds from Operations Per Share (FFOPS)

Funds from operations per share (FFOPS) is a measure of cash generated by a real estate investment trust (REIT).It is important to note that FFOPS is not the same as Cash from Operations Per Share, which is a key component of the indirect-method cash flow statement. Read more

Future Value (FV)

Future value (FV) refers to a method of calculating how much the present value (PV) of an asset or cash will be worth at a specific time in the future. One dollar put into a savings account today might be worth more than one dollar a year from now. Read more

Generally Accepted Accounting Principles (GAAP)

Generally Accepted Accounting Principles (GAAP) is a framework of accounting standards, rules and procedures defined by the professional accounting industry, which has been adopted by nearly all publicly traded U.S.companies. Read more

Going Concern

Going concern refers to the assumption that a company has the resources to continue operating in the foreseeable future.A bankrupt company or a company near bankruptcy is the opposite of a going concern. Read more

Goods in Process

Also known as work in process (WIP), goods in process are the component of a company's inventory that is partially completed.  Goods in process = (operating inventory goods in process + raw materials used during the period + direct labor during the period + factory overhead for period) - ending inventory The value of that partially completed inventory is recorded as goods in process on the asset side of the balance sheet.For example, let's assume Company XYZ manufactures widgets. Read more

Goodwill

Goodwill is the excess of purchase price over the fair market value of a company's identifiable assets and liabilities.  Goodwill is created when one company acquires another for a price higher than the fair market value of its assets; for example, if Company A buys Company B for more than the fair value of Company B's assets and debts, the amount left over is listed on Company A's balance sheet as goodwill.The account for goodwill is located in the assets section of a company’s balance sheet. Read more

Goodwill Impairment

Generally, a goodwill impairment occurs when a company A) pays more than book value for a set of assets (the difference is the goodwill), and B) must later adjust the book value of that goodwill. Goodwill is an asset, but it does not amortize or depreciate like other assets. Read more

Gross Margin

Gross margin is a required income statement entry that reflects total revenue minus cost of goods sold (COGS).  Gross margin is a company's profit before operating expenses, interest payments and taxes.Gross margin is also known as gross profit. Read more

Gross Profit

Gross profit – also referred to as gross income or sales profit – is the total sales of a company minus the total cost of goods (COGS) sold.Gross profit margin is an important indicator of a company’s profitability. Read more

Hard Asset

A hard asset is a physical, or tangible, asset.It is the opposite of an intangible asset. Read more

Hard Inquiry

A hard inquiry is a lender's investigation of an applicant's credit history for the purpose of approving or declining a loan or extension of credit. A hard inquiry helps a bank or credit card company assess the risk that an applicant will default on his or her repayment obligations. Read more

Headline Earnings

Headline earnings are a measurement of a company's earnings based solely on operational and capital investment activities.It specifically excludes any income that may relate to staff reductions, sales of assets, or accounting write-downs. Read more

Hedge Accounting

Hedge accounting is a portfolio accounting method that combines the values of both a security and its offsetting hedge instrument. If investors purchase a security that comprises a high level of risk, they may accompany the purchase with an opposing item (usually a derivative, such as an option or future contract) referred to as a hedge. Read more

Held-to-Maturity Securities

Held-to-maturity securities refer to debt securities which an investor holds until maturity. When investors purchase debt securities such as bonds, they have two choices: to hold the security until maturity or to sell it at a premium following a relative decline in interest rates. Read more

Hurdle Rate

A hurdle rate is an investor's minimum rate of required return on an investment. Let's assume Company XYZ is deciding whether to purchase a piece of factory equipment for $300,000. Read more

Income from Operations

Income from operations is income that is generated by the normal operations of a business. Income from operations is also referred to as operating income or operating earnings. Read more

Income Statement

An income statement is a financial statement detailing a company’s revenue, expenses, gains, and losses for a specific period of time that is submitted to the Securities and Exchange Commission (SEC).At the most basic level, it shows profit and loss. Read more

Intangible Asset

An intangible asset is an asset that lacks a physical substance.  For example, goodwill, patents, trademarks and copyrights are intangible assets.None of these assets can be physically touched, but they can still have value.  The line item for intangible assets is found on the balance sheet. Read more

