Income From Salary: Amendments and Important Notes

 Budget 2019 (Major Amendments)

(Applicable for Assessment Year 2020-2021)

1. Standard Deduction for salaried persons raised from Rs. 40,000 to Rs. 50,000 [u/s 16(ia)]
2. Individuals having taxable income upto Rs. 5,00,000 to get a full rebate of the tax i.e upto Rs. 12,500 [u/s 87A]
3. TDS threshold on interest on bank and post office deposits raised from Rs. 10,000 to Rs. 40,000 [u/s 80TTA] (As per Budget 2019). But currently, it is 10,000 only
4. Capital Gain Exemption now available on the purchase of two house properties (once in a lifetime) [u/s 54] (*conditions apply). 

* Basic conditions for point 4

1. The following conditions should be satisfied to claim the benefit of section 54.

   • The benefit of section 54 is available only to an individual or HUF.
   • The asset transferred should be a long-term capital asset, being a residential house property.
   • Within a period of one year before or two years after the date of transfer of the old house, the taxpayer should acquire another residential house or should construct a residential house within a period of three years from the date of transfer of the old house. In the case of compulsory acquisition, the period of acquisition or construction will be determined from the date of receipt of compensation (whether original or additional).

   An exemption can be claimed only in respect of one residential house property purchased/constructed in India. If more than one house is purchased or constructed, then exemption under section 54 will be available in respect of one house only. No exemption can be claimed in respect of the house purchased outside India.

Notes: Income from Salary

Short Notes on Income from the Head Salary (click here)

Difference between Tax Impact and Tax Incidence (Interview Question)

 Impact and Incidence of Taxation

There is a critical and thin line of difference between tax incidence and tax impact, meaning of both is not tough to understand but many interviewers ask this question to know the basic and small concept of taxation. People prepare tough questions and miss the small but crucial concept which is the base of any subject. let's look at the concept of both one by one:

Tax Impact

1. It expresses the immediate result of or original imposition of the tax. For more  clarity, it is the Initial burdon of the tax

2. Impact occurs at the point of imposition

3. Impact of a tax falls upon the person from whom the tax is collected

4. The impact may be shifted

Tax Incidence

1. It refers to the location of the ultimate or the direct money burden of the tax. For more clarity, it is the ultimate burden of the tax

2. Incidence occurs at the point of settlement

3. Incidence rests on the person who pays it eventually

4. Incidence cannot be shifted.

For better understanding lets go through with example:

Suppose excise duty imposed on the soap. Its impact is on the producer in the initial as they are liable to pay excise duty to the government. But, the producer collects it from customers by raising the price of soap. It this case customer eventually pay tax and therefore incidence falls upon them

Auditing Short Notes (Study Material)

Auditing Notes for B.Com. (P/H)  

Introduction of Auditing:

According to ICAI “An audit is an independent examination of financial information of any entity, whether profit-oriented or not, Irrespective of its size or legal form, When such an examination is conducted with a view to expressing an opinion thereon.”

Company Audit / Audit of Joint Stock Company (Video Lectures)

• Introduction of Auditing
• Qualifications and Disqualifications of an Auditor
• Appointment of an Auditor 
• Duties of an Auditor 
• Rights/Powers of an Auditor 
• Provisions Relating to Company Audit 

Study Material

• Part I (Introduction, Types, Vouching and Verification) 
• Part 2 (Company Audit)

Important Finance Terminologies (V-Z)

Important Finance, Accounts and Economics Terminologies

 

What Is Valuation

Valuation is the analytical process of determining the current (or projected) worth of an asset or a company. There are many techniques used for doing a valuation. An analyst placing a value on a company looks at the business's management, the composition of its capital structure, the prospect of future earnings, and the market value of its assets, among other metrics.

What Is a Value Chain

A value chain is a business model that describes the full range of activities needed to create a product or service. For companies that produce goods, a value chain comprises the steps that involve bringing a product from conception to distribution, and everything in between—such as procuring raw materials, manufacturing functions, and marketing activities.

What Is a Value-Added Tax (VAT)

A value-added tax (VAT) is a consumption tax placed on a product whenever value is added at each stage of the supply chain, from production to the point of sale. The amount of VAT that the user pays is on the cost of the product, less any of the costs of materials used in the product that have already been taxed.

