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E – I


EBITDA (Earning before interest, tax, depreciation and amortisation)

It is calculated by taking the pre-tax profit of a company and adding back total interest charges paid on debt, depreciation and amortisation.

Economically feasible

Where the benefits and activity are greater than the cost of implementing it.

Earning power

An assessment of the future profitability of a company based on its discounted present value.

Economic book value

An analysis where company assets are adjusted to match their market value.

Economic entity

In terms of accounting this refers to a method that enables accountants to gain a ‘point of view’ on the different economic events that have influenced their recorded financial records.

Effective tax rate

Calculated as tax liability divided by taxable income.

Efficient portfolio

Portfolio that provides the greatest expected return for a given level of risk, or the lowest risk for a given expected return.

Economic life

See ‘useful economic life’.

Efficient market theory

Theory that states the current price of a share reflects all known information about the company and its future earnings potential, and therefore that is it impossible to beat the market consistently.

Emerging markets

The stock markets of countries which have a low per head income compared with the developed world.

EGM (Extraordinary general meeting)

Special meeting of a company and its shareholders that can be called by company directors or anyone with at least 10% of the voting rights.

EIS (Enterprise Investment Scheme)

Tax incentive scheme designed to encourage investors to invest in qualifying unquoted companies by offering certain tax reliefs.

Entrepreneurs relief

Introduced on 6 April 2008 allowing relief to be claimed on the first £1 million of gains made on the disposal of all or part of a business, or a disposal of a business’s assets after a business has ceased.


Total remuneration of an employee or director which includes salary and bonuses.

Enterprise zone

Region in which businesses receive special tax advantages as an incentive to set up business there.

Excise duty

Tax levied on certain products, including alcohol and tobacco, which are produced in the UK.

Ex dividend

Purchase of shares without entitlement to recently declared dividends.

Ex rights

Purchase of shares without entitlement to current rights issues.

Exceptional item

Costs which materially affect a company’s results which are associated with normal activities.

Exempt items (VAT)

Goods and services that are not taxable for VAT. Sale or supply of exempt items prevents an individual or company registering for VAT. Sale or supply of some exempt items and some VATable items means the business is partially exempt and will only be able to reclaim VAT related to the VATable items sold.

Exit strategy

The termination of an individual’s ownership of a business or part of a business’s operation, usually with the aim of recouping the original investment or realising a gain.

Exercise price

Price at which an option or warrant holder can buy or sell the underlying instrument

Extraordinary item

Costs which materially affect a company’s results which are associated with non-recurring events and not arising from normal activities.


In accounting a seperate economic unit that is subject to financial measurements i.e. corporation, partnerships and trusts.


Fair value

Refers to a current valuation, as opposed to the historic cost, derived either from a market value or by a calculation of the present value.

Forensic Accounting

The application of accounting facts gathered through auditing methods and procedures to resolve legal problems.


The sale of debts to a third party in return for an upfront payment. Receipts will usually be less than the original debt, the difference being held by the “factoring” company (usually a bank) as a margin of safety for security.


An individual/institution responsible for holding and managing the assets and interests of another, for example a guardian, trustee or administrator.

Financial intermediaries

Name given to institutions such as banks and building societies.

Financial statement

A report that contains key financial information about a business.Standard statements will include a Balance Sheet, Profit and Loss Account, and Cash Flow Statement.

Fixed assets

Assets likely to be used by a business for more than a year to generate profits and can include land, property and equipment.

Financial institution

An institution that accepts funds from the public and reinvests in financial assets, e.g. bank deposits and stocks.

Fixed overhead

Include expenses such as rent, utilities and loan repayments that will not tend to change when in line with sales volumes.

FII (franked investment income)

Dividends paid by UK companies to other companies with a tax credit reflecting the fact that the company which has paid the dividend has done so out of post tax profits.

Final dividend

The end of year dividend.


The listing of a companies shares on a stock market, also known as an initial public offering (IPO).

Fiscal policy

The use of spending and taxation by the government in order to achieve its economic objectives.

Fiscal year

12 month period commencing 6th April and ending 5th April the following year.


A licence granted by one company (franchisor) to another company/individual (franchisee), entitling the franchisee to produce/market a product/service in a specific area.

Foreign direct investment

Investment in tangible assets such as land and capital involving cross border flows.

Forward buying contract

Contract between a buyer and a seller agreeing the delivery/provision of a specified amount of a specified asset at a specified future date at a price agreed at the time of the trade.

FRA (Forward Rate Agreement)

An interest rate derivative that allows the interest rate on a short-term loan to be set for a pre-determined period.


The permanent ownership of land or buildings.

Fringe benefits

Benefits to employees additional to salary.

FSA (Financial Services Authority)

The regulating body carrying all regulatory responsibilities for the UK financial services industry.

