Glossary

Earning power

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

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.

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.

Economic life

See ‘useful economic life’.

Economically feasible

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

Effective tax rate

Calculated as tax liability divided by taxable income.

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.

Efficient portfolio

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

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.

Emerging markets

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

Emoluments

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.

Entity

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

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.

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.

Excise duty

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

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.

Exercise price

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

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.

Extraordinary item

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