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Financial Terms | |
Interest income |
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Definition of Interest incomeInterest incomeincome that a company receives in the form of interest, usually as the result of keeping money in interest-bearing accounts at financial institutions and the lending of money to other companies.
Related Terms:earnings before interest and income tax (EBIT)A measure of profit that Gain-on-Sale AccountingUp-front gain recognized from the securitization and sale of a pool Sales-type LeaseLease accounting used by a manufacturer who is also a lessor. Up-front gross Total dollar returnThe dollar return on a nondollar investment, which includes the sum of any Accrued Incomeincome that has been earned but not yet received. For instance, if you have a non-registered Guaranteed Investment Certificate (GIC), Mutual Fund or Segregated Equity Fund, growth accrues annually or semi-annually and is taxable annually even though the gain is only paid at maturity of your investment. Accrued interestThe accumulated coupon interest earned but not yet paid to the seller of a bond by the Accrued InterestThe amount of interest accumulated on a debt security between ![]() Accrued InterestThe amount of interest owing but not paid. Accumulated Other Comprehensive IncomeCumulative gains or losses reported in shareholders' Adjusted Income from ContinuingOperations Reported income from continuing operations Amortizing interest rate swapSwap in which the principal or national amount rises (falls) as interest rates Base interest rateRelated: Benchmark interest rate. Benchmark interest rateAlso called the base interest rate, it is the minimum interest rate investors will Best-interests-of-creditors testThe requirement that a claim holder voting against a plan of reorganization Book IncomePretax income reported on the income statement. Capitalized interestinterest that is not immediately expensed, but rather is considered as an asset and is then ![]() Capitalized Interestinterest incurred during the construction period on monies invested in Cash flow after interest and taxesNet income plus depreciation. Cash Flow–to–Income Ratio (CFI)Adjusted cash flow provided by continuing operations common-size income statementincome statement that presents items as a percentage of revenues. Compound interestinterest paid on previously earned interest as well as on the principal. Compound Interestinterest paid on principal and on interest earned in previous compound interesta method of determining interest in which interest that was earned in prior periods is added to the original investment so that, in each successive period, interest is earned on both principal and interest compound interestinterest earned on interest. Compound Interestinterest earned on an investment at periodic intervals and added to principal and previous interest earned. Each time new interest earned is calculated it is on a combined total of principal and previous interest earned. Essentially, interest is paid on top of interest. Covered interest arbitrageA portfolio manager invests dollars in an instrument denominated in a foreign Current Income Tax ExpenseThat portion of the total income tax provision that is based on Daily Interest AccumulationAccount in which interest is accrued daily and credited to the account at the end of a specified time. Deferred Income Tax ExpenseThat portion of the total income tax provision that is the result Disposable Incomeincome less income tax. Dividend incomeincome that a company receives in the form of dividends on stock in other companies that it holds. earned incomeEarned income is generally an individual's salary or wages from employment. It also includes some taxable benefits. Earned income also includes business income if the individual is self-employed. Earned income is used as the basis for calculating RRSP maximum contribution limits. Earnings before interest and taxes (EBIT)A financial measure defined as revenues less cost of goods sold Earnings before interest and taxes (EBIT)The operating profit before deducting interest and tax. Earnings before interest, taxes, depreciation and amortization (EBITDA)The operating profit before deducting interest, tax, depreciation and amortization. Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)An earningsbased measure that, for many, serves as a surrogate for cash flow. Actually consists of working Economic incomeCash flow plus change in present value. Effective annual interest rateAn annual measure of the time value of money that fully reflects the effects of effective annual interest rateinterest rate that is annualized using compound interest. Effective Interest RateThe rate of interest actually earned on an investment. It is Employee Retirement Income Security Act of 1974 (ERISA)A federal Act that sets minimum operational and funding standards for employee benefit Equilibrium rate of interestThe interest rate that clears the market. Also called the market-clearing interest Fixed-income equivalentAlso called a busted convertible, a convertible security that is trading like a straight Fixed-income instrumentsAssets that pay a fixed-dollar amount, such as bonds and preferred stock. Fixed-income marketThe market for trading bonds and preferred stock. Fixed-income securityA security that pays a specified cash flow over a Fixed Interest RateA rate that does not fluctuate with general market conditions. Floating Interest RateA rate that fluctuates with general market condition. Forward interest rateinterest rate fixed today on a loan to be made at some future date. fractional interest discountthe combined discounts for lack of control and marketability. g the constant growth rate in cash flows or net income used in the ADF, Gordon model, or present value factor. Gross interestinterest earned before taxes are deducted. Guaranteed Interest Annuity (GIA)interest bearing investment with fixed rate and term. Guaranteed Interest Certificate (GIC)interest bearing investment with fixed rate and term. IncomeNet earnings after all expenses for an accounting period are subtracted from all Income beneficiaryOne who receives income from a trust. Income bondA bond on which the payment of interest is contingent on sufficient earnings. These bonds are Income from Continuing OperationsAfter-tax net income before discontinued operations, Income fundA mutual fund providing for liberal current income from investments. income fundsMutual funds that seek regular income. This type of fund invests primarily in government, corporate and other types of bonds, debt securities, and other income producing securities and in certain circumstances can also hold common and preferred shares. Income SmoothingA form of earnings management designed to remove peaks and valleys Income SplittingThis is a tax planning strategy of arranging for income to be transferred to family members who are in lower tax brackets than the one earning the income, thus reducing taxes. Even though attribution rules limit income splitting, there are still a number of legitimate ways to do so, such as through the use of spousal RRSPs. INCOME STATEMENTAn accounting statement that summarizes information about a company in the following format: Income StatementOne of the basic financial statements; it lists the revenue and expense accounts of the company. income statementFinancial statement that summarizes sales revenue Income statementA financial report that summarizes a company’s revenue, cost of income statementFinancial statement that shows the revenues, expenses, and net income of a firm over a period of time. Income statement (statement of operations)A statement showing the revenues, expenses, and income (the Income StatementsA financial statement that displays a breakdown of total sales and total expenses. Income stockCommon stock with a high dividend yield and few profitable investment opportunities. INCOME TAXWhat the business paid to the IRS. Income taxA government tax on the income earned by an individual or corporation. Income Tax ExpenseSee income tax provision. Income Tax ProvisionThe expense deduction from pretax book income reported on the Incomes PolicyA policy designed to lower inflation without reducing aggregate demand. Wage/price controls are an example. Insurable InterestIn England in the 1700's it was popular to bet on the date of death of certain prominent public figures. Anyone could buy life insurance on another's life, even without their consent. Unfortunately, some died before it was their time, dispatched prematurely in order that the life insurance proceeds could be collected. In 1774, English Parliament passed a law which restricted the right to be a beneficiary on a life insurance contract to those who would suffer an economic loss when the life insured died. The law also provided that a person has an unlimited insurable interest in his own life. It is still a legal stipulation that an insurance contract is not valid unless insurable interest exists at the time the policy is issued. Life Insurance companies will not, however, issue unlimited amounts of coverage to an individual. The amount of life insurance which will be approved has to approximate the loss caused by the death of the individual and must not result in a windfall for the beneficiary. InterestThe price paid for borrowing money. It is expressed as a percentage rate over a period of time and InterestThe cost of money, received on investments or paid on borrowings. InterestThe cost of funds loaned to an entity. It can also refer to the equity ownership InterestA charge for the use of money supplied by a lender. interestThe cost of a loan or the compensation paid for the use of money. For example, you are paid interest for deposits you make into a savings account, and you pay interest for money that you borrow from a low-cost borrowing account. Interest coverage ratioThe ratio of the earnings before interest and taxes to the annual interest expense. This Interest coverage testA debt limitation that prohibits the issuance of additional long-term debt if the issuer's Interest equalization taxTax on foreign investment by residents of the U.S. which was abolished in 1974. Interest FactorNumbers found in compound interest and annuity tables. Usually called the FVIF or PVIF. Interest on interestinterest earned on reinvestment of each interest payment on money invested. Interest-only strip (IO)A security based solely on the interest payments form a pool of mortgages, Treasury Interest OptionOne of several investment accounts in which your premiums may be invested within your life insurance policy. Interest payableThe amount of interest that is owed but has not been paid at the end of a period. Interest paymentsContractual debt payments based on the coupon rate of interest and the principal amount. Interest RateCost of using money, expressed as a rate per period of time, usually one year. Interest RateRate charged or paid for the use of money, normally expressed as a percentage Interest rate agreementAn agreement whereby one party, for an upfront premium, agrees to compensate the Interest rate capAlso called an interest rate ceiling, an interest rate agreement in which payments are made Interest rate ceilingRelated: interest rate cap. Interest Rate DifferentialThe interest rate on our financial assets minus the interest rate on a foreign country's financial assets. Interest rate floorAn interest rate agreement in which payments are made when the reference rate falls Interest Rate, NominalPayment for the use of borrowed funds, measured as a percentage per year of these funds. Interest rate on debtThe firm's cost of debt capital. interest rate parityTheory that forward premium equals interest rate differential. 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