What Is Variability

Variability, almost by definition, is the extent to which data points in a statistical distribution or data set diverge—vary—from the average value, as well as the extent to which these data points differ from each other. In financial terms, this is most often applied to the variability of investment returns. Understanding the variability of investment returns is just as important to professional investors as understanding the value of the returns themselves. Investors equate a high variability of returns to a higher degree of risk when investing.

What Is a Variable Cost

A variable cost is a corporate expense that changes in proportion to production output. Variable costs increase or decrease depending on a company's production volume; they rise as production increases and fall as production decreases. Examples of variable costs include the costs of raw materials and packaging.

What Is Variance

Variance (σ²) in statistics is a measurement of the spread between numbers in a data set. That is, it measures how far each number in the set is from the mean and therefore from every other number in the set.

What is Velocity of Money

The velocity of money is a measurement of the rate at which money is exchanged in an economy. It is the number of times that money moves from one entity to another. It also refers to how much a unit of currency is used in a given period of time. Simply put, it's the rate at which consumers and businesses in an economy collectively spend money. The velocity of money is usually measured as a ratio of gross domestic product (GDP) to a country's M1 or M2 money supply.

What is Venture Capital

Venture capital is a form of private equity and a type of financing that investors provide to startup companies and small businesses that are believed to have long-term growth potential. Venture capital generally comes from well-off investors, investment banks and any other financial institutions. However, it does not always take a monetary form; it can also be provided in the form of technical or managerial expertise. Venture capital is typically allocated to small companies with exceptional growth potential, or to companies that have grown quickly and appear poised to continue to expand.

What Is Vertical Analysis

Vertical analysis is a method of financial statement analysis in which each line item is listed as a percentage of a base figure within the statement. Thus, line items on an income statement can be stated as a percentage of gross sales, while line items on a balance sheet can be stated as a percentage of total assets or liabilities, and vertical analysis of a cash flow statement shows each cash inflow or outflow as a percentage of the total cash inflows.

What Is Vertical Integration

Vertical integration is a strategy whereby a company owns or controls its suppliers, distributors, or retail locations to control its value or supply chain. Vertical integration benefits companies by allowing them to control the process, reduce costs, and improve efficiencies. However, vertical integration has its disadvantages, including the significant amounts of capital investment required.

What is Volatility

Volatility is a statistical measure of the dispersion of returns for a given security or market index. In most cases, the higher the volatility, the riskier the security. Volatility is often measured as either the standard deviation or variance between returns from that same security or market index.

What Is Virtual Currency

Virtual currency is a type of unregulated digital currency that is only available in electronic form. It is stored and transacted only through designated software, mobile or computer applications, or through dedicated digital wallets, and the transactions occur over the internet through secure, dedicated networks. Virtual currency is considered to be a subset of the digital currency group, which also includes cryptocurrencies, which exist within the blockchain network.

What is a Vulture Capitalist

A vulture capitalist is an investor who buys up distressed companies in order to turn them around so he can sell them at a profit. Vulture capitalists are often criticized because of their aggressive behavior. 

What is a Vanilla Option

A vanilla option is a financial instrument that gives the holder the right, but not the obligation, to buy or sell an underlying asset at a predetermined price within a given timeframe. A vanilla option is a call or put option that has no special or unusual features. Such options are standardized if traded on an exchange such as the Chicago Board Options Exchange. 

What Is Vendor Financing

Vendor financing is a financial term that describes the lending of money by a vendor to a customer who uses that capital to purchase that specific vendor's product or service offerings. Sometimes called "trade credit," vendor financing usually takes the form of deferred loans from the vendor. It may also include a transfer of stock shares from the borrowing company to the vendor. Such loans typically carry higher interest rates than those associated with traditional bank loans.

What Is a Waiver of Subrogation

A waiver of subrogation is a contractual provision whereby an insured waives the right of their insurance carrier to seek redress or seek compensation for losses from a negligent third party. Typically, insurers charge an additional fee for a waiver of subrogation endorsement. Many construction contracts and leases include a waiver of subrogation clause.

What Is Wall Street

Wall Street is a street located in the lower Manhattan section of New York City and is the home of the New York Stock Exchange or NYSE. Wall Street has also been the historic headquarters of some of the largest U.S. brokerages and investment banks.