Inventory

Anyone who has ever worked in retail has heard the term inventory.For businesses, inventory is not only how stores keep customers happy, but it’s also how they keep supply chains moving (and ensure that supply is available to meet demand).  Beyond the borders of a brick-and-mortar store, what is inventory? Read more

Inventory Management

Inventory management is the process of ensuring that a company always has the products it needs on hand and that it keeps costs as low as possible. Inventories are company assets that are intended for use in the production of goods or services made for sale, are currently in the production process, or are finished products held for sale in the ordinary course of business. Read more

Inventory Reserve

An inventory reserve is an accounting entry that reflects a reduction in the market value of a company's inventory. For example, let's say that Company XYZ bought 1,000,000 widgets for $4 each. Read more

Inventory Turnover

The inventory turnover ratio measures the rate at which a company purchases and resells products to customers.There are two formulas for inventory turnover:           Sales               OR                  Cost of Goods Sold             Inventory                                   Average Inventory The first formula is considered to be more common. Read more

Last Fiscal Year (LFY)

Last fiscal year (LFY) refers to a company's most recent completed fiscal year. A fiscal year is a company's 12-month accounting cycle. Read more

Last Twelve Months (LTM)

Last twelve months (LTM), also known as trailing twelve months (TTM), is the 12-month interval occurring before a given point in time.  For example, an analyst who is issuing a report on October 15, 2012 will report last twelve months (LTW) earnings as those from October 1, 2011 to September 30, 2012.  Analysts and policymakers frequently use the last twelve months to gauge economic performance and to analyze data from the past year.It is important not to confuse the last twelve months with the last fiscal year (LFY), which covers the organization's most recently-completed fiscal year. Read more

Last-In, First-Out (LIFO)

Last-in, first-out (LIFO) describes a method for accounting for inventories.Under this system, the last unit added to an inventory is the first to be recorded as sold. Read more

Liquidation Value

Liquidation value refers to the value of a project or investment if it were to be sold or abandoned immediately. Also called abandonment value, the liquidation value of a project or investment is the immediate value in cash that would be generated from liquidating a project or selling an investment.  A project's liquidation value can be an important consideration for a company's capital budget. Read more

Margin

The term margin has two main definitions.The first refers to the ratio of profit to revenue. Read more

Mark-to-Management

Mark-to-management is an accounting practice that prices an asset based on what management estimates its potential value to be under normal market conditions.It is the opposite of mark-to-market. Read more

Mark-to-Market (MTM)

Mark-to-market (MTM) is an accounting method that records the value of an asset according to its current market price. For example, the stocks you hold in your brokerage account are marked-to-market every day. Read more

Mark-to-Market Losses

Mark-to-market losses are losses in an asset's value caused solely by a decline in market price. Mark-to-market losses appear when an asset is priced according to a mark-to-market (MTM) accounting method. Read more

Mark-to-Model

Mark-to-model is an accounting method where asset prices are assigned using the results of a financial model. The mark-to-model pricing method puts a value on assets based on the outcome of a financial model. Read more

Market Value Added

Market Value Added is the difference between the capital contributed to the company by bondholders and shareholders and the final market value of the product. The formula used to find market value added is: Market Value Added = Market Value - Capital Invested Increasing MVA or increasing shareholder wealth is the primary goal of any business and the reason for its existence.  For example, if bondholders and shareholders have contributed $1,000,000 to form Company XYZ and during its existence since inception and it is currently listed on the stock exchange with a stock market value of $2,000,000, it can be said that the MVA of the company is $1,000,000. Read more

Market Value of Equity

Market value of equity is the total market value of all of a company's outstanding shares. A company's market value of equity -- also known as market capitalization -- is the current market price of a company's stock multiplied by the number of all outstanding shares in the market. Read more

Marketable Securities

Marketable securities are financial instruments that can be sold or converted into cash (at reasonable value) within one year.They are highly liquid investments that are generally issued by businesses to raise funds for operating expenses or expansion. Read more

Mosaic Theory

In the finance world, the mosaic theory refers to a research approach whereby the analyst arrives at a conclusion by piecing together bits of publicly available information. For example, let's assume that John Doe is an analyst at Company XYZ. Read more

Negative Amortization

Negative amortization occurs when the principal balance on a loan (usually a mortgage) increases because the borrower's payments don't cover the total amount of interest that has accrued. For example, let's assume that John wants to borrow $100,000 from Bank XYZ to buy a house. Read more

