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profitability index (Pl)

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Definition of profitability index (Pl)

Profitability Index (Pl) Image 1

profitability index (Pl)

a ratio that compares the present value of net cash flows to the present value of the net investment



Related Terms:

401k Plan

A retirement plan set up by an employer, into which employees can
contribute the lesser of $13,000 or 15 percent of their pay (as of 2004), which
is excluded from taxation until such time as they remove the funds from the account.


403b Plan

A retirement plan similar to a 401k plan, except that it is designed
specifically for charitable, religious, and education organizations that fall under
the tax-exempt status of 501(c)(3) regulations.


Aggregate planning

A budgeting process using summary-level information to
derive various budget models, usually at the product family level.


Aggregate Supply

Total quantity of goods and services supplied.


Aggregate Supply Curve

Combinations of price level and income for which the labor market is in equilibrium. The short-run aggregate supply curve incorporates information and price/wage inflexibilities in the labor market, whereas the long-run aggregate supply curve does not.



Applicant

The party applying for an insurance policy.


Application

A signed statement of facts made by a person applying for life insurance and then used by the insurance company to decide whether or not to issue a policy. The application becomes part of the insurance contract when the policy is issued.


Profitability Index (Pl) Image 2

applied overhead

the amount of overhead that has been assigned to Work in Process Inventory as a result of productive activity; credits for this amount are to an overhead account


approximated net realizable value at split-off allocation

a method of allocating joint cost to joint products using a
simulated net realizable value at the split-off point; approximated
value is computed as final sales price minus
incremental separate costs


Arms index

Also known as a trading index (TRIN)= (number of advancing issues)/ (number of declining
issues) (Total up volume )/ (total down volume). An advance/decline market indicator. Less than 1.0 indicates
bullish demand, while above 1.0 is bearish. The index often is smoothed with a simple moving average.


Baker Plan

A plan by U.S. Treasury Secretary James Baker under which 15 principal middle-income debtor
countries (the Baker 15) would undertake growth-oriented structural reforms, to be supported by increased
financing from the World Bank and continued lending from commercial banks.


Balanced-Budget Multiplier

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


Boilerplate

Standard terms and conditions.


Bond indexing

Designing a portfolio so that its performance will match the performance of some bond index.


Buying the index

Purchasing the stocks in the S&P 500 in the same proportion as the index to achieve the
same return.


Cafeteria Plan

A flexible benefits plan authorized under the Internal Revenue
Code allowing employees to pay for a selection of benefits with pay deductions,
some of which may be pretax.


Profitability Index (Pl) Image 3

cafeteria plan a “menu” of fringe benefit options that include

cash or nontaxable benefits


Canada Pension Plan (CPP)

A plan that provides retirement and long term disability income benefits to residents of Canadian provinces (excluding Quebec).



Capital employed

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


Capital surplus

Amounts of directly contributed equity capital in excess of the par value.


Change in Accounting Principle

A change from one generally accepted accounting principle to another generally accepted accounting principle—for example, a change from capitalizing expenditures
to expensing them. A change in accounting principle is accounted for in most instances
as a cumulative-effect–type adjustment.


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.


Complementary Policies

Policies which enhance each other.


Complete capital market

A market in which there is a distinct marketable security for each and every
possible outcome.


Complete portfolio

The entire portfolio, including risky and risk-free assets.


Completed-Contract Method

A contract accounting method that recognizes contract revenue
only when the contract is completed. All contract costs are accumulated and reported as expense
when the contract revenue is recognized.


Completion bonding

Insurance that a construction contract will be successfully completed.


Profitability Index (Pl) Image 4

Completion risk

The risk that a project will not be brought into operation successfully.



Completion undertaking

An undertaking either (1) to complete a project such that it meets certain specified
performance criteria on or before a certain specified date or (2) to repay project debt if the completion test
cannot be met.


Consumer Price Index (CPI)

The CPI, as it is called, measures the prices of consumer goods and services and is a
measure of the pace of U.S. inflation. The U.S.Department of Labor publishes the CPI very month.


Consumer Price Index (CPI)

An index calculated by tracking the cost of a typical bundle of consumer goods and services over time. It is commonly used to measure inflation.


Contribution Principle

This is the principle which specifies the factors that must be taken into account when calculating dividends. At Canada Life, the key factors are: interest earnings, mortality, and operating expense.


Corporate financial planning

Financial planning conducted by a firm that encompasses preparation of both
long- and short-term financial plans.


