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Financial Terms | |
Real |
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Definition of RealRealMeasured in base year, or constant, dollars. Contrast with nominal.
Related Terms:After-tax real rate of returnMoney after-tax rate of return minus the inflation rate. approximated net realizable value at split-off allocationa method of allocating joint cost to joint products using a Exchange Rate, RealThe nominal exchange rate corrected for price level differences. Interest Rate, RealNominal interest rate less expected inflation. Net Realizable ValueSelling price of an asset less expenses of bringing the asset into a saleable state and expenses of the sale. net realizable value approacha method of accounting for by-products or scrap that requires that the net realizable value of these products be treated as a reduction in the cost of the primary products; primary product cost may be reduced by decreasing either net realizable value at split-off allocationa method of allocating joint cost to joint products that uses, as the proration base, sales value at split-off minus all costs necessary ![]() Net realizeable valueThe expected revenue to be gained from the sale of an item or Real Actions (Earnings) ManagementInvolves operational steps and not simply acceleration Real assetsIdentifiable assets, such as buildings, equipment, patents, and trademarks, as distinguished from a real assetsAssets used to produce goods and services. Real Business Cycle TheoryBelief that business cycles arise from real shocks to the economy, such as technology advances and natural resource discoveries, and have little to do with monetary policy. Real capitalWealth that can be represented in financial terms, such as savings account balances, financial Real cash flowA cash flow is expressed in real terms if the current, or date 0, purchasing power of the cash Real Exchange RateExchange rate adjusted for relative price levels. Real exchange ratesExchange rates that have been adjusted for the inflation differential between two countries. Real GDPGDP expressed in base-year dollars, calculated by dividing nominal GDP by a price index. Real IncomeIncome expressed in base-year dollars, calculated by dividing nominal income by a price index. Real interest rateThe rate of interest excluding the effect of inflation; that is, the rate that is earned in terms Real Interest RateThe rate of interest paid on an investment adjusted for inflation real interest rateRate at which the purchasing power of an investment increases. Real marketThe bid and offer prices at which a dealer could do "size." Quotes in the brokers market may real microprofit centera center whose output has a market value Real Money SupplyMoney supply expressed in base-year dollars, calculated by dividing the money supply by a price index. real optionsOptions embedded in real assets. Real Rate of InterestSee interest rate, real. Real timeA real time stock or bond quote is one that states a security's most recent offer to sell or bid (buy). real value of $1Purchasing power–adjusted value of a dollar. Real WageWage expressed in base-year dollars, calculated by dividing the money wage by a price index. Realizable Revenue A revenue transaction where assets received in exchange for goods andservices are readily convertible into known amounts of cash or claims to cash. Realized compound yieldYield assuming that coupon payments are invested at the going market interest Realized Gains and LossesIncreases or decreases in the fair value of an asset or a liability that Realized returnThe return that is actually earned over a given time period. Realized RevenueA revenue transaction where goods and services are exchanged for cash or realized value approacha method of accounting for byproducts or scrap that does not recognize any value for these products until they are sold; the value recognized REIT (real estate investment trust)real estate investment trust, which is similar to a closed-end mutual REMIC (real estate mortgage investment conduit)A pass-through tax entity that can hold mortgages accelerated depreciation(1) The estimated useful life of the fixed asset being depreciated is Accomodating PolicyA monetary policy of matching wage and price increases with money supply increases so that the real money supply does not fall and push the economy into recession. ACID-TEST RATIOA ratio that shows how well a company could pay its current debts using only its most liquid or “quick” assets. It’s a more pessimistic—but also realistic—measure of safety than the current ratio, because it ignores sluggish, hard-toliquidate current assets like inventory and notes receivable. Here’s the formula: ad hoc discounta price concession made under competitive pressure (real or imagined) that does not relate to quantity purchased Aggressive Capitalization PoliciesCapitalizing and reporting as assets significant portions of Asset-backed securityA security that is collateralized by loans, leases, receivables, or installment contracts Asset classesCategories of assets, such as stocks, bonds, real estate and foreign securities. BaneIn the words of Warren Buffet, Bill Bane Sr., is, "a great American and one of the last real traders Capitala) Physical capital: buildings, equipment, and any materials used to produce other goods and services in the future rather than being consumed today. capital budgeting decisionDecision as to which real assets the firm should acquire. capital gainThe positive difference between the adjusted cost base of an investment held as a capital property and the proceeds of disposition you receive when you sell it. When you sell such an investment for more than you paid, you realize a capital gain. Cash flowIn investments, it represents earnings before depreciation , amortization and non-cash charges. Commercial MortgageA loan made on real estate collateral, other than a residential property, in which a mortgage is given to secure payment of principal and interest. Constant dollarsSee real dollars. Current DollarsA variable like GDP is measured in current dollars if each year's value is measured in prices prevailing during that year. In contrast, when measured in real or constant dollars, each year's value is measured in a base year's prices. Deferred Tax AssetFuture tax benefit that results from (1) the origination of a temporary difference DeflatorA price index used to deflate a nominal value to a real value by dividing the nominal value by the price deflator. Dollar returnThe return realized on a portfolio for any evaluation period, including (1) the change in market EBDDT - Earnings before depreciation and deferred taxesThis measure is used principally by Economic earningsThe real flow of cash that a firm could pay out forever in the absence of any change in electronic data interchange (EDI)the computer-to-computer transfer of information in virtual real time using standardized formats developed by the American National Standards