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Effective margin (EM)

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Definition of Effective margin (EM)

Effective Margin (EM) Image 1

Effective margin (EM)

Used with SAT performance measures, the amount equaling the net earned spread, or
margin, of income on the assets in excess of financing costs for a given interest rate and prepayment rate
scenario.



Related Terms:

Abusive Earnings Management

The use of various forms of gimmickry to distort a company's true financial performance in order to achieve a desired result.


Abusive Earnings Management

A characterization used by the Securities and Exchange
Commission to designate earnings management that results in an intentional and material misrepresentation
of results.


Accelerated cost recovery system (ACRS)

Schedule of depreciation rates allowed for tax purposes.


Accidental Death and Dismemberment

Coverage that provides a lump-sum payment to you or your survivors if an accident results in the loss of a limb, paralysis or your death.


Accidental Dismemberment: (Credit Insurance)

Provides additional financial security should an insured person be dismembered or lose the use of a limb as the result of an accident.



Accounting and Auditing Enforcement Release (AAER)

Administrative proceedings or litigation releases that entail an accounting or auditing-related violation of the securities laws.


Accounting system

A set of accounts that summarize the transactions of a business that have been recorded on source documents.


Effective Margin (EM) Image 2

activity-based management (ABM)

a discipline that focuses on the activities incurred during the production/performance process as the way to improve the value received
by a customer and the resulting profit achieved by providing
this value


actual cost system

a valuation method that uses actual direct
material, direct labor, and overhead charges in determining
the cost of Work in Process Inventory


After-tax profit margin

The ratio of net income to net sales.


Agency problem

Conflicts of interest among stockholders, bondholders, and managers.


agency problems

Conflicts of interest between the firm’s owners and managers.


Aggregate Demand

Total quantity of goods and services demanded.


Aggregate Demand Curve

Combinations of the price level and income for which the goods and services market is in equilibrium, or for which both the goods and services market and the money market are in equilibrium.


Announcement date

Date on which particular news concerning a given company is announced to the public.
Used in event studies, which researchers use to evaluate the economic impact of events of interest.


Annual Premium

Yearly amount payable by a client for a policy or component.


Effective Margin (EM) Image 3

Asset/liability management

Also called surplus management, the task of managing funds of a financial
institution to accomplish the two goals of a financial institution:
1) to earn an adequate return on funds invested, and
2) to maintain a comfortable surplus of assets beyond liabilities.


Asset substitution problem

Arises when the stockholders substitute riskier assets for the firm's existing
assets and expropriate value from the debtholders.



Assets requirements

A common element of a financial plan that describes projected capital spending and the
proposed uses of net working capital.


Automated storage/retrieval system

A racking system using automated systems
to load and unload the racks.


Automatic Waiver of Premium

A benefit that automatically forfeits premium payments.


balancing item

Variable that adjusts to maintain the consistency
of a financial plan. Also called plug.


Bank for International Settlements (BIS)

An international bank headquartered in Basel, Switzerland, which
serves as a forum for monetary cooperation among several European central banks, the Bank of Japan, and the
U.S. Federal Reserve System. Founded in 1930 to handle the German payment of World War I reparations, it
now monitors and collects data on international banking activity and promulgates rules concerning
international bank regulation.


Before-tax profit margin

The ratio of net income before taxes to net sales.


Blue Ribbon Committee on Improving the Effectiveness of Corporate Audit Committees

A committee formed in response to SEC chairman Arthur Levitt's initiative to improve the financial
reporting environment in the United States. In a report dated February 1999, the committee
made recommendations for new rules for regulation of financial reporting in the United States that
either duplicated or carried forward the recommendations of the Treadway Commission.


Bond agreement

A contract for privately placed debt.


Bottom-up equity management style

A management style that de-emphasizes the significance of economic
and market cycles, focusing instead on the analysis of individual stocks.


Bretton Woods Agreement

An agreement signed by the original United Nations members in 1944 that
established the International Monetary Fund (IMF) and the post-World War II international monetary system
of fixed exchange rates.



business intelligence (BI) system

a formal process for gathering and analyzing information and producing intelligence to meet decision making needs; requires information about
internal processes as well as knowledge, technologies, and competitors


Buy on margin

A transaction in which an investor borrows to buy additional shares, using the shares
themselves as collateral.


