Financial Terms Dictionary - Letter E

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E-wallet

An e-wallet, or digital wallet, is an electronic device or online service that allows individuals to make electronic transactions. This can include purchasing items online with a computer or using a smartphone to purchase something at a store.Learn more

Earnings before interest, taxes, and depreciation

Earnings before interest, taxes, depreciation and amortisation, also known as EBITDA, is a widely-used earnings metric that assesses a company’s operating performance by excluding non-operating costs like interest, taxes, depreciation, and amortisation from net income.

Earnings call

An earnings call is a conference call between the management of a public company, analysts, investors, and the media to discuss the company’s financial results including revenue, earnings, and outlook.

Earnings Estimate

An earnings estimate represents analysts' consensus on the expected earnings per share (EPS) for a company in an upcoming reporting period, guiding investors on the company’s potential profitability.

Earnings guidance

Earnings guidance is a statement issued by a company's management about expected future profits or losses, intended to provide analysts, traders and investors with a framework to gauge the company’s financial health.

Earnings Response Coefficient

The earnings response coefficient (ERC) measures how much a company's stock price responds to unexpected earnings announcements, indicating the degree to which earnings information is reflected in the company's stock price.

East India Stock Dividend Redemption Act 1973

The East India Stock Dividend Redemption Act was historically associated with the management and redemption of stocks related to the East India Company, a pivotal entity in the British colonial period.

EBID

Earnings before interest and taxes, or IBID describes a post-tax measure of a company's operating performance. You can work out a company's EBID from its income statement.Learn more

EBITDA

EBITDA, or earnings before interest, taxes, depreciation and amortisation, is a common metric for earnings relating to a company’s operating performance. It excludes non-operating costs such as interest, taxes, depreciation, and amortisation from net income.

Economic Capital

Economic capital refers to the amount of risk capital that a company estimates it will need to cover potential losses from unforeseen risks, ensuring it remains solvent.

Economic Value Added

Economic value is the measurement of the benefit provided by a good or service in the context of its ability to meet the needs and wants of a consumer.

Economics

Economics is a discipline that studies how people and societies choose to allocate scarce resources, incorporating how goods and services are produced, distributed and consumed, as well as the supply and demand forces that dictate their price patterns.Learn more

Economies of Scale

Internal economies of scale can describe a company's cost advantage of buying or producing something in bulk. Economies of scale are broken into two main definitions: external economies of scale, which arise from other factors such as industry size and internal – coming from within the company itself.

Effective annual rate (EAR)

The effective annual rate (EAR) formula calculates the annual return on an investment considering the effects of compounding interest, providing a clearer picture of the financial benefits across different investment options.

Efficiency Ratio

In banking, the efficiency ratio is an indicator of the bank’s overhead as a proportion of its revenue. A lower ratio means greater efficiency.

Efficient Market Hypothesis (EMH)

The efficient market hypothesis, or EMH, postulates that share prices fully reflect all available information, suggesting that stocks always trade at their fair value, making it impossible for traders and investors to either purchase undervalued stocks or sell stocks for inflated prices.

Electronic communication network

An electronic communication network, or ECN, is a computerised system that automatically matches buy and sell orders for securities in the financial markets, providing an alternative to traditional stock exchanges.

Electronic trading

Electronic trading uses computer technology to bring buyers and sellers together in financial markets, rather than trading via human negotiation. It allows for faster, more efficient, and often more cost-effective trading.Learn more

Endogenous risk

Endogenous risk arises from the interactions within a financial system, where actions by market participants affect others' strategies and risks, leading to feedback loops that can amplify systemic risk.

Endowment Fund

An endowment fund is a financial asset, typically established by a foundation, non-profit, or educational institution, where funds are invested to generate earnings. The earnings are used for specific purposes as per the fund’s guidelines.

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Energy Crisis

An energy crisis may happen when there is a severe shortfall in the supply of energy sources to an economy, often leading to soaring energy prices and economic disruption.

English auction

An English auction is a public sale method where items are sold to the highest bidder. Bidders openly bid against one another, with each subsequent bid higher than the previous, and the highest final bid wins the item.

Enterprise Risk Management

Enterprise risk management involves identifying, assessing, and preparing for potential threats that may hinder an organisation's ability to achieve its objectives. ERM aims to manage risk across an enterprise with an integrated and holistic approach.

Enterprise Value

Enterprise value is a measure of a company's total value, often used as a more comprehensive alternative to market capitalisation. It includes the market cap plus net debt, minority interest, and preferred shares, minus total cash and cash equivalents.

