|Price/earnings ratio (PE ratio)
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Definition of Price/earnings ratio (PE ratio)
Price/earnings ratio (PE ratio)
Shows the "multiple" of earnings at which a stock sells. Determined by dividing current
This key ratio equals the current market price
A measure of how much investors are willing to pay for each dollar
a generalization formula invented by Abrams that is the present value of regular but noncontiguous cash flows that have constant growth to perpetuity.
earnings of a firm as reported on its income statement.
Also called the quick ratio, the ratio of current assets minus inventories, accruals, and prepaid
For investment companies, the management fee and "other expenses,"
The periodic rate times the number of periods in a year. For example, a 5%
The effective, or true, annual rate of return. The APY is the rate actually
The annual rate of return that when compounded t times, would have
The signal-to-noise ratio of an analyst's forecasts. The ratio of alpha to residual standard
The price at which a willing buyer and a willing unrelated seller would freely agree to
Legal document establishing a corporation and its structure and purpose.
A dealer's price to sell a security; also called the offer price.
The ratio of total assets to stockholder equity.
ratios that measure how effectively the firm is managing its assets.
Average collection period, or days' receivables
The ratio of accounts receivables to sales, or the total
Gives the lessee the option to purchase the asset at a price below fair market
BARRA's performance analysis (PERFAN)
A method developed by BARRA, a consulting firm in
price expressed in terms of yield to maturity or annual rate of return.
Biased expectations theories
Related: pure expectations theory.
This is the quoted bid, or the highest price an investor is willing to pay to buy a security. Practically
Book value per share
The ratio of stockholder equity to the average number of common shares. Book value
Buy on opening
To buy at the beginning of a trading session at a price within the opening range.
The price, specified at issuance, at which the issuer of a bond may retire part of the bond at a
The price for which a bond can be repaid before maturity under a call provision.
Amount used during a particular period to acquire or improve long-term assets such as
Capital market imperfections view
The view that issuing debt is generally valuable but that the firm's
Placing one or more limits on the amount of new investment undertaken by a firm, either
Also called financial leverage ratios, these ratios compare debt to total capitalization
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 per common share
Cash flow from operations minus preferred stock dividends, divided by the
The proportion of a firm's assets held as cash.
Cheapest to deliver issue
The acceptable Treasury security with the highest implied repo rate; the rate that a
Bond price excluding accrued interest.
Short-term unsecured promissory notes issued by a corporation. The maturity of
Committee, AIMR Performance Presentation Standards Implementation Committee
The Association for Investment Management and Research (AIMR)'s performance Presentation Standards Implementation
Common stock ratios
ratios that are designed to measure the relative claims of stockholders to earnings
Related: Unsystematic risk
An excess balance that is left in a bank to provide indirect compensation for loans
Sufficient ability or fitness for ones needs. Possessing the necessary abilities to be qualified to
Intra- or intermarket rivalry between businesses trying to obtain a larger piece of the same
A securities offering process in which securities firms submit competing bids to the
An offering of securities through competitive bidding.
The length of the time period (for example, a quarter in the case of quarterly
A single centralized account into which funds collected at regional locations
Movement of cash from different lockbox locations into a single concentration
Consumer Price Index (CPI)
The CPI, as it is called, measures the prices of consumer goods and services and is a
Contingent pension liability
Under ERISA, the firm is liable to the plan participants for up to 39% of the net
Controlled foreign corporation (CFC)
A foreign corporation whose voting stock is more than 50% owned
Conversion parity price
Related:Market conversion price
The contractually specified price per share at which a convertible security can be
The number of shares of common stock that the security holder will receive from
Primary area of competence. Narrowly defined fields or tasks at which a company or
A legal "person" that is separate and distinct from its owners. A corporation is allowed to own
The net present value of an investment divided by the investment's initial cost. Also called
ratios used to test the adequacy of cash flows generated through earnings for purposes of
An automatic system for revising the exchange rate. It involves establishing a par value around
The length of time for which the customer is granted credit.
Indicator of short-term debt paying ability. Determined by dividing current assets by current
Customary payout ratios
A range of payout ratios that is typical based on an analysis of comparable firms.
Days' sales in inventory ratio
The average number of days' worth of sales that is held in inventory.
Indicator of financial leverage. Compares assets provided by creditors to assets provided
Total debt divided by total assets.
Debt-service coverage ratio
earnings before interest and income taxes plus one-third rental charges, divided
The date on which a firm's directors meet and announce the date and amount of the next
The price fixed by the Clearing house at which deliveries on futures are in invoiced; also the
Acceptance of a capital budgeting project contingent on the acceptance of another project.
Devaluation A decrease in the spot price of the currency
Commercial paper sold directly by the issuer to investors.
Bond price including accrued interest, i.e., the price paid by the bond buyer.
The period during which a customer can deduct the discount from the net amount of the bill
Discounted payback period rule
An investment decision rule in which the cash flows are discounted at an
Dividend payout ratio
percentage of earnings paid out as dividends.
Dividends per share
Amount of cash paid to shareholders expressed as dollars per share.
Dividends per share
Dividends paid for the past 12 months divided by the number of common shares
The product of modified duration and the initial price.
Dollar price of a bond
percentage of face value at which a bond is quoted.
Domestic International Sales Corporation (DISC)
A U.S. corporation that receives a tax incentive for
A common gauge of the price sensitivity of an asset or portfolio to a change in interest rates.
Net income for the company during the period.
Earnings before interest and taxes (EBIT)
A financial measure defined as revenues less cost of goods sold
Earnings per share (EPS)
EPS, as it is called, is a company's profit divided by its number of outstanding
Earnings retention ratio
Positive or negative differences from the consensus forecast of earnings by institutions
The ratio of earnings per share after allowing for tax and interest payments on fixed interest
Exists when the costs and/or revenues of one project depend on those of another.
The real flow of cash that a firm could pay out forever in the absence of any change in
Economies of scope
Scope economies exist whenever the same investment can support multiple profitable
Specialized banking institutions, authorized and chartered by the Federal Reserve Board
Effective call price
The strike price in an optional redemption provision plus the accrued interest to the
The duration calculated using the approximate duration formula for a bond with an
Equilibrium market price of risk
The slope of the capital market line (CML). Since the CML represents the
European Currency Unit (ECU)
An index of foreign exchange consisting of about 10 European currencies,
European Monetary System (EMS)
An exchange arrangement formed in 1979 that involves the currencies
Option that may be exercised only at the expiration date. Related: american option.
European Union (EU)
An economic association of European countries founded by the Treaty of Rome in
An option contract that can only be exercised on the expiration date.
Short-term notes with maturities up to 360 days that are issued by companies in
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