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Definition of Reaganomics

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Reaganomics

The economic program of President Ronald Reagan, including tax cuts, restraint in spending except for defence spending, and less regulation.



Related Terms:

After-tax profit margin

The ratio of net income to net sales.


After-tax real rate of return

Money after-tax rate of return minus the inflation rate.


Asymmetric taxes

A situation wherein participants in a transaction have different net tax rates.


Average tax rate

taxes as a fraction of income; total taxes divided by total taxable income.


average tax rate

Total taxes owed divided by total income.



Before-tax profit margin

The ratio of net income before taxes to net sales.


Break-even tax rate

The tax rate at which a party to a prospective transaction is indifferent between entering
into and not entering into the transaction.


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Cash flow after interest and taxes

Net income plus depreciation.


Classical Macroeconomics

The school of macroeconomic thought prior to the rise of Keynesianism.


Corporate tax view

The argument that double (corporate and individual) taxation of equity returns makes
debt a cheaper financing method.


Corporate taxable equivalent

Rate of return required on a par bond to produce the same after-tax yield to
maturity that the premium or discount bond quoted would.


Current Income Tax Expense

That portion of the total income tax provision that is based on
taxable income.


Current Tax Payment Act of 1943

A federal Act requiring employers to withhold income taxes from employee pay.


Deferred Income Tax Expense

That portion of the total income tax provision that is the result
of current-period originations and reversals of temporary differences.


Deferred Tax Asset

Future tax benefit that results from (1) the origination of a temporary difference
that causes pretax book income to be less than taxable income or (2) a loss, credit, or other
carryforward. Future tax benefits are realized on the reversal of deductible temporary differences
or the offsetting of a loss carryforward against taxable income or a tax-credit carryforward against
the current tax provision.


Deferred Tax Liability

Future tax obligation that results from the origination of a temporary
difference that causes pretax book income to exceed taxable income.


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Deferred taxes

A non-cash expense that provides a source of free cash flow. Amount allocated during the
period to cover tax liabilities that have not yet been paid.


Depreciation tax shield

The value of the tax write-off on depreciation of plant and equipment.



depreciation tax shield

Reduction in taxes attributable to the depreciation allowance.


Detailed Program

Design In software development, a detailed step-by-step plan for completing the software.


Direct stock-purchase programs

The purchase by investors of securities directly from the issuer.


Double-tax agreement

Agreement between two countries that taxes paid abroad can be offset against
domestic taxes levied on foreign dividends.


earnings before interest and income tax (EBIT)

A measure of profit that
equals sales revenue for the period minus cost-of-goods-sold expense
and all operating expenses—but before deducting interest and income
tax expenses. It is a measure of the operating profit of a business before
considering the cost of its debt capital and income tax.


Earnings before interest and taxes (EBIT)

A financial measure defined as revenues less cost of goods sold
and selling, general, and administrative expenses. In other words, operating and non-operating profit before
the deduction of interest and income taxes.


Earnings before interest and taxes (EBIT)

The operating profit before deducting interest and tax.


Earnings before interest, taxes, depreciation and amortization (EBITDA)

The operating profit before deducting interest, tax, depreciation and amortization.


Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)

An earningsbased measure that, for many, serves as a surrogate for cash flow. Actually consists of working
capital provided by operations before interest and taxes.


EBDDT - Earnings before depreciation and deferred taxes

This measure is used principally by
firms in the real estate industry, with the exception of real estate investment trusts, which typically
do not pay taxes.



Economic assumptions

economic environment in which the firm expects to reside over the life of the
financial plan.


economic components model

Abrams’ model for calculating DLOM based on the interaction of discounts from four economic components.
This model consists of four components: the measure of the economic impact of the delay-to-sale, monopsony power to buyers, and incremental transactions costs to both buyers and sellers.


Economic defeasance

See: in-substance defeasance.


Economic dependence

Exists when the costs and/or revenues of one project depend on those of another.


Economic earnings

The real flow of cash that a firm could pay out forever in the absence of any change in
the firm's productive capacity.


Economic exposure

The extent to which the value of the firm will change because of an exchange rate change.


Economic income

Cash flow plus change in present value.


economic integration

the creation of multi-country markets
by developing transnational rules that reduce the fiscal and
physical barriers to trade as well as encourage greater economic
cooperation among countries


Economic life

The period over which a company expects to be able to use an asset.


economic order quantity

Order size that minimizes total inventory costs.


Economic order quantity (EOQ)

The order quantity that minimizes total inventory costs.


economic order quantity (EOQ)

an estimate of the number
of units per order that will be the least costly and provide
the optimal balance between the costs of ordering
and the costs of carrying inventory


economic production run (EPR)

an estimate of the number
of units to produce at one time that minimizes the total
costs of setting up production runs and carrying inventory


Economic rents

Profits in excess of the competitive level.


Economic risk

In project financing, the risk that the project's output will not be salable at a price that will
cover the project's operating and maintenance costs and its debt service requirements.


Economic surplus

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


Economic union

An agreement between two or more countries that allows the free movement of capital,
labor, all goods and services, and involves the harmonization and unification of social, fiscal, and monetary
policies.