Negative Amortizing Loan

Negative amortizing loans are loans in which the loan's principal balance increases even though the borrower is making payments on the loan. For example, let's assume that John wants to borrow $100,000 from Bank XYZ to buy a house. Read more

Negative Assurance

A negative assurance is an auditor's written statement that an audit did not uncover any signs of fraud or violations of accounting rules. For example, let's assume that Company XYZ hires an auditor to audit its financial statements and internal controls for the year 2010. Read more

Negative Equity

Negative equity occurs when liabilities exceed the value of assets. For example, let's assume that Company XYZ has $20 million of total assets and $40 million of total liabilities. Read more

Negative Goodwill

Negative goodwill, also called a bargain-purchase amount, occurs when a company buys an asset for less than its fair market value.Negative goodwill is the opposite of goodwill. Read more

Net Advantage to Leasing (NAL)

Net Advantage to Leasing (NAL) refers to the money a company or individual saves from leasing an asset rather than buying it. Under a lease agreement, the user (the lessee) agrees to make periodic payments to the owner (the lessor) in exchange for the use of the asset. Read more

Net Assets

Net assets are what a company owns outright, minus what it owes.Net assets provide a rough guide for the value of company resources. Read more

Net Book Value

Net book value is the value at which a company carries an asset on its balance sheet.It is equal to the cost of the asset minus accumulated depreciation.  People often use the term net book value interchangeably with net asset value (NAV), which refers to a company's total assets minus its total liabilities. Read more

Net Cash Flow

Net cash flow refers to the difference between a company's cash inflows and outflows in a given period.In the strictest sense, net cash flow refers to the change in a company's cash balance as detailed on its cash flow statement. Read more

Net Current Asset Value Per Share (NCAVPS)

The net current asset value per share (NCAVPS) equals a company's current assets divided by its number of shares outstanding. The formula for NCAVPS is: NCAVPS = (Current Assets - Current Liabilities) / Shares Outstanding A current asset is cash or an asset that can be converted to cash within one year. Read more

Net Debt

Net debt is a company's total debt less cash on hand. The formula for net debt is: Net Debt = Short-Term Debt + Long-Term Debt - Cash and Cash Equivalents For example, let's assume that Company XYZ has $10,000,000 in short-term debt, $4,000,000 in long-term debt, and $1,000,000 in cash and cash equivalents. Read more

Net Earnings

Net earnings represent the amount of sales revenue left over after all operating expenses, interest, taxes and preferred stock dividends (but not common stock dividends) have been deducted from a company's total revenue.  Net earnings are also referred to as the bottom line, net profit, or net income.The formula for net earnings is as follows:Total Revenue -Total Expenses = Net Earnings Net earnings are found on the last line of the income statement, which is why it's often referred to as the bottom line.  Let's look at a hypothetical income statement for Company XYZ:By using the formula we can see that Net Earnings = $100,000 - $20,000 - $30,000, - $10,000 - $10,000 = $30,000 Net earnings are one of the most closely followed numbers in finance, and it plays a large role in ratio analysis and financial statement analysis. Read more

Net Income

For businesses, net income indicates how well a company is managing its profit (both earnings and expenses).For individuals, this number is defined more loosely: it can refer to your gross income net of expenses, or your take-home pay.  Net Income for Businesses  Net income for a business represents the income remaining after subtracting the following from a company's total revenue:  All operating expenses  Cost of Goods Sold Interest Taxes  Preferred stock dividends (but not common stock dividends)  Net income for a business is found on the income statement.  This number is examined by shareholders, prospective investors, and potential lenders to help determine if the company is solvent and able to pay additional debts. Read more

Net Income After Taxes (NIAT)