What Is a War Bond

A war bond is a debt security issued by a government to finance military operations during times of war or conflict. Investment in War Bonds was made through an emotional appeal to patriotic citizens to lend the government money as these bonds offered a rate of return below the market rate.

What is a Warrant

Warrants are a derivative that give the right, but not the obligation, to buy or sell a security—most commonly an equity—at a certain price before expiration. The price at which the underlying security can be bought or sold is referred to as the exercise price or strike price. An American warrant can be exercised at any time on or before the expiration date, while European warrants can only be exercised on the expiration date. Warrants that give the right to buy a security are known as call warrants; those that give the right to sell a security are known as put warrants. 

What Is Wealth Management

Wealth management is an investment advisory service that combines other financial services to address the needs of affluent clients. It is a consultative process whereby the advisor gleans information about the client's wants and tailors a bespoke strategy utilizing appropriate financial products and services.

What Is a Weighted Average

Weighted average is a calculation that takes into account the varying degrees of importance of the numbers in a data set. In calculating a weighted average, each number in the data set is multiplied by a predetermined weight before the final calculation is made.

What Is Weighted Average Cost of Capital – WACC

The weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is proportionately weighted. All sources of capital, including common stock, preferred stock, bonds, and any other long-term debt, are included in a WACC calculation.

What Is White-Collar Crime

White-collar crime is a nonviolent crime committed for financial gain. According to the FBI, a key agency that investigates these offenses, "these crimes are characterized by deceit, concealment, or violation of trust." The motivation for these crimes is to obtain or avoid losing money, property, or services, or to secure a personal or business advantage.

What Is a Wholesale Price Index

A wholesale price index (WPI) is an index that measures and tracks the changes in the price of goods in the stages before the retail level – that is, goods that are sold in bulk and traded between entities or businesses instead of consumers. Usually expressed as a ratio or percentage, the WPI shows the included goods' average price change and is often seen as one indicator of a country's level of inflation.

Although many countries and organizations use WPIs in this way, many other countries, including the United States, use the producer price index (PPI) instead – a similar but more accurately named index.

Fact: Wholesale prices are what retailers pay manufacturers.

 

What Is a Withholding Tax

A withholding tax is an amount that an employer withholds from employees’ wages and pays directly to the government. The amount withheld is a credit against the income taxes the employee must pay during the year. It also is a tax levied on income (interest and dividends) from securities owned by a nonresident alien, as well as other income paid to nonresidents of a country. Withholding tax is levied on the vast majority of people who earn income from a trade or business in the United States.

What Is a Wire Transfer

A wire transfer is an electronic transfer of funds via a network that is administered by hundreds of banks and transfer service agencies around the world. The transfer can also be made in cash at a cash office. Wire transfers allow for the individualized transmission of funds from single individuals or entities to others while still maintaining the efficiencies associated with the fast and secure movement of money. By using a wire transfer, people in different geographic locations can safely transfer money to locales and financial institutions around the globe.

What Is Working Capital

Working capital, also known as net working capital (NWC), is the difference between a company’s current assets, such as cash, accounts receivable (customers’ unpaid bills) and inventories of raw materials and finished goods, and its current liabilities, such as accounts payable. Net operating working capital is a measure of a company's liquidity and refers to the difference between operating current assets and operating current liabilities. In many cases these calculations are the same and are derived from company cash plus accounts receivable plus inventories, less accounts payable and less accrued expenses.

What Is a Work-in-Progress (WIP)

The term work-in-progress (WIP) is a production and supply-chain management term describing partially finished goods awaiting completion. WIP refers to the raw materials, labor, and overhead costs incurred for products that are at various stages of the production process. WIP is a component of the inventory asset account on the balance sheet. These costs are subsequently transferred to the finished goods account and eventually to the cost of sales.

What Is the World Trade Organization (WTO)

Created in 1995, the World Trade Organization (WTO) is an international institution that oversees the global trade rules among nations. It superseded the 1947 General Agreement on Tariffs and Trade (GATT) created in the wake of World War II.