Cost depletion

A method of expensing the cost of a resource consumed by first determining
the total investment in the resource (such as the procurement of a coal mine),
then determining the total amount of extractable resource (such as tons of available
coal), and then assigning costs to each consumed unit of the resource, based on the
proportion of the total available amount that has been used.


cost-plus contract

a contract in which the customer agrees
to reimburse the producer for the cost of the job plus a
specified profit margin over cost


Cost Plus Estimated Earnings in Excess of Billings

Revenue recognized to date under the percentage-of-completion method in excess of amounts billed. Also known as unbilled accounts
receivable.


Cost-plus pricing

A method of pricing in which a mark-up is added to the total product/service cost.


Cumulative Effect of a Change in Accounting Principle

The change in earnings of previous years
based on the assumption that a newly adopted accounting principle had previously been in use.


Cyclical Unemployment

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


Debt displacement

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


Defined benefit plan

A pension plan in which the sponsor agrees to make specified dollar payments to
qualifying employees. The pension obligations are effectively the debt obligation of the plan sponsor.
Related: defined contribution plan


Defined Benefit Plan

A pension plan that pays out a predetermined dollar
amount to participants, based on a set of rules that typically combine the number
of years of employment and wages paid over the time period when each
employee worked for the company.


Defined contribution plan

A pension plan in which the sponsor is responsible only for making specified
contributions into the plan on behalf of qualifying participants. Related: defined benefit plan
Delayed issuance pool Refers to MBSs that at the time of issuance were collateralized by seasoned loans
originated prior to the MBS pool issue date.


Defined Contribution Plan

A qualified retirement plan under which the employer
is liable for a payment into the plan of a specific size, but not for the size
of the resulting payments from the plan to participants.


Depletion

The reduction in a natural resource, which equates to the cost of goods sold
in a manufacturing organization.


Depletion

The systematic and rational allocation of the cost of natural resources over their useful
lives. Refer also to amortization and depreciation.


Direct placement

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


Dividend reinvestment plan (DRP)

Automatic reinvestment of shareholder dividends in more shares of a
company's stock, often without commissions. Some plans provide for the purchase of additional shares at a
discount to market price. Dividend reinvestment plans allow shareholders to accumulate stock over the Long
term using dollar cost averaging. The DRP is usually administered by the company without charges to the
holder.


EAFE index

The European, Australian, and Far East stock index, computed by Morgan Stanley.


Economic surplus

For any entity, the difference between the market value of all its assets and the market
value of its liabilities.


Educational Assistance Plan

A plan that an employer creates on behalf of its
employees covering a variety of educational expenses incurred on behalf of
employees, for which they can avoid recognizing some income.


Employee

A person who renders services to another entity in exchange for compensation.


Employee Retirement Income Security Act of 1974 (ERISA)

A federal Act that sets minimum operational and funding standards for employee benefit
plans.


Employee stock fund

A firm-sponsored program that enables employees to purchase shares of the firm's
common stock on a preferential basis.


Employee stock ownership plan (ESOP)

A company contributes to a trust fund that buys stock on behalf of
employees.


Employee Stock Ownership Plan (ESOP)

a profit-sharing compensation program in which investments are made in
the securities of the employer


Employee Stock Ownership Plan (ESOP)

A fund containing company stock and owned by employees, paid for by ongoing contributions by the employer.


employee time sheet

a source document that indicates, for each employee, what jobs were worked on during the day and for what amount of time


Employer

A person or entity that directs and controls the work of individuals in
exchange for compensation.


Enhanced indexing

Also called indexing plus, an indexing strategy whose objective is to exceed or replicate
the total return performance of some predetermined index.


enterprise resource planning (ERP) system

a packaged software program that allows a company to
(1) automate and integrate the majority of its business processes,
(2) share common data and practices across the entire enterprise, and
(3) produce and access information in a realtime environment


Enterprise resource planning system

A computer system used to manage all company
resources in the receipt, completion, and delivery of customer orders.


Equity multiplier

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


Estate Planning

An insurance program designed to provide funds for insured's dependents upon death of the insured, and to also conserve, as much as possible, the personal assets that the insured wants to bequeath to heirs.


Excess Supply

A situation in which supply exceeds demand.


Explode

The multiplication of component requirements itemized on a bill of material
by the number of parent items required to determine total parts usage.


Federal Employer Identification Number

A unique identification number issued
by the federal government used for payroll purposes to identify the company
when it deals with the Internal Revenue Service.


Federal Unemployment Tax Act (FUTA)

A federal Act requiring employers to pay a tax on the wages paid to their employees, which is then used to create a
pool of funds to be used for unemployment benefits.


Financial plan

A financial blueprint for the financial future of a firm.


Financial planning

The process of evaluating the investing and financing options available to a firm. It
includes attempting to make optimal decisions, projecting the consequences of these decisions for the firm in
the form of a financial plan, and then comparing future performance against that plan.