Net income after taxes (NIAT) is the number of sales dollars remaining after all operating expenses, interest, depreciation, taxes and preferred stock dividends have been deducted from a firm's total revenue.  Net income after taxes is also referred to as the bottom line, profit or net earnings.The formula for NIAT is as follows: Total Revenue -Total Expenses = Net Income After Taxes Net income after taxes is found on the last line of the income statement, which is why it's often referred to as the bottom line.  Let's look at a hypothetical income statement for Company XYZ: Income Statement for Company XYZ, Inc.for the year ended December 31, 2008 Total Revenue                        $100,000 Cost of Goods Sold               ($ 20,000)Gross Profit                             $ 80,000 Operating Expenses      Salaries               $10,000     Rent                    $10,000  Utilities                 $  5,000  Depreciation        $  5,000Total Operating Expenses    ($ 30,000) Interest Expense                   ($ 10,000) Taxes                                       ($ 10,000) NIAT                                         $ 30,000 By using the formula we can see that NIAT = $100,000 - $20,000 - $30,000, - $10,000 - $10,000 = $30,000 Net income after tax is one of the most closely followed numbers in finance, and it plays a large role in ratio analysis and financial statement analysis. Read more

Net Interest Cost (NIC)

Net interest cost (NIC) is a way to compute the average annual interest expense for a bond issue.  The formula for net interest cost is: Net Interest Cost = (Total Interest Payments + Discount - Premium) / Number of Bond-Year Dollars The "number of bond-year dollars" equals the sum of the product of each year's maturity value and the number of years to its maturity.For example, let's assume Company XYZ wants to calculate the NIC on its most recent bond issue. Read more

Net Interest Income (NII)

Net interest income is the difference between interest received from assets and interest paid on liabilities.  The formula for net interest income is: Net Interest Income = Interest Received - Interest Paid Let's assume XYZ Bank earns $1,000,000 for the month on its mortgage loans, commercial loans, and personal loans.It also pays $975,000 in interest to its depositors for their CDs, checking accounts, and savings vehicles. Read more

Net Investment

Net investment is the measure of a company's investment in capital assets, such as the property, plants, software and equipment that it uses for operations. The formula for net investment is: Net Investment = Capital Expenditures – Depreciation (non-cash) In order to calculate the net investment of a company, you must first know the amount of capital expenditures and non-cash depreciation they have. Read more

Net Investment Income

Net investment income is what an investment company receives in capital gains, dividends and interest payments, less administrative fees.  The formula for net investment income is: Net Investment Income = Capital Gains + Dividends + Interest Income - Administrative Fees For example, let's assume Fund ABC is reporting its performance results for the year.It has invested in a portfolio of growth stocks, income stocks and corporate bonds. Read more

Net Loss

A company reports a net loss when its expenses exceed revenues during a specific period of time.A net loss is the opposite of net income or net profit, which is when a organization's revenue is greater than its expenses. Read more

Net Margin

Net margin is the percentage of revenue remaining after all operating expenses, interest, taxes and preferred stock dividends (but not common stock dividends) have been deducted from a company's total revenue. The formula to calculate net margin is: (Total Revenue – Total Expenses)/Total Revenue = Net Profit/Total Revenue = Net Margin By dividing net profit by total revenue, we can see what percentage of revenue made it all the way to the bottom line, which is good for investors. Read more

Net Operating Loss (NOL)

A net operating loss (NOL) is a negative profit for tax purposes.It usually occurs when a company's tax deductions exceed its taxable income, making the company unprofitable. Read more

Net Operating Profit After Tax (NOPAT)

One key indicator of a business success is net operating profit after tax (NOPAT).Considered an “apples-to-apples” measure, NOPAT helps investors determine how well one company is performing versus another in the same industry, regardless of how much debt they use to buy and control assets.  Although it may appear to be an arbitrary measurement, every investor searching for a long-term opportunity should look at net operating profit after tax.  This comprehensive financial definition has compiled everything you want to know about NOPAT – and how it can help you become a smarter investor.  Simply put, net operating profit after tax measures a company’s financial performance without considering the tax savings of debt, since it looks at operating profits exclusive of interest. Read more

Net Operating Profit Less Adjusted Taxes (NOPLAT)

Net operating profit less adjusted taxes (NOPLAT) is a measure of profit that includes the costs and tax benefits of debt financing.put another way, NOPLAT is earnings before interest and taxes (EBIT) adjusted for the impact of taxes. Read more

Net Present Value of Growth Opportunities (NPVGO)

Net Present Value of Growth Opportunities (NPVGO) is the simply the present value of additional cash flows associated with an acquisition, net of the purchase price of the acquisition.Essentially, the concept adds the present value of assets in place to the present value of the company's growth prospects. Read more

