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Date: Tuesday 13th 2008f May 2008 09:21:36 AM

Glossary
 

E
 
EBIT (Earning Before Interest and Taxes): the measure of the company's core performance
Our take: This is the company's profit before paying taxes and regardless of its capital structure.
 
EBIDTA (Earning Before Interest, Taxes, Depreciation and Amortization): also known as operating cash flow, this is the cash flow that a company get without factoring interest and tax payments.
Our take: For most, EBIDTA is used just to window-dress a company's financial performance.
 
EDGAR (Electronic Data Gathering, Analysis and Retrieval): The electronic system used at the Securities Exchange And Commission (SEC) for companies to file their required documents electronically.
Our take: All public companies traded in the US stock exchange is required to submit specific documents regarding their financial health.
 
Early Exercise: When an option is realized before its maturity date.
Our take: The flexibility of American Options allow early exercise. However, European options prohibit early exercise.
 
Earned Income: Income that is earned from an entity's activities in a trade or business. Basically, an income that is earned as a result of an effort of the beneficiary.
Our take: This is contrary to unearned income for example gain on sale of assets. s
 
Earning Asset: Asset that brings cash flow into its owner.
Our take: One example include: interest bearing bonds. However, patent that brings in royalty fee can also be considered earning asset.
 
Earnings: The amount of money earned by a company during a specific period.
Our take: Net earnings include operational and non-operational earnings.
 
Earnings Estimate: The future net annual earnings predicted by analysts.
Our take: Analysts use various forecasting models to identify trends and make accurate forecast.
 
Earning Multiplier : The price earning ratio of a company which may vary with interest rate.
Our take: Higher interest rate will lead to lower earning multiplier and vice versa.
 
Earning per Share (EPS): a company's net earning divided by the number of shares outstanding.
Our take: EPS affects companies' share price in the long run.
 
Earning Season: The month in which most companies traded in the US stock exchange report their earnings.
Our take: There are four earning seasons in a year, namely: January, April, July and October.
 
Earning Surprise: Companies that deliver unexpected earning (either to the upside or to the downside) during earning report.
Our take: Earning surprise is not uncommon since analysts seldom get the number right.
 
Earning Yield: the earning per share of a company divided by its share price.
Our take: Earning Yield depicts how much percentage of profits will an investment earn.
 
Easy-To-Borrow List: The list of securities that is easily available to borrow for selling short.
Our take:  The more liquid securities is easily borrowed for short selling.
 
Economic Growth: An increase in capacity for an economy to produce goods and services.
Our take: Economic growth normally occurs due to technological advances that creates efficiency.
 
Economic Moat: The sustainable economic advantage of a company that is harder to imitate.
Our take: Examples include brand name, patent protection, technological know-how.
 
Economic Value Added: It is the value generated by economic activity of a corporation.
Our take: This is calculated by subtracting net operating profit after tax with cost of capital. Basically, it is the amount of wealth added to the economy due to the company's  activity.
 
Economies of Scale: The decrease in cost per unit due to greater volume of production.
Our take: Economies of Scale enables bigger companies to be more profitable even when price is lowered. However, bigger companies normally can have the pricing power to charge more. Therefore, a lot of companies try to get bigger.
 
Effective Tax Rate: The amount of taxes paid relative to annual income in percentage term.
Our take: In the United States, taxes goes up progressively as taxable income goes up. Effective tax rate measures the absolute tax paid in percentage term.
 
Efficient Market Hypothesis: An investment theory that says that all information available has been factored in into the price and therefore, it is impossible to beat the market.
Our take: While all the information pertaining to a particular  security has been known, the theory did not take into account of the fact that all market participants are emotional human being and all information available might not be considered by all when decisions to buy or sell are made. .
 
Elasticity: The degree to which consumers respond to price change.
Our take: If elasticity is greater than one, it means consumer buys more (in absolute sales) when the price of an item is reduced. For elasticity that is less than one, it is vice versa.
 
Ecommerce: A corporation or individual that uses the internet as the medium of doing business.
Our take: Ecommerce covers everything that can be sold through the internet. It ranges from book buying to credit card payments.
 
Electronic Communication Network (ECN): an electronic network replacing the need for a third party to execute a trade.
Our take: Cost is lowered as middlemen are now replaced with electronic network.
 