Entropic risk measure

An entropic risk measure is a type of risk assessment used in finance that applies the concept of entropy to measure the uncertainty or the time value of money in risky investments.

Entropic value at risk

Entropic value at risk (EVaR) is a risk management technique that provides a probabilistic forecast of a portfolio's worst-case scenario under normal market conditions using entropy as a measure of risk.

Equation of exchange

The equation of exchange, represented as MV = PQ, relates the money supply and the velocity of money to the price level and the volume of transactions. It is a fundamental principle in monetary economics.

Equifax

Equifax is a major credit reporting agency that collects and aggregates information on over 800 million individual consumers and more than 88 million businesses worldwide. It provides credit reports and scores used for financial decisions.

Equity

Equity, in reference to the ownership of an asset, refers to the amount of money the owner of an asset would have after it was sold and any debts associated with it were paid off. Learn more

Equity carve-out

An equity carve out occurs when a company decides to sell a portion of a subsidiary or division as an initial public offering, while retaining control over the rest.

Equity firm

An equity firm is an investment firm that invests in companies primarily through equities or shares, often managing portfolios of equity investments in various sectors.

Equity premium puzzle

The equity premium puzzle refers to a phenomenon where observed returns on stocks over the long run are higher than expected when compared to risk-free assets, defying traditional financial theories.

Equity ratio

The equity ratio measures the proportion of the total assets that are financed by shareholders' equity, as opposed to being financed by debt. It indicates the level of leverage and financial stability of a company.

Equity Risk

Equity risk is the risk inherent in investing cash in a company's stock, as opposed to investments considered lower risk, such as government bonds.Learn more

Equity shares

Equity shares represent the ownership in a company and entitle the shareholders to an equal distribution in any profits, if declared, in the form of dividends, and voting rights in company decisions.

Equity stake

An equity stake refers to a shareholder's ownership in a business, which is often expressed as a percentage. Those holding an equity stake often have a say in how a company is run and, in some cases, even vote on important matters such as electing board members or making major business decisions.

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Equity valuation

The concept of equity in finance refers to the ownership value in a firm, represented by the shares issued by the company. It is the amount that shareholders would receive after debts are paid off if the company's assets were liquidated.

Equity-linked note

An equity-linked note, or ELN, is a debt instrument that allows a borrower to raise funds by promising to repay a lender in a timeframe agreed by contract. ELNs are linked to the performance of an underlying equity index or individual stock.Learn more

ERC-20

ERC20 is a protocol standard that defines certain rules and standards for issuing tokens on Ethereum's network, facilitating the implementation of new tokens with interoperability across the platform.

Erie War

The Erie War was a 19th-century conflict between powerful rail investors, including Cornelius Vanderbilt and Daniel Drew, over the control of the Erie Railway Company. It was marked by backroom deals and legal battles.

ESG Quant

ESG Quant refers to quantitative analysis that integrates environmental, social, and governance (ESG) data into the investment process, with the aim to identify risks and opportunities not captured by traditional financial analysis.

Ethereum Virtual Machine (EVM)

The Ethereum virtual machine is the computation engine of Ethereum, acting as a decentralised computer that executes smart contracts. It allows developers to run scripts using an international network of public nodes.

Euro money market

The euro money market is a financial market where financial instruments with high liquidity and very short maturities are traded. It is an important source of short-term funding for banks, with transactions denominated in euros.

Euro Stoxx 50 Index

The Euro Stoxx 50 is a stock index of eurozone stocks designed to provide a blue-chip representation of sector leaders in the eurozone. It covers 50 stocks from eurozone countries and can be traded on the Capital.com platform via our EU Stocks 50 market.Learn more

Eurodollars

Eurodollars are US dollar-denominated deposits at foreign banks or foreign branches of American banks, thereby not subject to US banking regulations.

Euronext

Euronext is a pan-European stock exchange seated in Amsterdam, Brussels, London, Lisbon, Dublin, and Paris. It provides a broad range of services, including shares and derivatives trading, listing market data, custody, and settlement services.

European Depositary Receipts (EDRs)

A European depositary receipt, or EDR, is a negotiable financial instrument issued by a bank that represents a specified number of shares in a foreign company traded on a local stock exchange. EDRs allow investors to hold shares in equity of foreign companies and trade them locally.

European Securities and Markets Authority

The European Securities and Markets Authority, or ESMA, is an independent EU authority that contributes to safeguarding the stability of the European Union's financial system by enhancing the protection of investors and promoting stable and orderly financial markets.

