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Multiplier

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Definition of Multiplier

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Multiplier

Change in the equilibrium value of a variable of interest per change in a variable over which one has control. "The" multiplier is the change in equilibrium income per change in government spending.



Related Terms:

Balanced-Budget Multiplier

The multiplier associated with a change in government spending financed by an equal change in taxes.


Equity multiplier

Total assets divided by total common stockholders' equity; the amount of total assets per
dollar of stockholders' equity.


Money Multiplier

Change in the money supply per change in the money base.


input-output coefficient

a number (prefaced as a multiplier
to an unknown variable) that indicates the rate at which each
decision variable uses up (or depletes) the scarce resource


Multiple Deposit Creation

The process whereby the money multiplier operates.



Pump Priming

A stimulating monetary of fiscal policy to set in motion an expansionary multiplier process.


Activity-based budgeting

A method of budgeting that develops budgets based on expected activities and cost drivers – see also activity-based costing.


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activity-based budgeting (ABB)

planning approach applying activity drivers to estimate the levels and costs of activities necessary to provide the budgeted quantity and
quality of production


All equity rate

The discount rate that reflects only the business risks of a project and abstracts from the
effects of financing.


Asset/equity ratio

The ratio of total assets to stockholder equity.


Balanced fund

An investment company that invests in stocks and bonds. The same as a balanced mutual fund.


Balanced mutual fund

This is a fund that buys common stock, preferred stock and bonds. The same as a
balanced fund.


Balanced Scorecard

A system of non-financial performance measurement that links innovation, customer and process measures to financial performance.


balanced scorecard (BSC)

an approach to performance
measurement that weighs performance measures from four
perspectives: financial performance, an internal business
perspective, a customer perspective, and an innovation and
learning perspective


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.


Budget

A detailed schedule of financial activity, such as an advertising budget, a sales budget, or a capital budget.


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Budget

A plan expressed in monetary terms covering a future period of time and based on a defined
level of activity.


budget

a financial plan for the future based on a single level
of activity; the quantitative expression of a company’s commitment
to planned activities and resource acquisition and use



Budget

A set of interlinked plans that quantitatively describe a company’s projected
future operations.


Budget cycle

The annual period over which budgets are prepared.


Budget deficit

The amount by which government spending exceeds government revenues.


Budget Deficit

The excess of government spending over tax receipts.


budget manual

a detailed set of documents that provides information
and guidelines about the budgetary process


budget slack

an intentional underestimation of revenues
and/or overestimation of expenses in a budgeting process
for the purpose of including deviations that are likely to
occur so that results will occur within budget limits


budget variance

the difference between total actual overhead
and budgeted overhead based on standard hours allowed
for the production achieved during the period; computed
as part of two-variance overhead analysis; also
referred to as the controllable variance


Budgetary control

The process of ensuring that actual financial results are in line with targets – see variance
analysis.


budgeted cost

a planned expenditure


budgeting

the process of formalizing plans and committing
them to written, financial terms



Capital budget

A firm's set of planned capital expenditures.


capital budget

management’s plan for investments in longterm
property, plant, and equipment


capital budget

List of planned investment projects.


Capital budgeting

The process of choosing the firm's long-term capital assets.


capital budgeting

Refers generally to analysis procedures for ranking
investments, given a limited amount of total capital that has to be allocated
among the various capital investment opportunities of a business.
The term sometimes is used interchangeably with the analysis techniques
themselves, such as calculating present value, net present value,
and the internal rate of return of investments.


Capital Budgeting

The process of ranking and selecting investment alternatives and
capital expenditures


capital budgeting

a process of evaluating an entity’s proposed
long-range projects or courses of future activity for
the purpose of allocating limited resources to desirable
projects


Capital budgeting

The series of steps one follows when justifying the decision to purchase
an asset, usually including an analysis of costs and related benefits, which
should include a discounted cash flow analysis of the stream of all future cash flows
resulting from the purchase of the asset.


capital budgeting decision

Decision as to which real assets the firm should acquire.


Cash budget

A forecasted summary of a firm's expected cash inflows and cash outflows as well as its
expected cash and loan balances.


Common stock/other equity

Value of outstanding common shares at par, plus accumulated retained
earnings. Also called shareholders' equity.