Buy/Sell Agreement

This is an agreement entered into by the owners of a business to define the conditions under which the interests of each shareholder will be bought and sold. The agreement sets the value of each shareholders interest and stipulates what happens when one of the owners wishes to dispose of his/her interest during his/her lifetime as well as disposal of interest upon death or disability. Life insurance, critical illness coverage and disability insurance are major considerations to help fund this type of agreement.


Capital employed

The total of debt and equity, i.e. the total funds in the business.


Cash deficiency agreement

An agreement to invest cash in a project to the extent required to cover any cash
deficiency the project may experience.


Cash-equivalent items

Temporary investments of currently excess cash in short-term, high-quality
investment media such as treasury bills and Banker's Acceptances.


CASH-FLOW STATEMENT

A statement that shows where a company’s cash came from and where it went for a period of time, such as a year.


Cash Flow statement

A financial report that shows the movement in cash for a business during an accounting period.


Cash management bill

Very short maturity bills that the Treasury occasionally sells because its cash
balances are down and it needs money for a few days.


Cash settlement contracts

Futures contracts, such as stock index futures, that settle for cash, not involving
the delivery of the underlying.


Certified Management Accountant (CMA)

a professional designation in the area of management accounting that
recognizes the successful completion of an examination,
acceptable work experience, and continuing education requirements


charge-back system

a system using transfer prices; see transfer
price


Clearing House Automated Payments System (CHAPS)

A computerized clearing system for sterling funds
that began operations in 1984. It includes 14 member banks, nearly 450 participating banks, and is one of the
clearing companies within the structure of the Association for Payment Clearing Services (APACS).


Clearing House Interbank Payments System (CHIPS)

An international wire transfer system for high-value
payments operated by a group of major banks.


Clearing member

A member firm of a clearing house. Each clearing member must also be a member of the
exchange. Not all members of the exchange, however, are members of the clearing organization. All trades of
a non-clearing member must be registered with, and eventually settled through, a clearing member.


Committee, AIMR Performance Presentation Standards Implementation Committee

The Association for Investment Management and Research (AIMR)'s Performance Presentation Standards Implementation
Committee is charged with the responsibility to interpret, revise and update the AIMR Performance
Presentation Standards (AIMR-PPS(TM)) for portfolio performance presentations.


common-size income statement

Income statement that presents items as a percentage of revenues.


Complementary Policies

Policies which enhance each other.


Concession agreement

An understanding between a company and the host government that specifies the
rules under which the company can operate locally.


Conditional Sale Agreement

An agreement entered into between a conditional buyer and a conditional seller setting out the terms under which goods change hands.


Confidentiality Agreement

A legal document whereby the one party, usually the prospective investor, pledges to keep strictly confidential, and return on request, any and all information provided by the entrepreneur seeking funding.


continuous improvement

an ongoing process of enhancing employee task performance, level of product quality, and level of company service through eliminating nonvalue-added activities to reduce lead time, making products
(performing services) with zero defects, reducing
product costs on an ongoing basis, and simplifying products
and processes


Contribution margin

The difference between variable revenue and variable cost.


contribution margin

An intermediate measure of profit equal to sales revenue
minus cost-of-goods-sold expense and minus variable operating
expenses—but before fixed operating expenses are deducted. Profit at
this point contributes toward covering fixed operating expenses and
toward interest and income tax expenses. The breakeven point is the
sales volume at which contribution margin just equals total fixed
expenses.


contribution margin

the difference between selling price and
variable cost per unit or in total for the level of activity; it
indicates the amount of each revenue dollar remaining
after variable costs have been covered and going toward
the coverage of fixed costs and the generation of profits


Contribution margin

The margin that results when variable production costs are subtracted
from revenue. It is most useful for making incremental pricing decisions
where a company must cover its variable costs, though perhaps not all of its fixed
costs.


contribution margin ratio

the proportion of each revenue dollar remaining after variable costs have been covered;
computed as contribution margin divided by sales


control premium

the additional value inherent in the control interest as contrasted to a minority interest, which reflects its power of control


Controlled disbursement

A service that provides for a single presentation of checks each day (typically in
the early part of the day).


Convention statement

An annual statement filed by a life insurance company in each state where it does
business in compliance with that state's regulations. The statement and supporting documents show, among
other things, the assets, liabilities, and surplus of the reporting company.


Conversion premium

The percentage by which the conversion price in a convertible security exceeds the
prevailing common stock price at the time the convertible security is issued.


Corporate financial management

The application of financial principals within a corporation to create and
maintain value through decision making and proper resource management.