What Was WorldCom

WorldCom was not just the biggest accounting scandal in the history of the United States—it was also one of the biggest bankruptcies of all time. The revelation that telecommunications giant WorldCom had cooked its books came on the heels of the Enron and Tyco frauds, which had rocked the financial markets. However, the scale of the WorldCom fraud put even them in the shade.

KEY TAKEAWAYS

• WorldCom was a telecommunications company that went bankrupt in 2002 following a massive accounting fraud.
• WorldCom remains the biggest accounting scandal in U.S. history as well as one of the largest bankruptcies.
• As a result of the scandal, former CEO Bernard Ebbers was sentenced to 25 years in prison, and former CFO Scott Sullivan was sentenced to five years.

 

What is a Waiver

• A waiver is a legally binding provision where either party in a contract agrees to voluntarily forfeit a claim without the other party being liable.
• Waivers can either be in written form or some form of action.
• Examples of waivers include the waiving of parental rights, waiving liability, tangible goods waivers, and waiver for grounds of inadmissibility.

 

What Is Wealth Tax

• Wealth tax is a tax levied on the value of held assets.
• A wealth tax is applicable to a variety of asset types including cash, bank deposits, shares, fixed assets, personal cars, assessed value of real property, pension plans, money funds, owner-occupied housing, and trusts.
• France, Portugal, and Spain all have wealth taxes.

 

What Is Window Dressing

Window dressing is a strategy used by mutual fund and other portfolio managers near the year or quarter end to improve the appearance of a fund’s performance before presenting it to clients or shareholders. To window dress, the fund manager sells stocks with large losses and purchases high-flying stocks near the end of the quarter. These securities are then reported as part of the fund's holdings.

What Is Winding Up

Winding up is the process of dissolving a company. While winding up, a company ceases to do business as usual. Its sole purpose is to sell off stock, pay off creditors, and distribute any remaining assets to partners or shareholders.

The term is used primarily in Great Britain, where it is synonymous with liquidation.

What Is a Windfall Tax

• A windfall tax is a surtax imposed by governments on businesses or economic sectors that have benefited from economic expansion.
• The purpose is to redistribute excess profits in one area for the greater social good; however, this can be a contentious ideal.
• Some individual taxes, such as inheritance tax or taxes on lottery or game show winnings, can also be construed as a windfall tax.

 

What Is a Write-Off

A write-off is an accounting action that reduces the value of an asset while simultaneously debiting a liabilities account. It is primarily used in its most literal sense by businesses seeking to account for unpaid loan obligations, unpaid receivables, or losses on stored inventory. Generally it can also be referred to broadly as something that helps to lower an annual tax bill.

 What Is Whipsaw

Whipsaw describes the movement of a security when, at a particular time, the security's price is moving in one direction but then quickly pivots to move in the opposite direction. There are two types of whipsaw patterns. The first involves an upward movement in a share price, which is then followed by a drastic downward move causing the share's price to fall relative to its original position. The second type occurs when a share price drops in value for a short time and then suddenly surges upward to a positive gain relative to the stock's original position.

What is a Water ETF

The water ETF is an exchange-traded fund that invests primarily in companies that operate within the purview of water treatment, distribution and sales. This ETF goes beyond the scope of private companies and deals with utility companies and third-party marketers as well.  

Definition of Whisper Stock

Whisper stock is shares in a company that is rumored to be the target of a takeover offer. The reason for the whisper is that any such talk must be kept quiet for one of two reasons. One, if the rumor has some validity, those who believe it will want to act on it before the rumor spreads. Two, if the whispering actually turns out to be true due to a leak of a confidential mergers and acquisition (M&A) transaction, no one wants to be brought in for questioning by the enforcement unit of a regulator or an investigator from the Department of Justice. There may be a surge in trading volume and upward price pressure on shares of a whisper stock. Once that happens and gains wider notice by the market, the stock will no longer be a whisper stock.

What Is a Whistleblower

A whistleblower is anyone who has and reports insider knowledge of illegal activities occurring in an organization. Whistleblowers can be employees, suppliers, contractors, clients, or any individual who becomes aware of illegal business activities. Whistleblowers are protected from retaliation under various programs created by the Occupational Safety and Health Administration (OSHA), Sarbanes Oxley Act, and the Securities and Exchange Commission (SEC). The protection of federal employees is under the Whistleblower Protection Act of 1989.