Consolidated Omnibus Budget Reconciliation Act (COBRA)

A federal Act
containing the requirements for offering insurance to departed employees.


continuous budgeting

a process in which there is a rolling
twelve-month budget; a new budget month (twelve months
into the future) is added as each current month expires


Contra-equity account

An account that reduces an equity account. An example is Treasury stock.


Cost of Equity

Same as the cost of common stock. Sometimes viewed as the
rate of return stockholders require to maintain the market value of
the company's common stock.


Debt/equity ratio

Indicator of financial leverage. Compares assets provided by creditors to assets provided
by shareholders. Determined by dividing long-term debt by common stockholder equity.


Debt/Equity Ratio

A comparison of debt to equity in a company's capital structure.


debt-to-equity ratio

A widely used financial statement ratio to assess the
overall debt load of a business and its capital structure, it equals total liabilities
divided by total owners’ equity. Both numbers for this ratio are
taken from a business’s latest balance sheet. There is no standard, or
generally agreed on, maximum ratio, such as 1:1 or 2:1. Every industry
is different in this regard. Some businesses, such as financial institutions,
have very high debt-to-equity ratios. In contrast, many businesses
use very little debt relative to their owners’ equity.


Deferred equity

A common term for convertible bonds because of their equity component and the
expectation that the bond will ultimately be converted into shares of common stock.


Dual syndicate equity offering

An international equity placement where the offering is split into two
tranches - domestic and foreign - and each tranche is handled by a separate lead manager.


Equity

Represents ownership interest in a firm. Also the residual dollar value of a futures trading account,
assuming its liquidation at the going market price.


Equity

Funds raised from shareholders.


Equity

Amounts contributed to the company by the owners (contributed capital) plus the residual earnings of the business (retained earnings).


equity

Refers to one of the two basic sources of capital for a business, the
other being debt (borrowed money). Most often, it is called owners’
equity because it refers to the capital used by a business that “belongs”
to the ownership interests in the business. Owners’ equity arises from
two quite distinct sources: capital invested by the owners in the business
and profit (net income) earned by the business that is not distributed to
its owners (called retained earnings). Owners’ equity in our highly developed
and sophisticated economic and legal system can be very complex—
involving stock options, financial derivatives of all kinds, different
classes of stock, convertible debt, and so on.


Equity

The difference between the total of all recorded assets and liabilities on the balance
sheet.


Equity

Ownership. Common stock represents equity in a corporation.


Equity

The net worth of a business, consisting of capital stock, capital (or paid-in) surplus (or retained earnings), and, occasionally, certain net worth reserves. Common equity is that part of the total net worth belonging to the common shareholders. Total equity includes preferred shareholders. The terms common stock, net worth, and common equity are frequently used interchangeably.


equity

The net worth of a company. This represents the ownership interest of the shareholders (common and preferred) of a company. For this reason, shares or stocks are often known as equities.


Equity-based insurance

Life insurance or annuity product in which the cash value and benefit level fluctuate according to the performance of an equity portfolio.


Equity Buy-Back

Refers to the investors percentage ownership of a company that can be re-acquired by the company, usually at a pre-determined amount.


Equity cap

An agreement in which one party, for an upfront premium, agrees to compensate the other at
specific time periods if a designated stock market benchmark is greater than a predetermined level.


Equity claim

Also called a residual claim, a claim to a share of earnings after debt obligation have been
satisfied.


Equity collar

The simultaneous purchase of an equity floor and sale of an equity cap.


Equity contribution agreement

An agreement to contribute equity to a project under certain specified
conditions.


Equity floor

An agreement in which one party agrees to pay the other at specific time periods if a specific
stock market benchmark is less than a predetermined level.


Equity investment

Through equity investment, investors gain part ownership of the corporation. The primary type of equity investment is corporate stock.


Equity kicker

Used to refer to warrants because they are usually issued attached to privately placed bonds.


Equity-linked policies

Related: Variable life


Equity market

Related:Stock market


Equity Method

Accounting method for an equity security in cases where the investor has sufficient
voting interest to have significant influence over the operating and financial policies of an
investee.


Equity options

Securities that give the holder the right to buy or sell a specified number of shares of stock, at
a specified price for a certain (limited) time period. Typically one option equals 100 shares of stock.


Equity Security

An ownership interest in an enterprise, including preferred and common stock.


Equity swap

A swap in which the cash flows that are exchanged are based on the total return on some stock
market index and an interest rate (either a fixed rate or a floating rate). Related: interest rate swap.


