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....
Earned Income Credit (EIC)
What is 'Earned Income Credit - EIC' A tax credit in the United States which benefits certain taxpayers who have low incomes from work in a particular tax year. The earned income credit (EIC) reduces the amount of tax owed on a dollar-for-dollar basis, and may result in a refund to the taxpayer if the amount of...
Early Adopter
DefinitionAn early adopter or lighthouse customer is an early customer of a given company, product, or technology. The term originates from Everett M. Rogers' Diffusion of Innovations. Early Adopter What is 'Early Adopter' An individual or business who uses a new product or technology before others. An early adopter is likely to pay more for the product...
Economic Integration
DefinitionEconomic integration is the unification of economic policies between different states through the partial or full abolition of tariff and non-tariff restrictions on trade taking place among them prior to their integration. This is meant in turn to lead to lower prices for distributors and consumers with the goal of increasing the level of welfare, while leading to an...
Enterprise Value
DefinitionEnterprise value, total enterprise value, or firm value is an economic measure reflecting the market value of a business. It is a sum of claims by all claimants: creditors and shareholders. Enterprise value is one of the fundamental metrics used in business valuation, financial modeling, accounting, portfolio analysis, and risk analysis. Enterprise Value Enterprise Value, or EV as it...
Eat Well, Sleep Well
What is 'Eat Well, Sleep Well' An adage that, referring to the risk/return trade-off, says that the type of security an investor chooses depends on whether he or she wants to eat well or sleep well. Explaining 'Eat Well, Sleep Well' Investing in high-risk, high-reward securities will offer you the potential to eat well,...
Each Way
What is 'Each Way' A slang phrase used when a broker earns commissions from both parties in a security sale. The purchaser and the seller of the security will pay a fee to the broker for facilitating the transaction. Explaining 'Each Way' Going each way on a trade is ideal for a broker. When...
Earnings Recast
What is 'Earnings Recast' The act of amending and re-releasing a previously released earnings statement, with specified intent. Some of the most typical reasons for recasting earnings are to show the impact of a discontinued business or to separate out earnings-related events that are deemed to be non-recurring or otherwise non-representative of normal business earnings. Also...