What is Extensible Markup Language (XML)

Extensible Markup Language (XML) is a flexible markup language for structured electronic documents. Extensible Markup Language (XML) is a programming language commonly used by data-exchange services (like blog feeds) to send information between otherwise incompatible systems. It is readable by both humans and computers and is based on SGML (standard generalized markup language), an international standard for electronic documents. Many other languages, such as RSS and XHTML, are based on XML.

What is a Xenocurrency

Xenocurrency is a currency that circulates or trades in markets outside of its domestic borders. The name derives from the Greek prefix "xeno," meaning foreign or strange. 

Today, use of the term is infrequent, perhaps due to the somewhat negative connotation of the word "Xeno." Xenophobia, for example, means an irrational fear or hatred of foreigners. Foreign currency, therefore, has become the preferred term when referring to a non-domestic currency.

What Is eXtensible Business Reporting Language

XBRL or eXtensible Business Reporting Language is a software standard that was developed to improve the way in which financial data is communicated, making it easier to compile and share this data. Notably, eXtensible Business Reporting Language is an implementation of XML (extensible markup language), which is a specification that is used for organizing and defining data online

What is Yacht Insurance

Yacht insurance is an insurance policy that provides indemnity liability coverage on pleasure boats. Yacht insurance includes liability for bodily injury or damage to the property of others and damage to personal property on the boat. Depending on the insurance provider, this insurance could also include gas delivery, towing and assistance if your boat gets stranded.

What Is a Yankee Bond

A Yankee bond is a debt obligation issued by a foreign entity, such as a government or company, which is traded in the United States and denominated in U.S. dollars.

What Is a Yield

Yield refers to the earnings generated and realized on an investment over a particular period of time. It's expressed as a percentage based on the invested amount, current market value, or face value of the security. It includes the interest earned or dividends received from holding a particular security. Depending on the valuation (fixed vs. fluctuating) of the security, yields may be classified as known or anticipated.

What Is a Yield Curve

A yield curve is a line that plots yields (interest rates) of bonds having equal credit quality but differing maturity dates. The slope of the yield curve gives an idea of future interest rate changes and economic activity. There are three main types of yield curve shapes: normal (upward sloping curve), inverted (downward sloping curve) and flat.

What Is Yield on Cost (YOC)

Yield on Cost (YOC) is a measure of dividend yield calculated by dividing a stock's current dividend by the price initially paid for that stock. For example, if an investor purchased a stock five years ago for $20, and its current dividend is $1.50 per share, then the YOC for that stock would be 7.5%.

What Is a Yield Spread

A yield spread is the difference between yields on differing debt instruments of varying maturities, credit ratings, issuer, or risk level, calculated by deducting the yield of one instrument from the other. This difference is most often expressed in basis points (bps) or percentage points.

What Is Yield To Call

Yield to call (YTC) is a financial term that refers to the return a bondholder receives if the bond is held until the call date, which occurs sometime before it reaches maturity. This number can be mathematically calculated as the compound interest rate at which the present value of a bond's future coupon payments and call price is equal to the current market price of the bond.

What Is Yield to Maturity (YTM)

Yield to maturity (YTM) is the total return anticipated on a bond if the bond is held until it matures. Yield to maturity is considered a long-term bond yield but is expressed as an annual rate. In other words, it is the internal rate of return (IRR) of an investment in a bond if the investor holds the bond until maturity, with all payments made as scheduled and reinvested at the same rate.

What Is Yield Variance

Yield variance is the difference between actual output and standard output of a production or manufacturing process, based on standard inputs of materials and labor. The yield variance is valued at standard cost. Yield variance is generally unfavorable, where the actual output is less than the standard or expected output, but it can be that output expects expectations as well.

What Is a Yuppie

Yuppie is a slang term denoting the market segment of young urban professionals. A yuppie is often characterized by youth, affluence, and business success. They are often preppy in appearance and like to show off their success by their style and possessions.

What Is Zacks Investment Research

Zacks Investment Research is an American company dedicated to the production of independent research and investment-related content. Founded in 1978 by Len Zacks, armed with his PhD from MIT, hit upon a key discovery: Earnings estimate revisions are the most powerful force impacting stock prices.