Equityholders

Those holding shares of the firm's equity.


Euroequity issues

Securities sold in the Euromarket. That is, securities initially sold to investors
simultaneously in several national markets by an international syndicate. Euromarket.
Related: external market


financial budget

a plan that aggregates monetary details
from the operating budgets; includes the cash and capital
budgets of a company as well as the pro forma financial
statements


Flexible budget

A method of budgetary control that flexes, i.e. adjusts the original budget by applying standard
prices and costs per unit to the actual production volume.


flexible budget

a presentation of multiple budgets that
show costs according to their behavior at different levels
of activity


Foreign equity market

That portion of the domestic equity market that represents issues floated by foreign companies.


GEMs (growing-equity mortgages)

Mortgages in which annual increases in monthly payments are used to
reduce outstanding principal and to shorten the term of the loan.


imposed budget

a budget developed by top management
with little or no input from operating personnel; operating personnel are then informed of the budget objectives and constraints


Incremental budget

A budget that takes the previous year as a base and adds (or deducts) a percentage to arrive at
the budget for the current year.


Investor's equity

The balance of a margin account. Related: buying on margin, initial margin requirement.


Leveraged equity

Stock in a firm that relies on financial leverage. Holders of leveraged equity face the
benefits and costs of using debt.


Long-term debt to equity ratio

A capitalization ratio comparing long-term debt to shareholders' equity.


master budget

the comprehensive set of all budgetary schedules
and the pro forma financial statements of an organization


operating budget

a budget expressed in both units and dollars


owners' equity

Refers to the capital invested in a business by its shareowners
plus the profit earned by the business that has not been distributed
to its shareowners, which is called retained earnings. Owners’
equity is one of the two basic sources of capital for a business, the other
being borrowed money, or debt. The book value, or value reported in a
balance sheet for owners’ equity, is not the market value of the business.
Rather, the balance sheet value reflects the historical amounts of capital
invested in the business by the owners over the years plus the accumulation
of yearly profits that were not paid out to owners.


Owners' equity

The total of all capital contributions and retained earnings on a business’s
balance sheet.


participatory budget

a budget that has been developed
through a process of joint decision making by top management
and operating personnel


Planning, programming and budgeting system (PPBS)

A method of budgeting in which budgets are allocated to projects or programmes rather than to responsibility centres.


Preferred equity redemption stock (PERC)

Preferred stock that converts automatically into equity at a
stated date. A limit is placed on the value of the shares the investor receives.


Priority-based budget

A budget that allocates funds in line with strategies.


program budgeting

an approach to budgeting that relates
resource inputs to service outputs


Quasi-Equity

Funds, other than paid-up capital and retained earnings, employed in a business and which will remain in a business as permanent capital.


RATE OF RETURN ON STOCKHOLDERS’ EQUITY

The percentage return or profit that management made on each dollar stockholders invested in a company. Here’s how you figure it:
(Net income) / (Stockholders’ equity)


RATIO OF DEBT TO STOCKHOLDERS’ EQUITY

A ratio that shows which group—creditors or stockholders—has the biggest stake in or the most control of a company:
(Total liabilities) / (Stockholders’ equity)


Return on Common Equity Ratio

A measure of the percentage return earned on the value of the
common equity invested in the company. It is calculated by
dividing the net income available for distribution to shareholders
by the book value of the common equity.


Return on equity (ROE)

Indicator of profitability. Determined by dividing net income for the past 12
months by common stockholder equity (adjusted for stock splits). Result is shown as a percentage. Investors
use ROE as a measure of how a company is using its money. ROE may be decomposed into return on assets
(ROA) multiplied by financial leverage (total assets/total equity).


return on equity (ROE)

This key ratio, expressed as a percent, equals net
income for the year divided by owners’ equity. ROE should be higher than
a business’s interest rate on debt because the owners take more risk.


rolling budget

see continuous budgeting


Rolling budgets

A method of budgeting in which as each month passes, an additional budget month is added such that there is always a 12-month budget.


Shareholder's Equity

Represents the total assets of a corporation less liabilities.


Shareholders' equity

This is a company's total assets minus total liabilities. A company's net worth is the
same thing.


Shareholders' equity

The total amount of contributed capital and retained earnings; synonymous with stockholders' equity.


Shareholders' Equity

The residual interest or owners' claims on the assets of a corporation
that remain after deducting its liabilities.



 

 

 

 

 

 

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