Net Profit

Net profit impacts the “take-home” profit of a company.It’s used to calculate net profit margin, which puts a value metric on a company. Read more

Net Profit Margin

Net profit margin is a metric that indicates how well a company can transform its revenues into profits.Net profit margin is the percent of revenue remaining after all operating expenses, interest, taxes, and preferred stock dividends have been deducted from a company's gross or total revenue. Read more

Net Receivables

Net receivables refers to the net amount of money remaining after deducting the provision for bad debt.It is primarily used in businesses that sell on credit. Read more

Non-Cash Item

A non-cash item is an entry on an income statement or cash flow statement correlating to expenses that are essentially just accounting entries rather than actual movements of cash. Depreciation and amortization are the two most common examples of noncash items. Read more

Non-Financial Asset

A non-financial asset has a value based on its tangible characteristics and properties. A company's balance sheet includes several types of assets and liabilities. Read more

Non-Operating Asset

A non-operating asset is an asset that generates income, but is unrelated to the core operations of the company. Also called a redundant asset, a non-operating asset usually generates some form of revenue or return for the owning company, but play no role in the company's operations. Read more

Obsolete Inventory

Obsolete inventory is inventory that is essentially useless and/or unsellable. For example, consider Company XYZ, a cheese manufacturer. Read more

Off Balance Sheet

Off balance sheet refers to items that are effectively assets or liabilities of a company but do not appear on the company's balance sheet. For example, let's assume that Company XYZ has a $4,000,000 line of credit with Bank ABC. Read more

Off-Balance-Sheet Financing

Off-balance-sheet financing is an accounting method whereby companies record certain assets or liabilities in a way that keeps them from appearing on the balance sheet. For example, let's assume that Company XYZ has a $4,000,000 line of credit with Bank ABC. Read more

Operating Cash Flow (OCF)

Operating cash flow (OCF) is a measure of the cash generated or used by a company in a given period solely related to core operations.OCF is not the same as net income, which includes transactions that did not involve actual transfers of money (depreciation is a common example of a noncash expense that is part of net income but not OCF). Read more

Operating Cash Flow Demand (OCFD)

Operating cash flow demand (OCFD) is the present value of the minimum amount of cash a capital investment must generate over its life in order to meet the investor's minimum required return. Let's assume that Company XYZ wants to purchase a widget machine. Read more

Operating Cash Flow Margin

Operating cash flow margin is cash from operating activities as a percentage of sales in a given period.  Operating cash flow margin is generally calculated using the following formula: Operating Cash Flow Margin = Cash Flow from Operating Activities / Sales  The operating cash flow margin is not the same as net income margin, which includes transactions that did not involve actual transfers of money (depreciation is common example of a noncash expense that is included in net income calculations but not in operating cash flow).The operating cash flow margin is also not the same as EBITDA or free cash flow. Read more

Operating Earnings

Operating earnings is a measure of profitability that tells investors how much of revenue will eventually become profit for a company.The formula for calculating operating earnings is: Operating Earnings = revenue - cost of goods sold, labor and other day-to-day expenses incurred in the normal course of business It is important to understand what expenses are included and excluded when calculating operating earnings. Read more

Operating Expense

An operating expense is a day-to-day expense incurred in the normal course of business.These expenses appear on the income statement. Read more

Operating Income

Operating income is the amount of revenue left after subtracting operating expenses and cost of goods sold (COGS).Operating income is a measure of profitability directly related to a company’s operations.  Operating income is sometimes referred to as Earnings Before Interest and Taxes (EBIT). Read more

Operating Income Before Depreciation and Amortization (OIBDA)

Operating income before depreciation and amortization (OIBDA) is a measure of the income generated or used by a company in a given period exclusive of the company's capital spending decisions and its tax structure. It is important to note that OIBDA is not the same as EBITDA. Read more

Operating Margin

Operating margin is a financial metric used to measure the profitability of a business.The operating margin shows what percentage of revenue is left over after paying for costs of goods sold and operating expenses (but before interest and taxes are deducted). Read more

Operating Profit

Also called earnings before interest and taxes (EBIT), operating profit calculates the profits earned from a company’s core business after subtracting the cost of goods sold (COGS), operating costs, and any depreciation expenses.  The balance after deducting these costs and expenses from the company’s operating revenue is the money left in the business that can be used for expansion, investment, and growth. Investors compare the operating profits of companies in similar industries in order to assess their financial health and growth potential. Read more