Economic Value Added (EVA)

Operating profit, adjusted to remove distortions caused by certain accounting rules, less a charge
to cover the cost of capital invested in the business.


economic value added (EVA)

a measure of the extent to which income exceeds the dollar cost of capital; calculated
as income minus (invested capital times the cost of capital percentage)


economic value added (EVA)

Term used by the consulting firm Stern Stewart for profit remaining after deduction of the cost
of the capital employed.


economically reworked

when the incremental revenue from the sale of reworked defective units is greater than
the incremental cost of the rework


Economics

The study of the allocation and distribution of scare resources among competing wants.


Effective Tax Rate

The total tax provision divided by pretax book income from continuing
operations.


Electronic Federal Tax Payment Systems (EFTPS)

An electronic funds transfer system used by businesses to remit taxes to the government.


Entitlement Program

A program, such as social security, under which everyone meeting the eligibility requirements is entitled to receive benefits from the program, so that costs are not known in advance.


Equivalent taxable yield

The yield that must be offered on a taxable bond issue to give the same after-tax
yield as a tax-exempt issue.


Except for opinion

An auditor's opinion reflecting the fact that the auditor was unable to audit certain areas
of the company's operations because of restrictions imposed by management or other conditions beyond the
auditor's control.


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.


fixed overhead spending variance

the difference between the total actual fixed overhead and budgeted fixed overhead;
it is computed as part of the four-variance overhead analysis


Flexible Spending Account

A form of cafeteria plan allowing employees to pay
for some medical or dependent care expenses with pretax pay deductions.


Foreign tax credit

Home country credit against domestic income tax for foreign taxes paid on foreign
derived earnings.


Guarantor program

Under the Freddie Mac program, the aggregation by a single issuer (usually an S&L)
for the purpose of forming a qualifying pool to be issued as PCs under the Freddie Mac guarantee.


Harmless warrant

Warrant that allows the user to purchase a bond only by surrendering an existing bond
with similar terms.


Imputation tax system

Arrangement by which investors who receive a dividend also receive a tax credit for
corporate taxes that the firm has paid.


INCOME TAX

What the business paid to the IRS.


Income tax

A government tax on the income earned by an individual or corporation.


Income Tax Expense

See income tax provision.


Income Tax Provision

The expense deduction from pretax book income reported on the
income statement. It consists of both current income tax expense and deferred income tax
expense. The terms income tax expense and income tax provision are used interchangeably.


Indirect Taxes

taxes paid by consumers when they buy goods and services. A sales tax is an example.


Inflation Tax

The loss in purchasing power due to inflation eroding the real value of financial assets such as cash.


Informationless trades

Trades that are the result of either a reallocation of wealth or an implementation of an
investment strategy that only utilizes existing information.


Integer programming

Variant of linear programming whereby the solution values must be integers.


integer programming

a mathematical programming technique in which all solutions for variables must be restricted to whole numbers


Interest equalization tax

tax on foreign investment by residents of the U.S. which was abolished in 1974.


Interest tax shield

The reduction in income taxes that results from the tax-deductibility of interest payments.


interest tax shield

tax savings resulting from deductibility of interest payments.


Investment Spending

Expenditures on capital goods including new housing. Financial ''investments" and sales of existing assets are not included.


Investment tax credit

Proportion of new capital investment that can be used to reduce a company's tax bill
(abolished in 1986).


Investment Tax Credit

A reduction in taxes offered to firms to induce them to increase investment spending.


Leading economic indicators

economic series that tend to rise or fall in advance of the rest of the economy.


Lessee

An entity that leases an asset from another entity.


Lessee

The entity that contracts to make rental payments to a lessor in exchange for the
use of an asset.


Lessee

A person to whom a lease is granted; the user of the asset.


Lessor

An entity that leases an asset to another entity.
Letter of comment A communication to the firm from the SEC that suggests changes to its registration
statement.


Lessor

An entity that leases an asset to another entity.


Lessor

The entity that rents property that it owns to a second party in exchange for a
periodic set of rental payments.


Lessor

A person who grants a lease; the owner of the asset.


Limited-tax general obligation bond

A general obligation bond that is limited as to revenue sources.


Linear programming

Technique for finding the maximum value of some equation subject to stated linear constraints.


linear programming

a method of mathematical programming used to solve a problem that involves an objective function and multiple limiting factors or constraints long-term variable cost a cost that was traditionally viewed as a fixed cost


Macroeconomics

The study of the determination of economic aggregates such as total output and the price level.


Margin Tax Rate

The tax rate applicable to the last unit of income.


Marginal tax rate

The tax rate that would have to be paid on any additional dollars of taxable income earned.


marginal tax rate

Additional taxes owed per dollar of additional income.


Marginal Tax Rate

Percent of an increase in income paid in tax.


Mathematical programming

An operations research technique that solves problems in which an optimal
value is sought subject to specified constraints. Mathematical programming models include linear
programming, quadratic programming, and dynamic programming.


mathematical programming

a variety of techniques used
to allocate limited resources among activities to achieve a
specific objective


Microeconomics

The study of firm and individual decisions insofar as they affect the allocation and distribution of goods and services.


overhead spending variance

the difference between total actual overhead and total budgeted overhead at actual
hours; it is computed as part of three-variance analysis; it
is equal to the sum of the variable and fixed overhead
spending variances


Payroll tax expense

The amount of tax associated with salaries that an employer pays to governments (federal, state, and local).


Payroll taxes payable

The amount of payroll taxes owed to the various governments at the end of a period.


Personal tax view (of capital structure)

The argument that the difference in personal tax rates between
income from debt and income from equity eliminates the disadvantage from the double taxation (corporate
and personal) of income from equity.



 

 

 

 

 

 

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