Cost company arrangement

Arrangement whereby the shareholders of a project receive output free of
charge but agree to pay all operating and financing charges of the project.


cost control system

a logical structure of formal and/or informal
activities designed to analyze and evaluate how well
expenditures are managed during a period


cost management system (CMS)

a set of formal methods
developed for planning and controlling an organization’s
cost-generating activities relative to its goals and objectives
cost object anything to which costs attach or are related


Counterpart items

In the balance of payments, counterpart items are analogous to unrequited transfers in the
current account. They arise because the double-entry system in balance of payments accounting and refer to
adjustments in reserves owing to monetization or demonetization of gold, allocation or cancellation of SDRs,
and revaluation of the various components of total reserves.


Credit enhancement

Purchase of the financial guarantee of a large insurance company to raise funds.


credit memo

A record of the funds which have been credited to your account.


Cyclical Unemployment

Unemployment that increases when the economy enters a recession and decreases when the economy enters a boom.


debit memo

A record of the funds which have been debited from your account.


Debt displacement

The amount of borrowing that leasing displaces. Firms that do a lot of leasing will be
forced to cut back on borrowing.


Deemed Disposition

Under certain circumstances, taxation rules assume that a transfer of property has occurred, even though there has not been an actual purchase or sale. This could happen upon death or transfer of ownership.


Default premium

A differential in promised yield that compensates the investor for the risk inherent in
purchasing a corporate bond that entails some risk of default.


default premium

Difference in promised yields between a default-free bond and a riskier bond.


Demand

An amount desired, in the sense that people are willing and able to pay to obtain this amount. Always associated with a given price.


Demand Deposit

A bank deposit that can be withdrawn on demand, such as a deposit in a checking account.


Demand deposits

Checking accounts that pay no interest and can be withdrawn upon demand.


Demand line of credit

A bank line of credit that enables a customer to borrow on a daily or on-demand basis.


Demand Loan

A loan which must be repaid in full on demand.


Demand Management Policy

Fiscal or monetary policy designed to influence aggregate demand for goods and services.


Demand master notes

Short-term securities that are repayable immediately upon the holder's demand.


Demand-Pull Inflation

Inflation whose initial cause is excess demand rather than cost increases. See also cost-push inflation.


Demand shock

An event that affects the demand for goods in services in the economy.


Direct placement

Selling a new issue not by offering it for sale publicly, but by placing it with one of several
institutional investors.


Disbursement float

A decrease in book cash but no immediate change in bank cash, generated by checks
written by the firm.


Division of Enforcement

A department within the Securities and Exchange Commission that
investigates violations of securities laws.


Dollar safety margin

The dollar equivalent of the safety cushion for a portfolio in a contingent immunization
strategy.


Double-tax agreement

Agreement between two countries that taxes paid abroad can be offset against
domestic taxes levied on foreign dividends.


Du Pont system

A breakdown of ROE and ROA into component ratios.


dual pricing arrangement

a transfer pricing system that allows
a selling division to record the transfer of goods or
services at one price (e.g., a market or negotiated market
price) and a buying division to record the transfer at another
price (e.g., a cost-based amount)


Dupont system of financial control

Highlights the fact that return on assets (ROA) can be expressed in terms
of the profit margin and asset turnover.


Earnings Management

The active manipulation of earnings toward a predetermined target.
That target may be one set by management, a forecast made by analysts, or an amount that is consistent
with a smoother, more sustainable earnings stream. Often, although not always, earnings
management entails taking steps to reduce and “store” profits during good years for use during
slower years. This more limited form of earnings management is known as income smoothing.


EBITDA Margin

EBITDA divided by total sales or total revenue.


Effective annual interest rate

An annual measure of the time value of money that fully reflects the effects of
compounding.


effective annual interest rate

Interest rate that is annualized using compound interest.


Effective annual yield

Annualized interest rate on a security computed using compound interest techniques.


Effective Annual Yield

Annualized rate of return on a security computed using compound
interest techniques


Effective call price

The strike price in an optional redemption provision plus the accrued interest to the
redemption date.


Effective convexity

The convexity of a bond calculated with cash flows that change with yields.


Effective date

In an interest rate swap, the date the swap begins accruing interest.


Effective duration

The duration calculated using the approximate duration formula for a bond with an
embedded option, reflecting the expected change in the cash flow caused by the option. Measures the
responsiveness of a bond's price taking into account the expected cash flows will change as interest rates
change due to the embedded option.



 

 

 

 

 

 

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