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EAFE – The Europe Australia Far East Index of International equity security performance compiled by Morgan Stanley Capital International.
Earnings – a company’s net income for a given period.
Earnings per Share (EPS) – for a company with a simple capital structure, net income available for common shareholders (that is, after any preferred dividends) divided by the weighted average number of common shares outstanding during the period. For a company with a complex capital structure (one including securities that can convert to common shares), two numbers are calculated. Currently the two numbers are called “basic earnings per share” and “diluted earnings per share.” Before the accounting rules were revised, the two numbers, which were defined slightly differently, were called “primary earnings per share” and “fully diluted earnings per share.” The basic earnings per share is net income available for common shareholders divided by weighted average shares outstanding during the period. Diluted earnings per share is calculated by assuming that all convertible securities, options, and warrants that would be dilutive are converted. The calculation requires adding back to net income the after-tax interest expense on convertible securities, and increasing the number of shares outstanding. If the diluted earnings per share are greater than the basic earnings per share, they are not shown.
Earnings Yield – the ratio of Earnings Per Share after allowing for tax and interest payments on fixed interest debt, to the current share price. The inverse of the Price/Earnings ratio. It’s the Total 12 Months Earnings divided by number of outstanding shares, divided by the recent price, multiplied by 100. The end result is shown in percentage.
EBIT – earnings before net interest expense and taxes.
EBITDA – earnings before interest, taxes, depreciation, and amortization. As the name implies, this figure can be calculated by starting with income before taxes, and adding back net interest expense, depreciation charges, and amortization charges.
EDGAR – Electronic Data Gathering, Analysis and Retrieval. The SEC system for handling documents from reporting companies. Some of the more commonly used filings are as follows:
- Form 10-K (an annual report due 90 days after the end of the fiscal year) for small business, the equivalent is form 10KSB.
- Form 10-Q (a quarterly report due 45 days after the end of the first three fiscal quarters).
- Form 20-F: Annual report of foreign private issuers.
- Schedule 13D – Change in ownership by certain purchasers, e.g. if an entity buys more than 5% of the outstanding shares. Actually, the filing of a 13D may be the first time a takeover target learns that a hostile acquirer is planning a bid.
- Form 8-K: A report of unscheduled material events or corporate changes which could be of importance to the shareholders or to the SEC. Examples include acquisition, bankruptcy, resignation of directors, or a change in the fiscal year.
- DEF 14A: This form is commonly referred to as a “Proxy”. It provides official notification to designated classes of shareholders of matters to be brought to a vote at a shareholders meeting. The proxy includes information about directors and shareholdings of management that are not contained elsewhere.
Efficient Market – a market in which prices always fully reflect all available, relevant information. Adjustment to new information is virtually instantaneous. Finance theory envisions three versions of the efficient market hypothesis. Hypothesis in its “strong form” says all information includes public and non-public information. In its semi-strong form, it says all public information, but not all private information, is reflected in prices. The weak form says all information about past stock prices (i.e. technical information) is immediately and fully reflected in stock prices. As more exceptions to all three forms of the hypothesis have been discovered in recent years, the hypothesis has been undermined.
Enterprise Value (EV) – this concept goes by various names. Others are Firm Value, Total Market Capitalization, and Debt-Adjusted Market Capitalization. It is the market capitalization plus the net debt of the company.
Equities – refer to securities that represent ownership (equity in a company) in other words, stocks.
Equity – ownership in a company or other item, or percentage of ownership. For example: a family with a house worth $300,000 and a $50,000 mortgage has $250,000 in equity in their home.
Equity Options – securities that give the holder the right to buy or sell a specified number of shares of stock, at a specified price for a certain (limited) time period. Typically one option equals 100 shares of stock. See also Index Options.
Equity Risk Premium – the annual rate of return investors expect to receive from the stock market overall, over and above the rate of return expected on risk-free bonds or bills. For the period 1962 through 1998, stocks returned 5.29% more than thirty-year Treasury bonds, for example.
European-Style Option – an option contract that can only be exercised on the expiration date, as distinct from an American-Style option, which can be exercised at any time prior to its expiration date.
Exchange – the marketplace in which shares, options and futures on stocks, bonds, commodities and indices are traded. Principal US stock exchanges are: New York Stock Exchange (NYSE), American Stock Exchange (AMEX) and the National Association of Securities Dealers (NASDAQ)
Ex-Dividend – the first day of trading when the seller, rather than the buyer, of a stock will be entitled to the most recently announced dividend payment. The ex-dividend date is usually four business days before the record date. That is, after and on the ex-dividend date, the buyer or new owner gets the dividend. Before the ex-dividend date, the seller or previous owner gets the dividend. Other things being equal, the stock’s price will trade down by the amount of the dividend on the “ex-date”.
Execution – the process of completing an order to buy or sell securities. Once a trade is executed, it is reported by a Confirmation Report. Settlement (payment and transfer of ownership) for exchange-listed stocks in the US occurs three business days after the trade is executed (the trade date).
Exercise – to implement the right of an option holder to buy (a call) or sell (a put). This means buying the underlying security in the case of a call, or selling the underlying security in the case of a put.
Expense Ratio – the percentage of the assets that were spent to run a mutual fund (as of the last annual statement). This includes expenses such as management and advisory fees, overhead costs and 12b-1 (distribution and advertising) fees. The expense ratio does not include brokerage costs for trading the portfolio, although these are reported as a percentage of assets to the SEC by the funds in a Statement of Additional Information (SAI). Neither the expense ratio nor the SAI includes the transaction costs of spreads, normally incurred in unlisted securities and foreign stocks. These two costs can add significantly to the reported expenses of a fund. The expense ratio is often termed an Operating Expense Ratio (OER).
Expiration Cycle – an expiration cycle relates to the dates on which options on a particular security expire. A given option will be placed in 1 of 3 cycles, the January cycle, the February cycle, or the March cycle. At any point in time, an option will have contracts with 4 expiration dates outstanding, 2 in near-term months and 2 in far-term months.
Expiration Date – the last day (in the case of American-style) or the only day (in the case of European-style) on which an option may be exercised. For stock options, this date is the Saturday immediately following the 3d Friday of the expiration month; however, brokerage firms may set an earlier deadline for notification of an option holder’s intention to exercise. If Friday is a holiday, the last trading day will be the preceding Thursday.