Earnings: Net profits of a company available for distribution to shareholders.
Earnings Per Share (EPS): One of the most widely used indicators of the worth of a share. It shows what a company has earned for each of its shares. It is a ratio calculated by dividing the net profit after tax by the number of equity shares of a company.
Earnings to Equity Ratio: Profit after tax minus dividend on preference shares divided by equity share capital plus reserves, and the sum multiplied by a hundred. This ratio indicates how profitably the company is making use of its capital.
Earnings Yield: Company’s earnings per share divided by its current share price. This is the inverse of the price/earnings (P/E) ratio.
Early Stage (private equity): Existing company requiring finance that has developed a prototype product or service but still has limited revenue.
EBITDA: Earnings before deduction of interest, taxes, depreciation, and amortization.
Economic Growth Rate: Annual percentage of change in the gross national product. This is adjusted for inflation to arrive at the real economic growth rate.
Economic Indicators: These show trends in the national economy which influence share prices. The chief indicators are GNP (Gross National Product), employment figures, agricultural production, industrial production, bank deposits, imports and exports, money supply, index of wholesale prices, and interest rates.
Economic Cycle: Historic analysis of markets and economies demonstrates that they generally move in cycles. A typical cycle would start with a period of low economic activity and low confidence, depressing consumer spending. After some time, in anticipation of an economic and earnings recovery, share prices start to rise. Interest rates fall and stimulate economic activity, and as the economy improves, company earnings rise. This expanding economy eventually puts upward pressure on inflation and interest rates. Bond prices fall and, as interest rates and inflation rise further, company earnings are hit and share prices slump, leading to the start of another cycle.
Economic Indicators: Statistics that give an indication of the state of an economy. Commonly used indicators in investment analysis include wholesale and retail inflation measures, growth for various sectors of the economy, short- and long-term interest rates, the extent of unused manufacturing capacity, and retail sales.
Economist: Person who analyses trends in economic indicators and attempts to forecast economic growth, likely trends in interest rates and inflation, and the impact of such factors on financial markets.
EDGAR: EDGAR (Electronic Data Gathering, Analysis and Retrieval System) is an electronic system formulated by the Securities Exchange Commission, USA, which is used by companies to transmit documents required by SEC relating to corporate offerings and ongoing disclosure obligations.
EDIFAR: EDIFAR is Electronic Data Information Filing and Retrieval system. Securities and Exchange Board of India (SEBI) in association with the National Informatics Centre (NIC) has set up the EDIFAR to facilitate the filing of certain documents/statements by the listed companies online on the Web site (www.sebi.gov.in). This would involve the electronic filing of information in a standard format by the companies.
Efficient Portfolio: A portfolio that ensures maximum return for an accepted level of risk or a minimum level of risk.
Efficient Frontier: Line of risk and reward that graphs all portfolios providing the greatest expected return for a given level of risk or, equivalently, the lowest risk for a given expected return.
Efficient Market: Investment market where new information is quickly reflected in the price of securities in the market. It is generally more difficult for an investor to outperform in such a market.
Efficient Portfolio: Portfolio which appears on the efficient frontier. There is no portfolio that has a greater expected return with the same level of risk.
Employee Stock Option: “Employee stock option” means the option given to the whole-time directors, officers, or employees of a company which gives such directors, officers, or employees, the benefit or right to purchase or subscribe at a future date, the securities offered by the company at a predetermined price.
Employee Stock Purchase Scheme (ESPS): “Employee stock purchase scheme (ESPS)” means a scheme under which the company offers shares to employees as part of a public issue or otherwise.
Emerging Markets: The term is used to describe the financial markets of developing countries. Definitions vary of which countries are emerging and which are not. However, the emerging market indices compiled by the IFC and Morgan Stanley are often used as benchmarks. EM financial market in a developing or newly industrializing country. Such markets can deliver high returns because of the rapid pace of industrialization but can be risky owing to low liquidity, lack of reliable information, and potential political instability.
Emerging Market Debt: Debt issued by governments and corporations within developing economies. Debt may be issued in the currency of the issuing country or, more commonly, in the currency of a major industrialized economy.
Entry Fee: Fee paid by an investor when purchasing units in a trust or managed fund. The fee is included in the price that new investors pay.
Enterprise Value (EV): Market value measure of a company from the point of view of the aggregate of all the company’s sources of funding, namely: debtholders, preferred shareholders, minority shareholders, and common equity holders. Because EV is neutral with respect to capital structure, it is useful when comparing companies with diverse capital structures.
Euro (€): Single currency unit adopted by member countries of the Economic and Monetary Union (of the European Union; EMU) launched on 1 January 1999, with notes and coins introduced on 1 January 2002.
European Central Bank (ECB): Independent central bank responsible for setting and implementing monetary policy and conducting foreign exchange and reserve operations for the members of the (European) Economic and Monetary Union (EMU). Established in June 1998 as an essential part of the adoption of a single currency.