Operating Revenue

Operating revenue is the sales associated with a company's core, day-to-day operations. Let's assume that Company XYZ sells $1,000,000 of widgets -- its main business -- this year. Read more

Ordinary Income

Ordinary income is not a capital gain, dividend or other income subject to special taxation.   In the United States, ordinary income is taxed progressively, meaning that there are a series of brackets in which income is taxed. Read more

Pass-Through Income

Pass-through income is sent from a pass-through entity to its owners.The income is not taxed at the corporate level -- it is only taxed at the individual owners' level. Read more

Per Share Basis

Per share basis is a carefully scrutinized metric that is often used as a barometer to gauge a company's profitability per unit of shareholder ownership.In many cases, cash flow per share is one of the most important measures. Read more

Pre-Tax Operating Income

Pre-tax operating income is a company's operating income before taxes.The formula for pre-tax operating income is: Pre-Tax Operating Income = Gross Revenue - Operating Expenses – Depreciation Let's assume Company XYZ reported the following information for the fiscal year: Using the formula and the information above, we can calculate that Company XYZ's pre-tax operating income was: $1,000,000 - $500,000 - $300,000 - $100,000 = $100,000 Pre-tax operating income is a measure of a company's operating efficiency because it only takes into account expenses that are directly related to ongoing business operations. Read more

Profit & Loss (P&L) Statement

Profit and loss (P&L) statements are one of the three financial statements used to assess a company’s performance and financial position.The two others are the balance sheet and the cash flow statement. Read more

Profit Before Tax

Profit before tax measures a company's operating and non-operating profits before taxes are considered.It is the same as earnings before taxes. Read more

Profit Warning

A profit warning is a public communication from a company that its earnings will fall below expectations. Profit warnings are part of the large, fluid world of earnings guidance, whereby the management of publicly traded companies issue estimates about what they expect earnings to be for the coming quarter. Read more

Qualified Opinion

A qualified opinion is a cautionary written notice from an auditor stating that a company has not complied with generally accepted accounting principles (GAAP).  There are two main reasons an auditor may write a qualified opinion on a company's audit report: 1.) Deviations from GAAP: The audited company did not accurately follow the GAAP accounting principles on one or more items in their financial report.2.) Limitation of scope: Not all financial statement information was available to the auditor. Read more

Quarterly Report

A quarterly report is a set of financial statements issued by a company every three months.Public companies in the United States file this report via the Securities and Exchange Commission (SEC) Form 10-Q. Read more

Quick Assets

Quick assets are assets that can be converted to cash quickly.Typically, they include cash, accounts receivable, marketable securities, and sometimes (not usually) inventory. Read more

Receivables Turnover Ratio

The receivables turnover ratio is a company's sales made on credit as a percentage of average accounts receivable.The formula for receivables turnover ratio is: Receivables Turnover = Net Credit Sales/Average Accounts Receivable For example, let's assume that Company XYZ sells $10,000,000 of widget parts this year. Read more

Recurring Revenue

Recurring revenue is revenue that a company has reasonable assurance will occur at regular intervals in the future.   Let's assume Company XYZ sells a widget-cleaning service. Read more

Redundant Asset

A redundant asset is an asset that generates income, but is not linked to the fundamental operations of the company. Also known as a non-operating asset, a redundant asset usually generates some type of revenue or return for the owning company, but does not play a part in the company's operations. Read more

Retained Capital

Retained capital is the sum of a company's profits, after dividend payments, since the company's inception.It can also be called retained earnings, earned surplus, or accumulated earnings. Read more

Retained Earnings

Retained earnings are the sum of a company's profits, after dividend payments, since the company's inception.They are also called earned surplus, retained capital, or accumulated earnings. Read more

Retained Earnings

Retained earnings are the sum of a company's profits, after dividend payments, since the company's inception.They are also called earned surplus, retained capital, or accumulated earnings. Read more

Return on Assets (ROA)

Return on assets (ROA) is a financial ratio that can help you analyze the profitability of a company.ROA measures the amount of profit a company generates as a percentage relative to its total assets.  Put another way, ROA answers the question how much money is made (net income) off what a company owns (assets)? Read more