What Is ZCash

ZCash is a cryptocurrency with a decentralized blockchain that seeks to provide anonymity for its users and their transactions. As a digital currency, ZCash is similar to Bitcoin. Like Bitcoin, ZCash also has an including its open-source code, but their major differences lie in the level of privacy and fungibility that each provides.

What Does Zero-Based Budgeting Mean

Zero-based budgeting (ZBB) is a method of budgeting in which all expenses must be justified for each new period. The process of zero-based budgeting starts from a "zero base," and every function within an organization is analyzed for its needs and costs. Budgets are then built around what is needed for the upcoming period, regardless of whether each budget is higher or lower than the previous one.

What Is a Zero Balance Account (ZBA)

A zero balance account (ZBA) is pretty much exactly what it sounds like: a checking account in which a balance of zero is maintained. When funds are needed in the ZBA, the exact amount of money required is automatically transferred from a central or master account. Similarly, deposits are swept into the master account daily. Corporations sometimes use zero balance accounts to ensure that funds are readily available throughout different departments, to eliminate excess balances in separate accounts, and to maintain greater control over the disbursement of funds.

What Is a Zero-Beta Portfolio

A zero-beta portfolio is a portfolio constructed to have zero systematic risk, or in other words, a beta of zero. A zero-beta portfolio would have the same expected return as the risk-free rate. Such a portfolio would have zero correlation with market movements, given that its expected return equals the risk-free rate or a relatively low rate of return compared to higher-beta portfolios.

What is a Zero-Coupon Bond

A zero-coupon bond is a debt security that does not pay interest but instead trades at a deep discount, rendering a profit at maturity, when the bond is redeemed for its full face value.

What Is a Zero-Sum Game

Zero-sum is a situation in game theory in which one person’s gain is equivalent to another’s loss, so the net change in wealth or benefit is zero. A zero-sum game may have as few as two players or as many as millions of participants. In financial markets, options and futures are examples of zero-sum games, excluding transaction costs. For every person who gains on a contract, there is a counter-party who loses.

What Is the Zero-Volatility Spread (Z-Spread)

The Zero-volatility spread (Z-spread) is the constant spread that makes the price of a security equal to the present value of its cash flows when added to the yield at each point on the spot rate Treasury curve where cash flow is received. In other words, each cash flow is discounted at the appropriate Treasury spot rate plus the Z-spread. The Z-spread is also known as a static spread.

What is the Zig Zag Indicator

The Zig Zag indicator plots points on the chart whenever prices reverse by a percentage greater than a pre-chosen variable. Straight lines are then drawn, connecting these points. The indicator is used to help identify price trends. It eliminates random price fluctuations and attempts to show trend changes. Zig Zag lines only appear when there is a price movement between a swing high and a swing low that is greater than a specified percentage; often 5%. By filtering minor price movements, the indicator makes trends easier to spot in all time frames.

What are Zombies

Zombies are companies that earn just enough money to continue operating and service debt but are unable to pay off their debt. Such companies, given that they just scrape by meeting overheads (wages, rent, interest payments on debt, for example), have no exccess capital to invest to spur growth. Zombie companies are typically subject to higher borrowing costs and may be one just event—market disruption or a poor quarter performance—away from insolvency or a bailout. Zombies are especially dependent on banks for financing, which is fundamentally their life support. Zombie companies are also known as the "living dead" or "zombie stocks."

What Is a Zoning Ordinance

A zoning ordinance is a rule that defines how property in specific geographic zones can be used. Zoning ordinances detail whether specific geographic zones are acceptable for residential or commercial purposes. Zoning ordinances may also regulate lot size, placement, density, and the height of structures. Zoning ordinances also describe the procedures for how to handle any zoning rule infractions (including any penalties).

What is Zero-Floor Limit

Zero-floor limit is a term that relates to authorization for transactions involving credit and debit cards. Floor limit refers to the limit above which credit or debit transactions require authorization. A retailer can only automatically process transactions up to the maximum set by the floor limit. When that limit is zero, all transactions require authorization, regardless of their size. Authorization is provided electronically through the debit or credit card's issuer.

What Is Zakat

Zakat is an Islamic finance term referring to the obligation that an individual has to donate a certain proportion of wealth each year to charitable causes. Zakat is a mandatory process for Muslims and is regarded as a form of worship. Giving away money to the poor is said to purify yearly earnings that are over and above what is required to provide the essential needs of a person or family.

