Category: Financial Terms

Economic Recovery — Definition and Overview An economic recovery is the phase that follows a recession when economic activity begins to rebound. During recovery, gross domestic product (GDP) growth resumes, unemployment falls, incomes rise, and business and consumer confidence strengthen. Recovery is the process by which resources and labor released during a downturn are reallocated…

Economic Profit (or Loss) Economic profit is the amount remaining after subtracting both explicit costs (actual cash outlays) and implicit costs (opportunity costs) from a firm’s revenue. It gauges whether a firm’s choices earn more than the next-best alternative. Key takeaways Economic profit = Revenue − Explicit costs − Opportunity costs. Opportunity costs are the…

Economic Order Quantity (EOQ) What EOQ Is Economic Order Quantity (EOQ) is a formula used to find the optimal order size that minimizes the total inventory cost: ordering costs plus holding (carrying) costs. It helps businesses balance how often they place orders against how much stock they keep on hand, reducing cash tied up in…

Economic Life: Definition, Determining Factors, vs. Depreciation What is economic life? Economic life is the period during which an asset remains useful to its owner for its intended purpose. Once an asset no longer provides sufficient utility—because of wear, technological obsolescence, regulatory change, or other reasons—it is considered past its economic life. Economic life can…

Economic Justice Economic justice is the principle that economic institutions and policies should create fair opportunities for everyone to secure a sufficient material foundation for a dignified, productive, and creative life. It links fairness with prosperity: a fairer distribution of opportunity and income can strengthen overall economic health by increasing participation and demand. Key takeaways…

Economic Integration: Definition, Mechanisms, Benefits, Risks, and Examples What is economic integration? Economic integration is the process by which countries reduce or eliminate barriers to trade and coordinate economic policies to increase cross-border economic activity. Integration can range from limited preferential agreements to full harmonization of fiscal and monetary policy, with the goal of lowering…

Economic Indicator: Definition and How to Interpret What is an economic indicator? An economic indicator is a data-driven measurement that reflects the condition, performance, or momentum of an economy or an industry. Analysts, policymakers, investors, and businesses use indicators to assess current economic health and to form expectations about future activity. Common examples include gross…

Understanding Economic Growth Rate: Definition, Measurement, Drivers, and Examples What is the economic growth rate? The economic growth rate is the percentage change in the total value of goods and services produced by an economy over a specific period (typically a quarter or a year). It indicates whether an economy is expanding or contracting and…

Economic Growth What is economic growth? Economic growth is an increase in the production of goods and services in an economy over a period of time. It typically shows up as higher national income and improved material living standards. Growth can be measured in nominal or real terms; the most common indicator is real gross…

Economic Forecasting: Definition, Methods, Uses, and Limits Economic forecasting attempts to predict future conditions of the economy by analyzing a range of indicators and building statistical models. Forecasts typically target headline measures such as quarterly or annual GDP growth, but they also cover inflation, unemployment, interest rates, retail sales, industrial output, and other metrics that…

Economic Exposure Economic exposure (also called operating exposure) is the risk that unexpected fluctuations in exchange rates will change a company’s future cash flows, foreign investments, and earnings. Because it affects long-term competitiveness and market value, economic exposure is a major concern for firms that transact or operate across currencies. Key takeaways Economic exposure arises…

Economic Equilibrium Economic equilibrium is a theoretical condition in which economic forces are balanced so that key variables—most commonly price and quantity—remain stable in the absence of external shocks. In microeconomics this typically means the price at which quantity supplied equals quantity demanded. In macroeconomics it refers to a state where aggregate supply and aggregate…

Economic Efficiency Economic efficiency describes how well an economy, firm, or system uses scarce resources to produce goods and services that maximize value and minimize waste. When resources are used efficiently, output and welfare are as high as possible given available inputs; when they are not, wasted capacity and deadweight losses arise. Key takeaways Economic…

Economic Depreciation What it is Economic depreciation is the decline in an asset’s market value over time caused by economic factors. Unlike accounting depreciation, which follows a predetermined schedule, economic depreciation reflects actual changes in what buyers are willing to pay. It is most commonly discussed for real estate but applies to any asset whose…

Economic Cycle Key takeaways * The economic (or business) cycle is the recurring pattern of expansion and contraction in economic activity. * Four stages define the cycle: expansion, peak, contraction, and trough. * Indicators such as GDP, employment, interest rates, and consumer spending help identify the current stage, but timing is unpredictable. * Policymakers and…

Economic Conditions: Key Indicators and What They Mean What are economic conditions? Economic conditions describe the current state of an economy—nationally or regionally—based on measurable macroeconomic variables. They shift over time with the business cycle and help determine whether an economy is expanding or contracting. Common measures include: * Gross domestic product (GDP) growth *…

Economic Collapse An economic collapse is a severe breakdown of a national, regional, or territorial economy that goes well beyond the normal business cycle. It typically follows—or is triggered by—a major crisis and is marked by a prolonged and deep contraction in output, mass unemployment, widespread breakdowns in market mechanisms, and often a collapse in…

Economic Capital Key takeaways * Economic capital is the amount of capital a firm needs to remain solvent given its specific risk profile. * It is calculated internally—often with proprietary models—and reflects economic realities rather than regulatory formulas. * Economic capital converts a loss distribution into a capital requirement by combining expected losses and a…

Economic Calendar Key takeaways An economic calendar lists scheduled economic releases and events that can move markets. Events typically fall into two categories: forecasts/projections and reports on recent data. Traders and investors use the calendar to time trades, manage risk, and watch for volatility around announcements. Calendars are customizable; build one around the countries, asset…

Econometrics: Definition, Models, and Methods Econometrics applies statistical and mathematical techniques to economic and financial data to test theories, estimate relationships, and forecast future trends. It combines economic reasoning with statistical inference to turn real-world data into actionable insights. Key takeaways Uses regression models, hypothesis testing, and time-series analysis to quantify economic relationships. Common applications…

What Is an ECN Broker? An ECN (electronic communications network) broker provides clients with direct access to financial markets by connecting them to an electronic communications network. Instead of routing orders through market makers or trading against clients, an ECN broker matches buy and sell orders between market participants and passes them to liquidity providers….