Eurozone

The eurozone comprises European Union countries that have adopted the euro as their primary currency, witht he intention of facilitating easier trade and economic policy coordination among member countries.

EV/GCI

EV /GCI is a metric used to value a business. It stands for enterprise value/gross cash invested. It’s an advanced valuation technique that compares the value of assets on a company's balance sheet with their current market value.

EV/Sales

The EV/sales ratio is a financial metric that compares the enterprise value of a company to its annual sales. It helps traders and investors determine how much the market is willing to pay per pound of sales.

Event-driven investing

Event-driven investing is a strategy focusing on exploiting stock pricing inefficiencies that may occur before or after a significant event, such as mergers, acquisitions, or corporate restructurings.

Exchange

A stock exchange is a regulated marketplace where securities such as stocks and bonds are bought and sold. It provides a platform for issuers to raise capital and for investors to trade securities.

Exchange rate risk

Exchange rate risk or currency risk arises from the change in the price of one currency against another. Investors or firms engaged in international business face exposure to potential losses due to fluctuations in the currency exchange rate.

Exchange traded fund (ETF)

An ETF, or exchange-traded fund, is a type of tradeable security that comprises a basket of assets, such as commodities or shares, and is a way of taking a position and gaining exposure on a wider range of markets in one transaction.

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Exchange traded note (ETN)

An ETN, or exchange-traded note, is a type of unsecured debt security that tracks an underlying index of securities and trades on a major exchange like a stock. ETNs pay a return based on the performance of a market index minus administrative fees, with the payment at maturity.

Exchange traded products (ETP)

Exchange traded products, or ETPs, comprise a family of securities that are traded on stock markets just like a common share and are traded intraday. Generally, ETPs are created in order to track a financial instrument, whether a share-price index, a currency, a commodity or an interest rate. The best-known ETPs are exchange-traded funds or ETFs.Learn more

Exclusivity

Exclusivity is a term used in the sale of a business. It refers either to an agreement that the broker who introduced the buyer to the seller has the right to be paid a success fee or to an agreement that the seller cannot look for an alternative buyer once the sale is agreed.

Exercised option

An exercised option refers to when a person holding an option decides to buy or sell the underlying shares from the option’s issuer at a predetermined price.

Expansion Option

In finance, an expansion option is a type of option that reflects opportunities or options that a business may or may not choose to realise depending upon the surrounding circumstances.

Expectations hypothesis

The expectation hypothesis in finance suggests that the long-term interest rates can predict future short-term interest rates. It is often applied to bond yields in the Treasury market.

Expected loss

Expected loss is calculated in risk management by multiplying the potential loss amount by the probability of the loss occurring. It provides a basis for financial institutions to set aside capital against potential losses.

Expected Monetary Value (EMV)

Expected monetary value, or EVM, refers to a risk management tool that aims to predict the value of future events. The formula used to estimate EMV is the probability of the event occurring multiplied by the expected impact in the likely occurrence of that event.Learn more

Expected return

Expected return refers to the anticipated return on an investment or trade based on the historical rates of return. The expected return is calculated by multiplying the potential outcomes of profit or loss with the probability of these events occurring and then totalling the results.

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Expected shortfall

Expected shortfall (also known as conditional value at risk) is a risk measure that looks beyond the standard value at risk (VaR) to evaluate the tail risk of an investment portfolio.

Expenditure

Expenditure refers to the payment of cash or cash-equivalent for goods or services, or a charge against available funds in settlement of an obligation as evidenced by an invoice, receipt, voucher, or other such document.

Expiration Date

In finance, the expiry date is the date upon which a derivative contract, such as an option or futures contract, expires. After this date, the contract ceases to exist and the right to exercise it no longer exists.

Expire dividend right

Dividend right refers to the entitlement of shareholders to receive declared dividends from a company as long as they own the shares before the ex-dividend date.

Exponential utility

Exponential utility is a type of utility function used in economic models to describe the diminishing marginal utility of wealth, suggesting that as wealth increases, the incremental utility derived from an additional unit of wealth decreases exponentially.

Exposure factor

The exposure factor is a measure used in risk assessment to quantify the percentage of an asset's value that is likely to be lost following a particular risk event.

External Financing

External financing is the process of raising capital through selling shares, bonds, or other instruments, outside of the business's internal operations.

Extreme value theory

Extreme value theory is a branch of statistics dealing with the extreme deviations from the median of probability distributions. It is used to model the risk of extreme, rare events, such as financial crises or natural disasters.