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Financial Glossary – E

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Earnings – the profit that a company generates over a specific period (usually over a quarter (three calendar months) or a year).

Earnings Per Share (EPS) – the amount of profit a company allocates to every outstanding share of common stock. A business’ total profits, minus dividends, divided by the total number of common stock.

EBITDA – an acronym for earnings before interest, taxes, depreciation, and amortization, i.e. Revenue minus Expenses (excl. interest, taxes, depreciation and amortization).

Economic Bubble – also known as a price bubble or a market bubble, an economic bubble happens when securities are traded at much higher prices than what they are intrinsically worth.

Economic Capital – how much risk capital a financial institution should have so that it can survive market or credit shocks. The amount is determined by the company itself or its shareholders.

Economic Cost – the accounting cost plus opportunity cost, i.e. how much doing something costs in money terms, as well as how it compares against doing something else.

Economic Downturn – when the economy contracts or growth slows down, stock market and property prices decline, unemployment rises, borrowing decreases, and companies invest and produce less. Sometimes an economic downturn may be a prelude to a recession.

Economic Geography – a sub-field of Geography and Economics, studies the location, distribution and spatial organization of economic activities across the world.

Economic Globalization – the increasing mobility of capital, goods, services, technology and people internationally. It also refers to a nation’s integration into the global economy. Also known as simply globalization.

Economic Growth – an increase in GDP (gross domestic product) over a given period in a nation or region. When the value of all goods and services produced rises.

Economic Life – the length of time a machine, factory, vehicle or building (an asset) generates more income than it costs to operate and maintain, or before the repair costs become so high so that it should no longer be kept. Also known as depreciable life, useful life or service life.

Economic Model a simplified description of reality. Economic models are either simulations or predictions of what might happen in different scenarios. Specialists who have to present to lay people will use models to make their complicated data easier to understand. Simulations tend to be more accurate that forecasts.

Economic Risk – the likelihood that an investment or company may be disadvantaged by regulatory changes, exchange rate fluctuations, higher taxes, nationalization, or economic sanctions. Economic risk applies to either the domestic or foreign economy, depending on where the investment is done or the company operates.

Economics – the study of the factors that determine the production, distribution and consumption of goods and services. Economics examines how people use scarce resources that have alternative uses.

Economic Sanctions – punitive measures taken against a country to get it to change policy. Actions may include travel bans, arms embargoes, capital restraints, foreign aid reductions, and trade restrictions. The aim may be to resolve a trade dispute, human rights violations, stop a nation getting nuclear weapons, to counter terrorism, cybersecurity, or combat drug barons.

Economic Surplus – also called the Marshallian Surplus or Total Welfare, is the Producer Surplus and Consumer Surplus combined. The Consumer Surplus is the monetary gain obtained by consumers because they were able to buy a product for less than the highest price they would have accepted. The Producer Surplus is the difference between how much a supplier sold a good or service for minus his or her minimum selling price. British economist Alfred Marshall used the three terms in his 1890 book – The Principles of Economics.

Economic System – a system that defines how all the players in an economy interact. It is an organized way in which a nation allocates resources and distributes goods and services. An economic system includes the combination of all the entities, agencies, institutions and decision-making processes and patterns of consumption that constitute the economic structure of a specific community.

Economic Tigers – Singapore, South Korea, Taiwan and Hong Kong; four countries whose economies grew by more than 7% annually from the 1960s to the 1990s. In a few decades they changed from being low-income economies (third world countries) into advanced economies (industrialized nations). Also known as Asian Dragons or Asian Tigers.

Economic Value – the value of an asset calculated according to its ability to generate income. The most a consumer is willing to pay for a good or service.

Economic Value Added – a measure of how well a company has performed in relation to the funds invested in it. If the measure is a positive number, it means the business or project generated more profit from invested capital than how much it had to pay out to get that capital. Also known as economic profit.

Economies of Scale – in microeconomics, it refers to the overall unit costs of production – they go down when production increases, and rise when production declines. With higher production, fixed costs – which remain relatively unchanged – can be spread over a larger number of unit costs. There are internal and external economies of scale. The opposite is diseconomies of scale.

Efficacy – means the same as effectiveness in most cases. Efficacy is the ability to produce an intended or desired result. The term is more commonly used in the world of medicine and pharmacology than business & finance.

Effective Margin – the amount generated from an asset when taking into account the financing costs of a prepayment and interest. It represents potential profits if funds change but income remains the same.