Futures contract

A legal agreement to make or take delivery of a specified instrument, e.g. a commodity or a bond, at a fixed future date at a price determined at the time of dealing.

Finance Charge

Interest accrued on and fees charged for credit, repressing the total of borrowing.


GDP (Gross domestic product)

The value of all goods and services created within an economy in a given year. It is equal to total consumer and government spending, investment, plus the value of exports, minus the value of imports.

Going concern concept

Presumption made when preparing financial statements that a business will continue to exist for the foreseeable future, usually considered to be a period of one year or greater.


Otherwise known as a gilt edged security, this is a fixed rate bond/security issued by the UK government.


Term used to describe the level of a company’s net debt (net of cash or cash equivalents) compared with its equity capital, usually expressed as a percentage. A heavily geared company has a high proportion of financing from debt, such as bank loans.

GNP (Gross national product)

Equal to GDP plus the income accruing to domestic residents as a result of investments abroad, minus the income earned in domestic markets accruing to foreigners abroad.


The value of a business to a purchaser over and above its net asset value, reflecting the value of intangible assets such as reputation and brand name.


HMRC (Her Majesty’s Revenue & Customs)

The government department responsible for collecting the majority of UK tax revenue, as well as paying tax credits and child benefits.

Human resource accounting

A method of accounting that recognises human resources and presents them on a company’s balance sheet. These can include experience, education and the future earning power of a company.

Holding company

A company controlling one or more other subsidiary companies often by holding the majority of the shares.

Higher rate tax

The highest rate of income tax in the UK which in the 2008/09 tax year is 40%.

Hire purchase

A transaction in which the purchaser of an asset pays an initial deposit and takes possession, and then pays subsequent instalments over a specified time after which ownership passes to the purchaser.

Hostile takeover

A takeover bid for one company by another which is opposed by the directors of the target company.

Holdover relief

Deferral of a capital gains tax liability on a gift by transferring the liability to the recipient. When the recipient sells the gift the full CGT bill will normally fall due and the recipient will have to pay it.


A condition in which prices increase extremely rapidly as a currency loses its value.


Intangible Assets

Assets without physical substance controlled by an entity which provide expected future economic benefits, e.g. goodwill, patents, trademarks and copyrights.


Assets, such as land or property, which cannot be changed or moved.

Implicit cost

Relates to the foregone benefits of any single transaction, for example, the implicit cost of taking a holiday is the wages that would have been earned if the individual had worked instead.

Inheritance tax

Tax levied on the transfer of an individuals estate on his/her death to non-exempt beneficiaries, subject to a nil rate band.

Imprest system

Maintaining a constant cash float. The system ensures greater control over cash expenses as documentation must be made to calculate the balance required for reimbursement. The system is therefore far easier to reconcile.

Inflation accounting

A method of accounting designed to correct problems arising from historical cost accounting in the presence of inflation.

Inflation tax

The hidden cost incurred due to effects of inflation on the value cash balances.


Occurs when an individual or company has insufficient funds to settle debts when they become payable.

*Inland Revenue

A government body that controls the various kinds of taxes that are available including income tax and stamp duties.

Interest payable

Amount a company pays in the form of interest, e.g. on cash borrowings.

Interbank rate

Rate that banks charge each other for loans for periods between one day and several years.

Interest bearing

Term describing securities paying a specified rate of interest in one or a series of payments over its life.

Interest cover

It is calculated by dividing operating profits by net interest payments and compares the interest paid on borrowings, net of interest bearing deposits, with its operating profit, e.g. a low figure means profits are more exposed to rises in the cost of borrowing.

Interest receivable

Amount of income a company receives in the form of interest payments, e.g. on cash.

Interest rate futures

Futures contracts traded on fixed income securities based on the levels of official interest rates.

Interest rate swap

Arrangement in which two parties agree to exchange interest rate flows at agreed intervals over an agreed period, but without any principal being paid.

Interim dividend

The dividend declared part-way through the financial year, before annual earnings are established.


An agent, broker or financial institution that can give advice and act as a middle person between one individual/organisation and another.

Internal rate of return

The interest rate which, when used as the discount rate for a series of cash flows, gives a net present value of zero.


The process of determining a figure or rate that lies between other known data.


A company’s finished goods, work in progress and raw materials.

Investment income

Income, paid from an investment, such as dividends and interest.

ISC (Issued share capital)

Amount of authorised share capital in a company that shareholders have subscribed to own.

IP (Intellectual Property)

Treatment of certain intangible products similarly to physical assets, with the majority of countries granting certain rights, under IP laws, over these intangibles.

IPO (Initial Public Offering)

The first offering of a company’s shares to the public.

ISA (Individual Saving Account)

A financial product designed for the purpose of investment and savings offering favourable tax status.

Issue price

Price at which a company’s shares are offered to the market for the first time.

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