Eclectic Paradigm (OLI Framework) The eclectic paradigm, or OLI framework, is a decision tool companies use to evaluate foreign direct investment (FDI). It helps determine whether expanding operations abroad — through subsidiaries, joint ventures, or other modes — will create more value than keeping activities domestic or using local partners. Key takeaways The OLI framework…

eCash: Overview, Technology, and Legacy Key takeaways * eCash was an early digital cash system designed to enable anonymous electronic payments. * Created by cryptographer David Chaum and launched through his company DigiCash in 1990, it used blind signatures to unlink withdrawals from spending. * Despite interest from major banks and a pilot at Mark…

EBITDAR: Meaning, Formula, Example, Pros & Cons What is EBITDAR? EBITDAR stands for Earnings Before Interest, Taxes, Depreciation, Amortization, and Restructuring or Rent costs. It is a non-GAAP profitability metric used to isolate a company’s core operating performance by excluding financing, tax, non-cash, and certain one‑time or location-dependent costs. Companies commonly using EBITDAR include restaurants,…

EBITDA-to-Sales Ratio (EBITDA Margin) What it is The EBITDA-to-sales ratio, often called EBITDA margin, measures how much of each dollar of net sales remains as earnings before interest, taxes, depreciation, and amortization (EBITDA). It gauges operational profitability and how efficiently a company converts revenue into operating earnings. Formula EBITDA margin = EBITDA / Net sales…

EBITDA-to-Interest Coverage Ratio: What it Is and How to Use It The EBITDA-to-interest coverage ratio measures a company’s ability to meet interest payments from its operating cash earnings. It uses EBITDA (earnings before interest, taxes, depreciation, and amortization) instead of EBIT to focus on cash-generation potential rather than accounting profit. A higher ratio indicates greater…

Understanding the EBITDA/EV Multiple: Definition & Key Examples The EBITDA/EV multiple measures a company’s cash return on investment by comparing its operating earnings to its enterprise value. It shows how much operating cash (EBITDA) a business generates relative to the total value of the firm (EV). Expressed as a ratio or percentage, it’s useful for…

EBITDA Margin What it is EBITDA margin measures a company’s operating profitability as a percentage of revenue. EBITDA stands for earnings before interest, taxes, depreciation, and amortization. By removing non-operating items and non-cash charges, the EBITDA margin highlights core operating performance and cash-generation potential. Formula and example EBITDA margin = EBITDA / Revenue Explore More…

EBITA (Earnings Before Interest, Taxes, and Amortization) Key points EBITA is a non-GAAP measure of profitability that adds back interest, taxes, and amortization to net earnings. It can help compare operating performance across companies by removing financing, tax, and certain accounting effects. Use caution: EBITA excludes real costs (interest, taxes, amortization) and is not standardized,…

EBIT/EV Multiple: Definition, Formula, Benefits, Example What is the EBIT/EV multiple? The EBIT/EV multiple (also called EBIT-to-enterprise-value) is a valuation ratio that expresses a company’s earnings yield. It divides operating earnings (EBIT — earnings before interest and taxes) by enterprise value (EV). A higher EBIT/EV indicates a higher earnings yield and, all else equal, a…

Eavesdropping Attack: Definition, How They Work, and Prevention What is an eavesdropping attack? An eavesdropping attack (also called sniffing or snooping) is the interception and theft of information while it is being transmitted over a network. Attackers exploit unsecured or weakened communications to capture data sent or received by computers, smartphones, or other connected devices….

Easement in Gross An easement is a legal right allowing someone to use another person’s land for a specific purpose. An easement in gross (sometimes called a personal easement) grants that right to an individual or entity rather than to another parcel of land. It is a personal interest in the servient property and typically…

Earnout What is an earnout? An earnout is a contractual provision in a business sale that makes part of the purchase price contingent on the business achieving specified future performance targets. Instead of one lump-sum payment, the buyer pays an upfront amount and additional payments only if agreed metrics—such as revenue, gross sales, net income,…

Earnings Yield Key takeaways Earnings yield = 12-month earnings per share (EPS) ÷ current share price. It is the inverse of the P/E ratio: Earnings yield = 1 ÷ (P/E). Useful for comparing stock returns to bond yields and for spotting potentially undervalued or overvalued stocks. Must be interpreted alongside growth prospects, earnings quality, and…

Quarterly Earnings Releases A quarterly earnings release is a company-issued summary that highlights financial results for a three-month period. Issued as a press release (not a required SEC filing), it summarizes revenue, profits, earnings per share (EPS), and often includes management commentary and outlooks intended for shareholders, analysts, and investors. Key takeaways Public companies commonly…