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Definition of P/E effect
That portfolios with low P/E stocks have exhibited higher average risk-adjusted returns than high P/E stocks.
a measure used in academic finance articles to measure the excess returns an investor would have received over a particular time period if he or she were invested in a particular stock.
Same as PV, but usually includes a subtraction for an initial cash outlay.
the value in today’s dollars of cash flows that occur in different time periods.
Part of the return that is not due to systematic influences (market wide influences). In
The net present value analysis of an asset if financed solely by equity
Arithmetic mean return.
An arithmetic mean of selected stocks intended to represent the behavior of the market or some
The average project earnings after taxes and depreciation divided by the average
The weighted-average age of all of the firm's outstanding invoices.
The ratio of accounts receivables to sales, or the total
A firm's required payout to the bondholders and to the stockholders expressed as a
Also referred to as the weighted-average life (WAL). The average number of years that each
The average time to maturity of securities held by a mutual fund. Changes in interest rates
An estimation of price that uses the average or representative price of a
The ratio of the average cash inflow to the amount invested.
Average tax rate
Taxes as a fraction of income; total taxes divided by total taxable income.
The risk that a firm will be unable to meet its debt obligations. Also referred to as default or insolvency risk.
The uncertainty about the basis at the time a hedge may be lifted. Hedging substitutes basis risk for
Beta equation (Stocks)
The beta of a stock is determined as follows:
A steep and rapid increase in price followed by a steep and rapid drop. This is an indicator seen
The risk that the cash flow of an issuer will be impaired because of adverse economic
The combination of cash flow uncertainty and reinvestment risk introduced by a call provision.
In investments, it represents earnings before depreciation , amortization and non-cash charges.
Cash flow after interest and taxes
Net income plus depreciation.
Cash flow coverage ratio
The number of times that financial obligations (for interest, principal payments,
Cash flow from operations
A firm's net cash inflow resulting directly from its regular operations
Cash flow matching
Also called dedicating a portfolio, this is an alternative to multiperiod immunization in
Cash flow per common share
Cash flow from operations minus preferred stock dividends, divided by the
Cash flow time-line
Line depicting the operating activities and cash flows for a firm over a particular period.
Cash-flow break-even point
The point below which the firm will need either to obtain additional financing
The risk that a foreign debtor will be unable to pay its debts because of business events,
Related: Unsystematic risk
The risk that a project will not be brought into operation successfully.
The risk that the other party to an agreement will default. In an options contract, the risk
Country financial risk
The ability of the national economy to generate enough foreign exchange to meet
Country risk General
Level of political and economic uncertainty in a country affecting the value of loans or
The risk that an issuer of debt securities or a borrower may default on his obligations, or that the
Refers to the volatility of returns on international investments caused by events associated
Related: Exchange rate risk
Currency risk sharing
An agreement by the parties to a transaction to share the currency risk associated with
Also referred to as credit risk (as gauged by commercial rating companies), the risk that an
Discounted cash flow (DCF)
Future cash flows multiplied by discount factors to obtain present values.
Discretionary cash flow
Cash flow that is available after the funding of all positive NPV capital investment
Related: unsystematic risk.
Dividend yield (Stocks)
Indicated yield represents annual dividends divided by current stock price.
Dow Jones industrial average
This is the best known U.S.index of stocks. It contains 30 stocks that trade on
In project financing, the risk that the project's output will not be salable at a price that will
Equilibrium market price of risk
The slope of the capital market line (CML). Since the CML represents the
Equivalent annual cash flow
Annuity with the same net present value as the company's proposed investment.
The risk that the ability of an issuer to make interest and principal payments will change because
Also called abnormal returns, returns in excess of those required by some asset pricing model.
Exchange rate risk
Also called currency risk, the risk of an investment's value changing because of currency
The variability of a firm's value that results from unexpected exchange rate changes or the
Expected future cash flows
Projected future cash flows associated with an asset of decision.
A type of mortgage pipeline risk that is generally created when the terms of the loan to be
Feasible set of portfolios
The collection of all feasible portfolios.
The risk that the cash flow of an issuer will not be adequate to meet its financial obligations.
See:diversifiable risk or unsystematic risk.
Flat price risk
Taking a position either long or short that does not involve spreading.
Government bonds that are acceptable at par in payment of federal estate taxes when owned by
An account for the investment credit to show all income statement benefits of the credit
The practice of reporting to shareholders using straight-line depreciation and
Force majeure risk
The risk that there will be an interruption of operations for a prolonged period after a
Foreign exchange risk
The risk that a long or short position in a foreign currency might have to be closed out
Free cash flows
Cash not required for operations or for reinvestment. Often defined as earnings before
Related: interest rate risk
risk that arises when an issuer has policies concentrated within certain geographic areas,
A contract that obligates a purchaser of a project's output to make cash
The risk of loss in foreign exchange trading that one party will deliver foreign exchange but the counterparty financial institution will fail to deliver its end of the contract. It is also referred to as settlement risk.
High-coupon bond refunding
Refunding of a high-coupon bond with a new, lower coupon bond.
The highest (intraday) price of a stock over the past 52 weeks, adjusted for any stock splits.
Highly leveraged transaction (HLT)
Bank loan to a highly leveraged firm.
Unsystematic risk or risk that is uncorrelated to the overall market risk. In other words,
Incremental cash flows
Difference between the firm's cash flows with and without a project.
Also called purchasing-power risk, the risk that changes in the real return the investor will
The risk that a firm will be unable to satisfy its debts. Also known as bankruptcy risk.
Interest rate risk
The risk that a security's value changes due to a change in interest rates. For example, a
The risk that arises from the difficulty of selling an asset. It can be thought of as the difference
stocks that are traded on an exchange.
Low-coupon bond refunding
Refunding of a low coupon bond with a new, higher coupon bond.
This is the day's lowest price of a security that has changed hands between a buyer and a seller.
Low price-earnings ratio effect
The tendency of portfolios of stocks with a low price-earnings ratio to
stocks that are traded on an exchange.
Margin account (Stocks)
A leverageable account in which stocks can be purchased for a combination of
Market price of risk
A measure of the extra return, or risk premium, that investors demand to bear risk. The
risk that cannot be diversified away. Related: systematic risk
Markowitz efficient set of portfolios
The collection of all efficient portfolios, graphically referred to as the
The risk associated with taking applications from prospective mortgage borrowers
Used in charts and technical analysis, the average of security or commodity prices
Net adjusted present value
The adjusted present value minus the initial cost of an investment.
Nominal cash flow
A cash flow expressed in nominal terms if the actual dollars to be received or paid out are given.
risk that cannot be eliminated by diversification.
Nonmarket or firm-specific risk factors that can be eliminated by diversification. Also
Operating cash flow
Earnings before depreciation minus taxes. It measures the cash generated from
The inherent or fundamental risk of a firm, without regard to financial risk. The risk that is
Option-adjusted spread (OAS)
1) The spread over an issuer's spot rate curve, developed as a measure of
Overnight delivery risk
A risk brought about because differences in time zones between settlement centers
Related: retention rate.
Possibility of the expropriation of assets, changes in tax policy, restrictions on the exchange of
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