Financial Terms
W-2 Form

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Definition of W-2 Form

W-2 Form Image 1

W-2 Form

A form used to report gross pay and tax deductions for each employee
to the IRS for a calendar year.
W-4 form
A form on which an employee declares the amount of federal tax deductions
to be deducted from his or her pay.

Related Terms:

Accounts payable

Money owed to suppliers.


amounts a company owes to creditors.

Accounts payable

amounts owed by the company for goods and services that have been received, but have not yet been paid for. Usually Accounts payable involves the receipt of an invoice from the company providing the services or goods.

accounts payable

Short-term, non-interest-bearing liabilities of a business
that arise in the course of its activities and operations from purchases on
credit. A business buys many things on credit, whereby the purchase
cost of goods and services are not paid for immediately. This liability
account records the amounts owed for credit purchases that will be paid
in the short run, which generally means about one month.

Accounts payable

Acurrent liability on the balance sheet, representing short-term obligations
to pay suppliers.

Accounts Payable

amounts due to vendors for purchases on open account, that is, not evidenced
by a signed note.

Accounts Payable Days (A/P Days)

The number of days it would take to pay the ending balance
in accounts payable at the average rate of cost of goods sold per day. Calculated by dividing
accounts payable by cost of goods sold per day, which is cost of goods sold divided by 365.

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Accrued expenses payable

Expenses that have to be recorded in order for the financial statements to be accurate. Accrued expenses usually do not involve the receipt of an invoice from the company providing the goods or services.

accrued expenses payable

The account that records the short-term, noninterest-
bearing liabilities of a business that accumulate over time, such
as vacation pay owed to employees. This liability is different than
accounts payable, which is the liability account for bills that have been
received by a business from purchases on credit.

Accumulated Other Comprehensive Income

Cumulative gains or losses reported in shareholders'
equity that arise from changes in the fair value of available-for-sale securities, from the
effects of changes in foreign-currency exchange rates on consolidated foreign-currency financial
statements, certain gains and losses on financial derivatives, and from adjustments for underfunded
pension plans.

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.

Annual report

yearly record of a publicly held company's financial condition. It includes a description of the
firm's operations, its balance sheet and income statement. SEC rules require that it be distributed to all
shareholders. A more detailed version is called a 10-K.

Annual Report

The report required by the Stock Exchange for all listed companies, containing the company’s financial statements.

Annual report

A report issued to a company’s shareholders, creditors, and regulatory
organizations at the end of its fiscal year. It typically contains at least an income
statement, balance sheet, statement of cash flows, and accompanying footnotes. It
may also contain management comments, an audit report, and other supporting
schedules that may be required by regulatory organizations.

Asymmetric information

InFormation that is known to some people but not to other people.

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Asymmetric taxes

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

Auditor's report

A section of an annual report containing the auditor's opinion about the veracity of the
financial statements.

Automatic Benefits Payment

Automatic payment of moneys derived from a benefit.

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.

Balance of payments

A statistical compilation Formulated by a sovereign nation of all economic transactions
between residents of that nation and residents of all other nations during a stipulated period of time, usually a
calendar year.

Balance of Payments

The difference between the demand for and supply of a country's currency on the foreign exchange market.

Balance of Payments Accounts

A statement of a country's transactions with other countries.

BARRA's performance analysis (PERFAN)

A method developed by BARRA, a consulting firm in
Berkeley, Calif. It is commonly used by institutional investors applying perFormance attribution analysis to
evaluate their money managers' perFormances.

Base Year

The reference year when constructing a price index. By tradition it is given the value 100.

Before-tax profit margin

The ratio of net income before taxes to net sales.

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A signalling device.

Bellwether issues

Related:Benchmark issues.

Bonds payable

amounts owed by the company that have been Formalized by a legal document called a bond.

Break-even lease payment

The lease payment at which a party to a prospective lease is indifferent between
entering and not entering into the lease arrangement.

Break-even payment rate

The prepayment rate of a MBS coupon that will produce the same CFY as that of
a predetermined benchmark MBS coupon. used to identify for coupons higher than the benchmark coupon
the prepayment rate that will produce the same CFY as that of the benchmark coupon; and for coupons lower
than the benchmark coupon the lowest prepayment rate that will do so.

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.


List of new issues scheduled to come to market shortly.

Calendar effect

The tendency of stocks to perForm differently at different times, including such anomalies as
the January effect, month-of-the-year effect, day-of-the-week effect, and holiday effect.

Capitalized Cost An expenditure or accrual that is reported as an asset to be amortized against

future-period revenue.

Cash flow after interest and taxes

Net income plus depreciation.