Eurobond: Eurobonds are issued in a specific currency outside the currency’s domicile. They are not subject to withholding tax and fall outside the jurisdiction of any one country. The Eurobond market is based in London. Not to be confused with euro-denominated bonds.
Euroequities: Equities underwritten and distributed to investors outside the country of origin of the issuer.
European Option: A put or call that can be exercised only on its expiration date. The term has nothing to do with where the option is traded or what underlies it. Stock options listed on European option exchanges are usually American Style options in the sense that they can be exercised prior to the expiration date.
Euro Currency: Currency of other countries kept in a European Bank. For example, American Dollar, British pound sterling, or Japanese yen kept in a Swiss bank would be euro currency.
Eurotop Indices: Indices covering the largest companies in Europe and calculated by FTSE International. Variations are Eurotop 100 (top 100 companies) and Eurotop 300 (top 300 companies).
Event Risk: Risk of a substantial change in the market price of a stock due to a particular event. Often used in bond markets to describe the risk that the rating of a bond will drop due to the taking on of additional debt or a recapitalization by a company.
EV/EBITDA: The method of valuing companies is calculated by dividing a company’s enterprise value (market value of equity plus net debt of the company) by its earnings before interest, tax, depreciation, and amortization. This measure relates short-term cash flow generation to market valuation.
EVA: Economic Value Added. Conceived by consultants Stern Stewart & Co, EVA is a popular method of measuring a company’s profitability. EVA is calculated by taking the total cost of capital from post-tax operating profit.
Ex: Means ‘Without’. A price so quoted excludes recently declared dividends (xd) rights (xr) or bonus shares (xb).
Excess Spread Policy (U.S.): A NASD requirement that prohibits market makers from entering quotations in the NASDAQ system that exceed prescribed parameters for maximum allowable spreads.
Exchange: Regulated marketplace where capital market products are bought and sold through intermediaries.
Exchange Rate Risk: The risk that adverse movements in exchange rates lead to capital losses in assets or revaluation of liabilities.
Exchange-Traded Derivative: A derivative that is listed and traded in an organized marketplace. Derivatives exchanges generally provide standardized contracts and central clearing facilities for participants.
Exchange-Traded Funds (ETF): Fund that tracks an index, but can be traded like a stock. The most well-known ETF is the SPDR, which tracks the S&P 500
External Commercial Borrowings: In India, External Commercial Borrowings are defined to include commercial bank loans, buyers’ credit, suppliers’ credit, securitized instruments such as Floating Rate Notes and Fixed Rate Bonds, etc., credit from official export credit agencies, and commercial borrowings from the private sector window of Multilateral Financial Institutions such as International Finance Corporation (Washington), ADB, AFIC, CDC, etc. ECBs are being permitted by the Government as a source of Finance for Indian corporates for expansion of existing capacity as well as for fresh investment.
Ex-Ante: Forward-looking measure or estimate.
Ex-Dividend Date: The date on or after which the buyer of a security is not entitled to the dividend already declared.
Ex-Right Date: The date on which the official quotation for a share is marked XR i.e. ex-rights, in the daily official list.
Ex-post: Backward-looking measure using actual historical data.
Exit Fees: Fees charged by mortgage trusts/mutual funds on a sliding scale as the penalty for early withdrawal.
Expected Return: The return an investor might expect on investment if the same investment were made many times over an extended period. The return is found through the use of mathematical analysis.
Exercise Price: The price at which a call option or put option may be exercised. Also known as the strike price.
Equity: The ownership interest in a company of holders of its common and preferred stock.
Equity Risk Premium: Extra return expected from investing in equities rather than a riskless asset to compensate for the additional risk/ volatility associated with equities.
Equity Premium: The difference between the expected return from holding stock and from holding riskless bonds.
Equity Trust: Unit Trust invests mainly in equity shares with a component in cash and in fixed interest investment.
Escrow Account: The trust account established by a broker under the provisions of the license law for the purpose of holding funds on behalf of the broker’s principal or some other person until the consummation or termination of a transaction.
Ethical Investment: Term gave to an investment philosophy focusing on investing in companies according to non-economic criteria such as ethical or religious beliefs.
Evening up: Buying or selling to offset an existing market position, long or short.
Exhaustion (TA): A state in which buying power is no longer enough to move prices up or when selling power is no longer enough to move prices down.
Exchange rate risk: Risk arising out of unfavorable foreign exchange rates variation, resulting in losses in assets and an increase in liabilities.
Exotic Options: Generic term for complex financial engineering products created using a combination of basic option contracts.
Exit Strategy (private equity): Method by which venture capitalists realize their original investment — usually by sale or flotation.
Expected Return: Statistical measure of the average future return from an asset or portfolio. Often an asset with a higher expected return will also have a higher standard deviation of return. (See also mean, the standard deviation of return.) expiry date Last date on which an option can be exercised.
Extrinsic Value: The amount by which the market price of an option exceeds the amount that could be realized if the option were exercised and the underlying commodity liquidated. Also known as time value.
Exim Bank: Export-Import Bank which finances export and import operations.
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