GlossaryG–7economic order quantity (EOQ)
model A common tool used to
estimate the optimal order quantity
for big-ticket items of inventory. It
considers operating and financial
costs and determines the order
quantity that minimises overall
inventory costs.
economic profit A profit that exceeds a
normal, competitive rate of return in
an industry or line of business.
economic value added (EVA) A method
of analysing the value of capital
investments that determines whether
an investment produces net cash flow
sufficient to cover the company’s cost
of capital, calculated as the difference
between net operating profits after
taxes and the cost of funds.economies of scale Relative operating
costs are reduced for merged
companies because of an increase in
size that allows for the reduction or
elimination of overlapping resources.
economies of scope Value-creating
benefits of increased breadth of
operations for merged companies.effective annual rate (EAR) The
annual rate of interest actually paid
or earned, reflecting the impact of
compounding frequency. Also called
the true annual return.
effective borrowing rate (EBR) Generally
determined as the total amount of
interest and fees paid, divided by the
average usable loan amount.
efficient frontier The boundary created
by charting the optimal investment
combinations used to create portfolios
that maximise expected returns for
any level of expected risk, or that
minimises expected risk for any level
of expected return.efficient markets hypothesis
(EMH) Asserts that financial asset
prices rapidly and fully incorporate
new information.electronic bill presentment and payment
(EBPP) A collection system in the
business-to-consumer market under
which consumers are sent bills in an
electronic format and can pay them
via electronic means.
electronic depository transfer
(EDT) The term used in the cash
management trade for an automated
clearinghouse (ACH) debit transfer.
electronic invoice presentment and
payment (EIPP) A collection system
in business-to-business transactions
under which business customers are
sent bills in an electronic format and
can pay them via electronic means.
employee stock ownership plan
(ESOP) The transformation of a
public corporation into a private
company by the employees of the
corporation itself.
enterprise value The total value of the
company (including debt, equity, and
other securities) that would need to
be purchased to control the whole
target entity.
entrepreneurial finance Focuses on
the special challenges and problems
associated with the investment in and
financing of risky businesses, typically
startups.
entrepreneurial growth companies
(EGCs) Typically high-risk,
technology-based start-ups that
are commonly funded by venture
capitalists.
equipment trust certificate A bond
often secured by various types of
transportation equipment.
equity capital An ownership interest
purchased by an investor, usually
in the form of ordinary or preferred
shares, that is expected to remain
permanently invested.
equity capital market (ECM) This refers
to the market for raising equity capital.
Financial institutions providing ECMservices in Australia will often have
separate divisions or teams focusing
purely on these services, rather
than covering both debt and equity
markets. Some broking firms get
involved in this market.
equity carve-out (ECO) Occurs when
a parent company sells shares of a
subsidiary corporation to the public
through an initial public offering.
equity claimants Owners of a
company’s equity securities.
equity kickers Warrants attached to
another security offering (usually
a bond offering) that give investors
more upside potential.
equity multiplier A measure of the
proportion of total assets financed by
a company’s equity. Also called the
assets-to-equity (A/E) ratio.
equivalent annual cost (EAC)
method Represents the annual
expenditure over the life of each asset
that has a present value equal to the
present value of the asset’s annual
cash flows over its lifetime.
euro The currency used throughout
the countries that make up the
European Union.
Eurobond A bond issued by an
international borrower and sold to
investors in countries with currencies
other than the currency in which the
bond is denominated.
Eurocurrency loan market A large
number of international banks that
stand ready to make floating-rate,
hard-currency loans to international
corporate and government borrowers.
European call option An option that
grants the right to buy the underlying
asset only on the expiration date.
exchange rate The price of one
currency in terms of another currency.
exchangeable bonds Bonds issued by
corporations that may be converted