Earnings Multiplier
What is the 'Earnings Multiplier' The earnings multiplier is an adjustment made to a company's P/E ratio that takes into account current interest rates. The earnings multiplier is used to discount future earnings, and allows investors to compare expected growth to an amount of money invested over the same period at current rates. Explaining 'Earnings Multiplier'...
ETF – Exchange Traded Funds
What is an ETF and how does it work ETFs are exchange traded funds. ETFs are a type of investment fund that hold a basket of securities, such as stocks, bonds, or commodities, and trade on an exchange like a stock. ETFs offer investors exposure to a wide range of asset classes and investment strategies. ETFs are one of the...
Earnout
What is an earnout and how does it work An earnout is a performance-based bonus that is paid out over time, typically in addition to a base salary. In order for an earnout to be paid, the employee must meet or exceed certain predetermined goals. For example, an employee who is paid a base salary of $50,000 per year plus...
Economic Exposure
What is 'Economic Exposure' A type of foreign exchange exposure caused by the effect of unexpected currency fluctuations on a company’s future cash flows. Also known as operating exposure, economic exposure can have a substantial impact on a company’s market value, since it has far-reaching effects and is long-term in nature. Explaining 'Economic Exposure' For example, assume that a large U.S. company...
Economic Calendar
DefinitionAn economic calendar is used by investors to monitor market-moving events, such as economic indicators and monetary policy decisions. Market-moving events, which are typically announced or released in a report, have a high probability of impacting the financial markets. Economic Calendar What is 'Economic Calendar' A calendar used by traders for the purpose of tracking the occurrence...
Earned Income
What is 'Earned Income' Earned income is income derived from active participation in a trade or business, including wages, salary, tips, commissions and bonuses. This is the opposite of unearned income. Explaining 'Earned Income' Earned income includes any income that a person or company receives for work they have done – AKA "personal efforts". If...
Econometrics
What is econometrics and what does it involve Econometrics is the study of relationships between economic variables using statistical methods. It is concerned with the development and application of econometric models to economic data. Econometric models are used to describe relationships between economic variables, to test hypotheses about those relationships, and to make predictions about future values of economic variables. Econometricians...
Efficient Market Hypothesis
DefinitionThe efficient-market hypothesis is a theory in financial economics that states that asset prices fully reflect all available information. A direct implication is that it is impossible to "beat the market" consistently on a risk-adjusted basis since market prices should only react to new information. Efficient Market Hypothesis The Efficient Market Hypothesis (EMH) states that it is not easy...
Earnings Management
What is earnings management and why do companies do it Many publicly traded companies engage in a practice known as earnings management. This is the process of manipulating financial reports in order to meet certain financial targets. While earnings management can take many different forms, it typically involves either underreporting income or overreporting expenses. By doing this, companies can make...
Expense Ratio
DefinitionThe expense ratio of a stock or asset fund is the total percentage of fund assets used for administrative, management, advertising, and all other expenses. An expense ratio of 1% per annum means that each year 1% of the fund's total assets will be used to cover expenses. The expense ratio does not include sales loads or brokerage commissions....