Return on Assets (ROA)

Return on assets (ROA) is a financial ratio that can help you analyze the profitability of a company.ROA measures the amount of profit a company generates as a percentage relative to its total assets.  Put another way, ROA answers the question how much money is made (net income) off what a company owns (assets)? Read more

Return on Equity (ROE)

Also referred to as “return on net assets”, return on equity (ROE) is a measurement of how effectively a business uses equity – or the money contributed by its stockholders and cumulative retained profits – to produce income.In other words, an ROE indicates a company’s ability to turn equity capital into net profit. Read more

Return on Equity (ROE)

Also referred to as “return on net assets”, return on equity (ROE) is a measurement of how effectively a business uses equity – or the money contributed by its stockholders and cumulative retained profits – to produce income.In other words, an ROE indicates a company’s ability to turn equity capital into net profit. Read more

Return on Net Assets (RONA)

Return on net assets is a metric which measures a company's financial performance with regard to fixed assets combined with working capital. Return on net assets (RONA) is calculated by dividing a company's net income in a given period by the total value of both its fixed assets and its working capital. Read more

Revenue Per Employee

Revenue per employee measures the average revenue generated by each employee of a company.  Revenue per employee is calculated by dividing a firm's revenue by its total number of workers (Revenue/Number of Employees).Let's take a closer look some sample figures from Company XYZ: 2005 Revenue:  $50,000,000 Employees:  312 By plugging the information provided above into the above formula, we can calculate the firm's revenue per employee as follows: $50,000,000/312 = $160,256.41 Therefore, every employee at Company XYZ contributed approximately $160,256 in revenue for 2005. Read more

Rolling EPS

The rolling EPS is a variation of the earnings per share (EPS) metric which measures a company's profitability. The rolling EPS is measured on the basis of a year and is calculated by adding a company's EPS from the two previous quarters to the projected EPS for the two upcoming quarters. Read more

Rounding Error

A rounding error is a mistake made when rounding a number up or down.  For example, most math books teach students to round numbers 5 through 9 up. Read more

Same-Store Sales

Same-store sales measures the increase in revenue over a particular period for the same set of stores in each period. For example, let's assume that Company XYZ is a restaurant company that has 45 restaurants. Read more

Scrap Value

Scrap value, also called salvage value, is the value of an asset after it has come to the end of its useful life. Let's assume you buy a car for $20,000. Read more

SEC Form 10-Q

SEC Form 10-Q is a quarterly performance report that public companies must submit to the SEC. The 10-Q is just one of many forms a company that is publicly traded in the U.S. Read more

Securities Analyst

A securities analyst gathers and interprets data about securities, companies, corporate strategies, economies or financial markets.Securities analysts are sometimes called financial analysts, equity analysts or investment analysts (although there is a distinction among these titles). Read more

Shareholders Equity

Shareholders equity is a measure of how much of a company's net assets belong to the shareholders. Shareholders equity is found on the balance sheet. Read more

Simple Interest

Simple interest is a basic formula for calculating how much interest to apply to a principal balance.  Simple Interest Formula: Simple Interest = Interest Rate x Principal Balance For example, let's assume that John Doe puts $1,000 in his savings account.The bank pays 3% per year in interest. Read more

Statement of Income

The statement of income is one of the three primary financial statements used to assess a company’s performance and financial position at the end of an accounting period (the two others being the balance sheet and the cash flow statement).Specifically, it summarizes a company's revenues and expenses over the entire reporting period. Read more

Statement of Operations

The statement of operations is one of the three primary financial statements used to assess a company’s performance and financial position (the two others being the balance sheet and the cash flow statement).The statement of operations summarizes a company's revenues and expenses over the entire reporting period. Read more

Tangible Book Value Per Share (TBVPS)

Tangible book value per share (TBVPS) equals a company's net tangible assets divided by its number of shares outstanding.A tangible asset is anything that has commercial or exchange value and has a physical form. Read more

Tangible Common Equity (TCE)