Cash Flow Provided or Used from Financing Activities

Cash receipts and payments involving
liability and stockholders' equity items, including obtaining cash from creditors and repaying
the amounts borrowed and obtaining capital from owners and providing them with a return on,
and a return of, their investments.

Cash Flow Provided or Used from Investing Activities

Cash receipts and payments involving
long-term assets, including making and collecting loans and acquiring and disposing of
investments and productive long-lived assets.

Change in Reporting Entity

A change in the scope of the entities included in a set of, typically, consolidated financial statements.

Cherry Picking

Selecting specific assets for sale so as to record desired gains or losses.

Clearing House Automated Payments System (CHAPS)

A computerized clearing system for sterling funds
that began operations in 1984. It includes 14 member banks, nearly 450 participating banks, and is one of the
clearing companies within the structure of the Association for payment Clearing Services (APACS).

Clearing House Interbank Payments System (CHIPS)

An international wire transfer system for high-value
payments operated by a group of major banks.

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.

Common-base-year analysis

The representing of accounting inFormation over multiple years as percentages
of amounts in an initial year.
Common-size analysis The representing of balance sheet items as percentages of assets and of income
statement items as percentages of sales.

Common stock/other equity

Value of outstanding common shares at par, plus accumulated retained
earnings. Also called shareholders' equity.

contingent pay

compensation that is dependent on the
achievement of some perFormance objective

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.

cost of production report

a process costing document that
details all operating and cost inFormation, shows the computation
of cost per equivalent unit, and indicates cost assignment
to goods produced during the period

Coupon payments

A bond's interest payments.

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.

Customary payout ratios

A range of payout ratios that is typical based on an analysis of comparable firms.

Date of payment

Date dividend checks are mailed.

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.

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.

Delivery versus payment

A transaction in which the buyer's payment for securities is due at the time of
delivery (usually to a bank acting as agent for the buyer) upon receipt of the securities. The payment may be
made by bank wire, check, or direct credit to an account.

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.

Direct-Method Format

A Format for the operating section of the cash-flow statement that reports actual cash receipts and cash disbursements from operating activities.

Discounted payback period rule

An investment decision rule in which the cash flows are discounted at an
interest rate and the payback rule is applied on these discounted cash flows.

Dividend payout ratio

Percentage of earnings paid out as dividends.

dividend payout ratio

Computed by dividing cash dividends for the year
by the net income for the year. It’s simply the percent of net income distributed
as cash dividends for the year.

dividend payout ratio

Percentage of earnings paid out as dividends.

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.

Effective Tax Rate

The total tax provision divided by pretax book income from continuing

Either/or facility

An agreement permitting a bank customer to borrow either domestic dollars from the
bank's head office or Eurodollars from one of its foreign branches.

Either-way market

In the interbank Eurodollar deposit market, an either-way market is one in which the bid
and offered rates are identical.

Electronic Federal Tax Payment Systems (EFTPS)

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


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

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

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

End-of-year convention

Treating cash flows as if they occur at the end of a year as opposed to the date
convention. Under the end-of-year convention, the present is time 0, the end of year 1 occurs one year hence,

Equal Pay Act of 1963

A federal Act requiring that both sexes receive equal pay
in situations where work requires equivalent effort, responsibility, and skills,
perFormed under similar working conditions.

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.

Expected value of perfect information

The expected value if the future uncertain outcomes could be known
minus the expected value with no additional inFormation.

Feasible target payout ratios

payout ratios that are consistent with the availability of excess funds to make
cash dividend payments.

Federal agency securities

Securities issued by corporations and agencies created by the U.S. government,
such as the federal Home Loan Bank Board and Ginnie Mae.

Federal credit agencies

Agencies of the federal government set up to supply credit to various classes of
institutions and individuals, e.g. S&Ls, small business firms, students, farmers, and exporters.

Federal Deposit Insurance Corporation (FDIC)

A federal institution that insures bank deposits.

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 Financing Bank

A federal institution that lends to a wide array of federal credit agencies funds it
obtains by borrowing from the U.S. Treasury.

Federal funds

Non-interest bearing deposits held in reserve for depository institutions at their district federal
Reserve Bank. Also, excess reserves lent by banks to each other.

Federal funds market

The market where banks can borrow or lend reserves, allowing banks temporarily
short of their required reserves to borrow reserves from banks that have excess reserves.

Federal funds rate

This is the interest rate that banks with excess reserves at a federal Reserve district bank
charge other banks that need overnight loans. The Fed Funds rate, as it is called, often points to the direction
of U.S. interest rates.

Federal Funds Rate

The interest rate at which banks lend deposits at the federal Reserve to one another overnight.

Federal Home Loan Banks

The institutions that regulate and lend to savings and loan associations. The
federal Home Loan Banks play a role analogous to that played by the federal Reserve Banks vis-à-vis
member commercial banks.







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