|Q ratio or Tobin's Q ratio|
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Definition of Q ratio or Tobin's Q ratio
Q ratio or Tobin's Q ratio
Market value of a firm's assets divided by replacement value of the firm's assets.
Also called the quick ratio, the ratio of current assets minus inventories, accruals, and prepaid
The signal-to-noise ratio of an analyst's forecasts. The ratio of alpha to residual standard
Articles of incorporation
Legal document establishing a corporation and its structure and purpose.
The ratio of total assets to stockholder equity.
Asset activity ratios
ratios that measure how effectively the firm is managing its assets.
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
The proportion of a firm's assets held as cash.
Common stock ratios
ratios that are designed to measure the relative claims of stockholders to earnings
A single centralized account into which funds collected at regional locations
Movement of cash from different lockbox locations into a single concentration
Controlled foreign corporation (CFC)
A foreign corporation whose voting stock is more than 50% owned
The number of shares of common stock that the security holder will receive from
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
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
Dividend payout ratio
Percentage of earnings paid out as dividends.
The product of modified duration and the initial price.
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.
Earnings retention ratio
Specialized banking institutions, authorized and chartered by the Federal Reserve Board
The duration calculated using the approximate duration formula for a bond with an
The percentage of the assets that were spent to run a mutual fund (as of the last annual
The time when the option contract ceases to exist (expires).
An expiration cycle relates to the dates on which options on a particular security expire. A
The last day (in the case of American-style) or the only day (in the case of European-style)
Feasible target payout ratios
Payout ratios that are consistent with the availability of excess funds to make
Federal Deposit Insurance Corporation (FDIC)
A federal institution that insures bank deposits.
Financial leverage ratios
Related: capitalization ratios.
The result of dividing one financial statement item by another. ratios help analysts interpret
Fisher's separation theorem
The firm's choice of investments is separate from its owner's attitudes towards
Fixed asset turnover ratio
The ratio of sales to fixed assets.
Fixed-charge coverage ratio
A measure of a firm's ability to meet its fixed-charge obligations: the ratio of
Foreign Sales Corporation (FSC)
A special type of corporation created by the Tax Reform Act of 1984 that
Freddie Mac (Federal Home Loan Mortgage Corporation)
A Congressionally chartered corporation that
The ratio of a pension plan's assets to its liabilities.
Funds From Operations (FFO)
Used by real estate and other investment trusts to define the cash flow from
Hard capital rationing
Capital rationing that under no circumstances can be violated.
Hedge ratio (delta)
The ratio of volatility of the portfolio to be hedged and the return of the volatility of the
Income statement (statement of operations)
A statement showing the revenues, expenses, and income (the
Interest coverage ratio
The ratio of the earnings before interest and taxes to the annual interest expense. This
Irrational call option
The implied call imbedded in the MBS. Identified as irrational because the call is
Measures of the relative contribution of stockholders and creditors, and of the firm's ability
ratios that measure a firm's ability to meet its short-term financial obligations on time.
Long-term debt ratio
The ratio of long-term debt to total capitalization.
Long-term debt to equity ratio
A capitalization ratio comparing long-term debt to shareholders' equity.
Low price-earnings ratio effect
The tendency of portfolios of stocks with a low price-earnings ratio to
ratios that measure a firm's ability to meet its short-term financial obligations on time.
The weighted-average term to maturity of the cash flows from the bond, where the
Market value ratios
ratios that relate the market price of the firm's common stock to selected financial
Market price of a share divided by book value per share.
The ratio of Macaulay duration to (1 + y), where y = the bond yield. Modified duration is
A modification of standard duration to account for the impact on duration of MBSs of
Mortgage-Backed Securities Clearing Corporation
A wholly owned subsidiary of the Midwest Stock
A firm that operates in more than one country.
A situation in which the price of the MBS moves in the same direction as interest rates.
Purchase or sale of government securities by the monetary authorities to increase or
Open-market purchase operation
A systematic program of repurchasing shares of stock in market
Operationally efficient market
Also called an internally efficient market, one in which investors can obtain
P/E ratio (PE ratio / multiple)
Assume XYZ Co. sells for $25.50 per share and has earned $2.55 per share this year; $25. 50 = 10
Generally, the proportion of earnings paid out to the common stockholders as cash dividends.
Pension Benefit Guaranty Corporation (PBGC)
A federal agency that insures the vested benefits of
Portfolio separation theorem
An investor's choice of a risky investment portfolio is separate from his
A type of corporation permitted under the U.S. tax code whereby a branch operation
Compares a stock's market value to the value of total assets less total liabilities (book
Price/earnings ratio (PE ratio)
Shows the "multiple" of earnings at which a stock sells. Determined by dividing current
Price/sales ratio (PS Ratio)
Determined by dividing current stock price by revenue per share (adjusted for stock splits).
Private Export Funding Corporation (PEFCO)
Company that mobilizes private capital for financing the
ratios that focus on the profitability of the firm. Profit margins measure performance
Public Securities Administration (PSA)
The trade association for primary dealers in U.S. government
Indicator of a company's financial strength (or weakness). Calculated by taking current assets
Rate of return ratios
ratios that are designed to measure the profitability of the firm in relation to various
The idea that people rationally anticipate the future and respond to what they see ahead.
Receivables turnover ratio
Total operating revenues divided by average receivables. Used to measure how
A legal document that is filed with the SEC to register securities for public offering.
Specified percentages of deposits, established by the Federal Reserve Board, that banks must
ratio of excess return to portfolio standard deviation.
The property that portfolio choice can be separated into two independent tasks: 1)
The value of an investment to an individual is not dependent on consumption
A measure of a portfolio's excess return relative to the total variability of the portfolio. Related:
A procedure that allows firms to file one registration statement covering several issues of
Short-term solvency ratios
ratios used to judge the adequacy of liquid assets for meeting short-term
"Soft" Capital Rationing
Capital rationing that under certain circumstances can be violated or even viewed
Target payout ratio
A firm's long-run dividend-to-earnings ratio. The firm's policy is to attempt to pay out a
Time until expiration
The time remaining until a financial contract expires. Also called time to maturity.
Earnings before interest and tax, divided by interest payments.
Market value of assets divided by replacement value of assets. A tobin's Q ratio greater than 1
Total debt to equity ratio
A capitalization ratio comparing current liabilities plus long-term debt to
Two-fund separation theorem
The theoretical result that all investors will hold a combination of the riskfree
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