Tangible common equity (TCE) is the common equity listed on the balance sheet minus preferred stock and intangible assets.  The formula for tangible common equity is: Tangible Common Equity = Common Equity - Preferred Stock - Intangible Assets Let's say Company XYZ has $40,000,000 of total assets and $25,000,000 of total liabilities.It has no preferred stock, but it does have a $3,000,000 line item for goodwill and $2,000,000 worth of trademarks.  First, we can calculate common equity by subtracting liabilities from assets: $40,000,000 - $25,000,000 = $15,000,000.  Then we can use the formula above to calculate Company XYZ's tangible common equity: TCE =  $15,000,000 - $0 - $5,000,000 = $10,000,000.  Goodwill is an accounting construct with no marketable value and trademarks cannot be easily separated from the company and sold piecemeal, so these two intangible assets are subtracted from common equity to calculate tangible common equity.  Few intangible assets have liquidation value. Read more

Tax Accounting

Tax accounting focuses on the preparation, analysis and presentation of tax returns and tax payments. For example, Company XYZ might use one accounting method for calculating depreciation when it reports financial results to investors, but tax laws may require it to use a different method for tax accounting purposes. Read more

Tax Expense

Tax expense is the amount of tax owed in a given period.It appears on the income statement. Read more

Times Interest Earned

The times interest earned, also known as interest coverage ratio, is a measure of how well a company can meet its interest-payment obligations. The formula for times interest earned is: Earnings Before Interest and Taxes/ Interest Expense Here is some information about Company XYZ: Net Income    $350,000 Interest Expense    ($400,000) Taxes    ($50,000) Using the formula and the information above, we can calculate that XYZ’s times interest earned is: This means that XYZ Company is able to meet its interest payments two times over. Read more

Tobin's Q Ratio

The Tobin's Q ratio is a measure of firm assets in relation to a firm's market value.The formula for Tobin's Q is: Tobin's Q = Total Market Value of Firm / Total Asset Value of Firm For example, let's say Company XYZ has $40 million of assets, 10 million shares outstanding and a current share price of $3. Read more

Trailing Twelve Months (TTM)

Trailing twelve months (TTM), sometimes referred to as last twelve months (LTM), is the 12-month interval of a company's financial performance that occurs before a designated point in time.  TTM is a helpful statistic for reporting, comparing, and contrasting financial figures.For example, an analyst issuing a report on October 15, 2019 will report trailing twelve months (TTM) earnings as those from October 1, 2018 to September 30, 2019. Read more

Turnaround

A turnaround occurs when a company takes successful steps to correct a period of deteriorating financial performance. To turn a business' financial results around, companies often obtain special financing for revitalization projects or hire managers with a proven track record of improving the financial results at struggling companies. Read more

Useful Life

A useful life is the number of years in which an asset can reliably produce benefits. Let's assume you buy a car for $20,000. Read more

Venn Diagram

A Venn diagram is an illustration of common characteristics. Named after John Venn, a Venn diagram is often little more than two or more overlapping circles (you can use other shapes, too). Read more

Voodoo Accounting

Voodoo accounting refers to any accounting practices that artificially inflate the profits reported on a company's financial statements. Voodoo accounting comprises a wide range of unethical and unprofessional methods for making a company's profits appear larger than they really are. Read more

Wage Expense

Wage expense is the total compensation a company pays its employees during a particular accounting period. The compensation a company pays its employees is treated as an expense on its income statement. Read more

Weighted Average Cost of Capital (WACC)

Unlike personal finances, business finances are far more complicated and often require multiple funding sources.On top of what they bring in from products or services, a successful business will often balance their books through a combination of sources – including debt and equity financing. Read more

Window Dressing

Window dressing is a term that describes the act of making a company's performance, particularly its financial statements, look attractive. Let's assume Company XYZ wants to look attractive to potential acquirers. Read more

Working Capital

Working capital is money that’s available to a company for its day-to-day operations.Simply put, working capital indicates a company's operating liquidity and efficiency.  A company's working capital reflects a host of company activities, including cash, inventory, accounts receivable, accounts payable, and the portion of debt due within one year (as well as any other short-term accounts). This can extend to inventory management, debt management, revenue collection, and payments to suppliers. Read more

Write-Down

A write-down is the accounting term used to describe a reduction in the book value of an asset due to economic or fundamental changes in the asset.A write-down is the opposite of a write-up. Read more

Year to Date (YTD)

Year to date (YTD) refers to the period extending from the beginning of the year to the present.In business, note that the beginning of the year is not always January 1; many companies have fiscal years beginning at other times. Read more