Institute enterprise resource planning (ERP) systema packaged software program that allows a company to Financial assetsClaims on real assets. financial assetsClaims to the income generated by real assets. Also called securities. financing decisionDecision as to how to raise the money to pay for investments in real assets. Fisher effectA theory that nominal interest rates in two or more countries should be equal to the required real Fixed assetLong-lived property owned by a firm that is used by a firm in the production of its income. fixed assetsAn informal term that refers to the variety of long-term operating Funds From Operations (FFO)Used by real estate and other investment trusts to define the cash flow from GDP DeflatorPrice index used to deflate nominal GDP to real GDP by dividing nominal GDP by the GDP deflator. IndexA 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. Inflation riskAlso called purchasing-power risk, the risk that changes in the real return the investor will Inflation TaxThe loss in purchasing power due to inflation eroding the real value of financial assets such as cash. Informationless tradesTrades that are the result of either a reallocation of wealth or an implementation of an Interest Rate ParityTheory that real interest rates are approximately the same across countries except for a risk premium. Intermarket spread swapsAn exchange of one bond for another based on the manager's projection of a international Fisher effectTheory that real interest rates in all countries should be equal, with differences in nominal rates reflecting differences in expected inflation. Lease (Credit Insurance)Contract granting use of real estate, equipment or other fixed assets for a specified period of time in exchange for payment. The owner or a leased property is the lessor and the user the lessee. LeasingContract granting use of real estate, equipment, or other fixed assets for a specified time in exchange for payment, usually in the form of rent. The owner of the leased property is called the lessor, the user the lessee. Liquidation valueNet amount that could be realized by selling the assets of a firm after paying the debt. liquidation valueNet proceeds that would be realized by selling the firm’s assets and paying off its creditors. ModelingThe process of creating a depiction of reality, such as a graph, picture, or mathematical Monetarist RuleProposal that the money supply be increased at a steady rate equal approximately to the real rate of growth of the economy. Contrast with discretionary policy. MortgageA loan secured by the collateral of some specified real estate property which obliges the borrower Mortgage InsuranceCommonly sold in the form of reducing term life insurance by lending institutions, this is life insurance with a death benefit reducing to zero over a specific period of time, usually 20 to 25 years. In most instances, the cost of coverage remains level, while the death benefit continues to decline. Re-stated, the cost of this kind of insurance is actually increasing since less death benefit is paid as the outstanding mortgage balance decreases while the cost remains the same. Lending institutions are the most popular sources for this kind of coverage because it is usually sold during the purchase of a new mortgage. The untrained institution mortgage sales person often gives the impression that this is the only place mortgage insurance can be purchased but it is more efficiently purchased at a lower cost and with more flexibility, directly from traditional life insurance companies. No matter where it is purchased, the reducing term insurance death benefit reduces over a set period of years. Most consumers are up-sizing their residences, not down-sizing, so it is likely that more coverage is required as years pass, rather than less coverage. negative cash flowThe cash flow from the operating activities of a business Neutrality of MoneyThe doctrine that the money supply affects only the price level, with no long-run impact on real variables. NominalMeasured in money terms, in current rather than real dollars. Contrast with real. Nominal exchange rateThe actual foreign exchange quotation in contrast to the real exchange rate that has Non-Smoker DiscountIn October 1996 it was announced in the international news that scientists had finally located the link between cigarette smoking and lung cancer. In the early 1980's, some Canadian Life Insurance Companies had already started recognizing that non-smokers had a better life expectancy than smokers so commenced offering premium discounts for life insurance to new applicants who have been non-smokers for at least 12 months before applying for coverage. Today, most life insurance companies offer these discounts. Normalizing methodThe practice of making a charge in the income account equivalent to the tax savings Operating cycleThe average time intervening between the acquisition of materials or services and the final Opportunity costLost revenue that would otherwise have been realized if a different Paper gain (loss)Unrealized capital gain (loss) on securities held in portfolio, based on a comparison of Performance measurementThe calculation of the return realized by a money manager over some time interval. PortfolioA collection of investments, real and/or financial. Production payment financingA method of nonrecourse asset-based financing in which a specified Purchasing Power ParityTheory that says that over the long run exchange rate changes offset any difference between foreign and domestic inflation. This result assumes that the real exchange rate remains constant, something that is not true even in the long run. Random variableA function that assigns a real number to each and every possible outcome of a random experiment. Rebalancingrealigning the proportions of assets in a portfolio as needed. RecessionLoosely speaking, a period of less-than-normal economic growth. Technically, a downturn in economic activity in which real GDP falls in two consecutive quarters. Registered Retirement Savings Plan (Canada)Commonly referred to as an RRSP, this is a tax sheltered and tax deferred savings plan recognized by the Federal and Provincial tax authorities, whereby deposits are fully tax deductable in the year of deposit and fully taxable in the year of receipt. The ability to defer taxes on RRSP earnings allows one to save much faster than is ordinarily possible. The new rules which apply to RRSP's are that the holder of such a plan must convert it into income by the end of the year in which the holder turns age 69. The choices for conversion are to simply cash it in an pay full tax in the year of receipt, convert it to a RRIF and take a varying stream of income, paying tax on the amount received annually until the income is exhausted, or converting it into an annuity with guaranteed payments for a chosen number of years, again paying tax each year on moneys received. 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