Efficiency – is all about getting the most out of the available resources. Efficient businesses maximize outputs from the inputs they have. Efficiency looks at what is currently being produced and compares that with what could be achieved without changing current resources, such as time, machinery, labor numbers and skills, and money.

Efficient Diversification – refers to the organizing principle of portfolio theory, which attempts to help boost the expected return for a portfolio, given a specified level risk.

Efficient Portfolio – refers to a portfolio that gives the best return given a specific level of risk. The concept was introduced by American economist Harry Max Markowitz in 1952.

Embargo – an order to stop something temporarily, usually trading with a country. An embargo may involve banning ships from a certain country from using your nation’s ports. It can also mean to stop giving information, as in “The police asked for a new embargo while they tried to locate the kidnappers and free the hostages.”

Emerging Markets – the term refers to countries that are neither low-income nations (frontier markets) nor advanced economies. They have a growing industrial base and middle class, high literacy rate, and a young population that wants the same things that the citizens of developed countries want.

Endowment Mortgage – a mortgage which also has a life insurance policy (endowment policy). At the end of the contract the life insurance policy is used to pay off what is owed. This type of loan was popular in the UK and Ireland in the 1980s.

Enterprise – can refer to a skill some humans have to be daring in business and pursue their new ideas, regardless of the risks. An enterprise is also a business. The term can also mean a difficult or important challenge. An enterprising person is called an entrepreneur.

Entity – in business it is anything that is formed and administered, according to commercial law, in order to conduct business, engage in charitable work, or carry out other allowable activities. In lay English, an entity is a real thing, a being, something that exists, a separate being that exists in its own right. For tax purposes, a company is a separate business entity from its human owner(s).

Environmental Factors – all the elements that influence the well-being of a company, including internal and external factors. Internal ones include the quality and attitude of the workforce and the leadership characteristics of the management. External ones include levels and types of competition, technological changes, consumer attitudes, legislation, and the availability or scarcity of certain resources. The term also has scientific, biological and geographical meanings.

Equity Finance – also called equity financing, is a method of raising capital for business expansion by selling partial or complete ownership of the company’s equity. Sometimes the equity is sold in exchange for other assets.

Equity – the value of ownership of an asset after liabilities with that asset are cleared. Equity or shareholders’ equity is equal to the capital in a business. If you own a house worth $200,000 and your outstanding mortgage is $120,000, your equity is $80,000.

Ergonomics – also known as ‘Human Factors’, is concerned with the understanding of interactions among people and other elements of a system, and the profession that applies theory, data, principles, and methods to design in order to optimize human well-being and overall system performance.

ESG (Environmental Social and Governance) – a type of screening done by investors and many portfolio managers today which includes only companies that meet certain criteria related to the environment, society and governance (how the firm polices itself). ESG is a rapidly-growing segment in the world of capital markets, and is expected to continue expanding at an accelerated rate. ESG-screened investments are not, like many people believe, inferior investments that give you a lower-than-average return – in fact, the opposite is frequently the case.

Ethics – the moral principles that govern how we conduct ourselves at work and in our everyday lives. Business ethics, also called corporate ethics, is all about how we perceive and respond to ethical and moral issues. It affects how we deal with customers, other companies, regulations, employees, etc.

European Central Bank (ECB) – the central bank for the euro. it manages the monetary policy of the Eurozone (which has 18 EU member states).

European Investment Bank (EIB) – a European Union financial institution that lends money for infrastructure projects such as tunnels, roads, railways, as well as business development, mainly within the EU (but also outside). It is the largest public lending institution in the world.

Evergreen Loan – a type of loan that goes on and on. The credit facility is repeatedly renewed. The principal does not have to be paid off within a certain period. Also called a revolving loan or standing loan.

Expense – a cost incurred over a specific period which is part of a business’ operating activities. An outflow of money from one person or entity to pay for a good or service. It is a cost that is paid for usually in exchange for something of value.

Expense Ratio – represents a mutual fund’s total operating expenses as a percentage of the average net assets of the fund.

Exports – these are goods and services that are sold by people, businesses and other entities in one country to consumers in another country, i.e. products and services sold abroad. The opposite of exports are imports. Exports and imports form part of international trade. China is the world’s largest exporting nation.

Export Credit Agency (ECA) – a (usually) government-sponsored entity that helps domestic companies export, especially to higher-risk markets such as low income nations and emerging economies. Also known as ECAs, they provide loans, credit insurance and guarantees.