Electronic Filing: The process of submitting your documents online.
Our take: Examples include: taxes.
 
Elephants: It is a term used for institutional investor who generally makes big trades.
Our take: Examples of elephants are: mutual fund, hedge fund and pension fund.
 
Emerging Industry: an industry in its early stage of development and is projected to grow significantly in the coming years.
Our take: Emerging industry changes all the time depending on what industry is in its early stage of development. Currently, Voice over IP can be considered emerging industry.
 
Ending Inventory: The book value of goods for sale at the end of accounting period.
Our take: It is listed on the balance sheet simply as inventory.
 
Enduring Purpose: It is the reason for the company's existence. In other word, the company's mission statement.
Our take: Enduring purpose includes core values and the company's vision.
 
Enterprise Value: The 'real' price of a company, calculated as market capitalization plus long term debt minus cash & cash equivalent.
Our take: Cash and debt is taken into consideration because in a merger situation, the acquirer would assume the company's debt and the company's cash as well. 
 
Equity: Initially, it is the amount of capital invested by the owner/s.
Our take: High debt/equity ratio indicates that the company is funded more on outside sources rather than the owner's contribution.
 
Equity Financing: one mean a corporation can raise money by selling common shares to individuals or organizations.
Our take: Another way of raising money is by issuing debt, which means that the company is borrowing money.
 
Equity Income: Stream of income obtained by owning an equity.
Our take: Usually, it is obtained from dividend payments and capital gains. For steady stream of income, dividend payments is more reliable since it is distributed quarterly while capital gains are not as certain as dividend payments.
 
Equity Risk Premium: Extra return that investors get from investing in equities as opposed to risk-free bond.
Our take: Riskier investments require higher rate of return to entice investors.
 
Equivalent Annual Cost: The annual cost of owning a specific asset spread out over its entire life.
Our take: This gives companies a clearer idea on how much expense it incurs every year.
 
Estate Tax: A tax incurred by the beneficiary who is bestowed an inheritance.
Our take: Estate planning can reduce the amount of estate taxes paid to the US government.
 
Ex-dividend: One method of depreciation where the asset is depreciated the most during the first year. Depreciation gradually decreases during subsequent years.
Our take: This method of depreciation understates assets and overstates expense which is the conservative ways of financial reportings.
 
Exchange Rate: The price of a country's currency with respect to other currency.
Our take: An example is the US dollar - Euro exchange rate.
 
Exchange Traded Fund (ETF): A security that tracks an index and behaves similarly to the index it is tracking.
Our take: ETF enables small investors to buy a basket of stocks without incurring multiple comissions. Furthermore, investors can just buy a specific ETF if they want their performance to mimick a specific index.
 
Exchangeable Debt: Debt that can be converted into the shares of issuing companies.
Our take: This is similar to Convertibles.
 
Execution: The completion of a buy or sell order of a security.
Our take: Most online brokers can now execute orders in 1/10th of a second. Commission will be waived if a trade is not executed within 30 days.
 
Exempt Income: Income that is not subjected to income tax.
Our take: Gift under $10,000 is one example of exempt income.
 
Exemption: A deduction that is allowed by law and will results in a lower gross taxable income.
Our take: Taxation Law changes drastically each year and it is best to consult your tax-advisor before taking any exemptions.
 
Exercise Price: The price at which underlying security can be bought or sold.
Our take: The profit from option trade is determined between the exercise price and the price of the underlying security.
 
Exit Strategy: In a trade, this describes how a position in a security will be closed out.
Our take: For example an investor may decide to sell half of its position if the stock rises to certain price range.
 
Expense Ratio: The percentage of the total asset under management that is used to cover operational expenses of a mutual fund.
Our take: Expense ratio rises as the portfolio becomes more active. This is because each trade will incur commission fees.
 
Expense: Money spent by firms to enable it to function.
Our take: Types of expense include: Selling, General and Administrative Expense, Interest Expense, Depreciation Expense and a few others.
 
Expiration Date: The last day an option can still trade. 
Our take: For option in the United States, the expiration date is the third Friday of every month.
 
Export: A process of selling goods to foreign countries.
Our take: The opposite of export is import.
 
Extraordinary Items: Gains or losses included in the financial statement but unrecurring in nature.
Our take: Example includes store closing due to natural disaster or drought that causes utility cost to go up.
 

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