Floating supply

The amount of securities believed to be available for immediate purchase, that is, in the
hands of dealers and investors wanting to sell.


Floor planning

Arrangement used to finance inventory. A finance company buys the inventory, which is then
held in trust by the user.


Forward looking multiple

A truncated expression for a P/E ratio that is based on forward (expected)
earnings rather than on trailing earnings.


Frictional Unemployment

Unemployment associated with people changing jobs or quitting to search for new jobs.


Full Employment

The level of employment corresponding to the natural rate of unemployment.


Full-Employment Output

The level of output produced by the economy when operating at the natural rate of unemployment.


Futures contract multiple

A constant, set by an exchange, which when multiplied by the futures price gives
the dollar value of a stock index futures contract.


Generally accepted accounting principles

The rules that accountants follow when processing accounting transactions and creating financial reports. The rules are primarily
derived from regulations promulgated by the various branches of the AICPA Council.


generally accepted accounting principles (GAAP)

This important term
refers to the body of authoritative rules for measuring profit and preparing
financial statements that are included in financial reports by a business
to its outside shareowners and lenders. The development of these
guidelines has been evolving for more than 70 years. Congress passed a
law in 1934 that bestowed primary jurisdiction over financial reporting
by publicly owned businesses to the Securities and Exchange Commission
(SEC). But the SEC has largely left the development of GAAP to the
private sector. Presently, the Financial Accounting Standards Board is
the primary (but not the only) authoritative body that makes pronouncements
on GAAP. One caution: GAAP are like a movable feast. New rules
are issued fairly frequently, old rules are amended from time to time,
and some rules established years ago are discarded on occasion. Professional
accountants have a heck of time keeping up with GAAP, that’s for
sure. Also, new GAAP rules sometimes have the effect of closing the barn
door after the horse has left. Accounting abuses occur, and only then,
after the damage has been done, are new rules issued to prevent such
abuses in the future.


generally accepted accounting principles (GAAP)

Procedures for preparing financial statements.


Generally Accepted Accounting Principles (GAAP)

A common set of standards and procedures
for the preparation of general-purpose financial statements that either have been established
by an authoritative accounting rule-making body, such as the Financial Accounting
Standards Board (FASB), or over time have become accepted practice because of their universal
application.


Generally Accepted Accounting Principles (GAAP)

GAAP is the term used to describe the underlying rules basis on which financial statements are normally prepared. This is codified in the Handbook of The Canadian Institute of Chartered Accountants.


Hourly Rate Plan

A method for calculating wages for hourly employees that involves
the multiplication of the wage rate per hour times the number of hours
worked during the work week.


Implicit Contract

An unwritten understanding between two groups, such as an understanding between an employer and employees that employees will receive a stable wage despite business cycle activity.


Implied call

The right of the homeowner to prepay, or call, the mortgage at any time.


Implied repo rate

The rate that a seller of a futures contract can earn by buying an issue and then delivering
it at the settlement date. Related: cheapest to deliver issue


Implied volatility

The expected volatility in a stock's return derived from its option price, maturity date,
exercise price, and riskless rate of return, using an option-pricing model such as Black/Scholes.


Implied volatility

For an option, the variance that makes a call option price
equal to the market price. Given the option price, strike price, and other
factors, the Black-Scholes model computes implied volatility.


Income Splitting

This 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.


Index

A series of numbers measuring percentage changes over time from a base period. The index number for the base period is by convention set equal to 100.
indexing
Linking money payments to a price index to hold the real value of those money payments constant.


index

An index is a statistical measure of a market based on the performance of a sample of securities in that market. For example, the S&P/TSX Composite index reflects the performance of the most actively traded stocks on The Toronto Stock Exchange.


Index and Option Market (IOM)

A division of the CME established in 1982 for trading stock index
products and options. Related: Chicago Mercantile Exchange (CME).


Index arbitrage

An investment/trading strategy that exploits divergences between actual and theoretical
futures prices.


Index fund

Investment fund designed to match the returns on a stockmarket index.


index funds

Mutual funds that aim to track the performance of a specific stock or bond index. This process is also referred to as indexing and passive management.


Index model

A model of stock returns using a market index such as the S&P 500 to represent common or
systematic risk factors.


Index option

A call or put option based on a stock market index.


Index Portfolio Rebalancing Service (IPRS)

index Portfolio Rebalancing Service (IPRS) is a comprehensive investment service that can help increase potential returns while reducing volatility. Several portfolios are available, each with its own strategic balance of index Funds. IPRS maintains your personal asset allocation by monitoring and rebalancing your portfolio semi-annually.


Index warrant

A stock index option issued by either a corporate or sovereign entity as part of a security
offering, and guaranteed by an option clearing corporation.



 

 

 

 

 

 

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