• Zakat is a religious obligation, ordering all Muslims who meet the necessary criteria to donate a certain portion of wealth each year to charitable causes.
• Giving away money to the poor is said to purify yearly earnings that are over and above what is required to provide the essential needs of a person or family.
• Zakat is based on income and the value of possessions. The common minimum amount for those who qualify is 2.5%, or 1/40 of a Muslim's total savings and wealth.
• If personal wealth is below the nisab during one lunar year, no zakat is owed for that period.

 

What Is Zombie Debt

Zombie debt is debt that has fallen off your credit report but, for various reasons, someone is still trying to collect. Zombie debt has often been long forgotten and has probably been written off as uncollectible. But zombie debt can rise from the grave if a debt collector attempts to collect on it all over again, even when the debt is too old to legally pursue.

 

 

(Source: Investopedia)

Important Finance Terminologies (R-U)

Important Finance, Accounts and Economics Terminologies

What is Real Gross Domestic Product (GDP)?

Real gross domestic product (GDP) is an inflation-adjusted measure that reflects the value of all goods and services produced by an economy in a given year (expressed in base-year prices) and is often referred to as "constant-price," "inflation-corrected", or "constant dollar" GDP.

What Is a Repurchase Agreement

A repurchase agreement (repo) is a form of short-term borrowing for dealers in government securities. In the case of repo, a dealer sells government securities to investors, usually on an overnight basis, and buys them back the following day at a slightly higher price. That small difference in price is the implicit overnight interest rate. Repos are typically used to raise short-term capital. They are also a common tool of central bank open market operations.

What Is Return on Invested Capital (ROIC)?

Return on invested capital (ROIC) is a calculation used to assess a company's efficiency at allocating the capital under its control to profitable investments. The return on invested capital ratio gives a sense of how well a company is using its money to generate returns. Comparing a company's return on invested capital with its weighted average cost of capital (WACC) reveals whether invested capital is being used effectively. This measure is also known simply as "return on capital."

What Is the Receivables Turnover Ratio?

The accounts receivable turnover ratio is an accounting measure used to quantify a company's effectiveness in collecting its receivables or money owed by clients. The ratio shows how well a company uses and manages the credit it extends to customers and how quickly that short-term debt is collected or is paid. The receivables turnover ratio is also called the accounts receivable turnover ratio.

What Is Return on Investment (ROI)?

Return on Investment (ROI) is a performance measure used to evaluate the efficiency of an investment or compare the efficiency of a number of different investments. ROI tries to directly measure the amount of return on a particular investment, relative to the investment’s cost. To calculate ROI, the benefit (or return) of an investment is divided by the cost of the investment. The result is expressed as a percentage or a ratio.

What Is a Rate of Return (RoR)?

A rate of return (RoR) is the net gain or loss of an investment over a specified time period, expressed as a percentage of the investment’s initial cost. When calculating the rate of return, you are determining the percentage change from the beginning of the period until the end.

What Is Rational Choice Theory?

Rational choice theory states that individuals use rational calculations to make rational choices and achieve outcomes that are aligned with their own personal objectives. These results are also associated with an individual’s best, self-interests. Using rational choice theory is expected to result in outcomes that provide people with the greatest benefit and satisfaction given the choices they have available. 

What Is a Required Minimum Distribution (RMD)?

A required minimum distribution (RMD) is the amount of money that must be withdrawn from a traditional IRA, SEP, or SIMPLE individual retirement account (IRA) by owners and qualified retirement plan participants of retirement age.

What Is Real Estate?

Real estate is property made up of land and the buildings on it, as well as the natural resources of the land including uncultivated flora and fauna, farmed crops and livestock, water, and any additional mineral deposits.

What Is Retained Earnings?

Retained earnings (RE) is the amount of net income left over for the business after it has paid out dividends to its shareholders. A business generates earnings that can be positive (profits) or negative (losses).

What Is Regression?

Regression is a statistical method used in finance, investing, and other disciplines that attempts to determine the strength and character of the relationship between one dependent variable (usually denoted by Y) and a series of other variables (known as independent variables).

What Is a Real Estate Investment Trust (REIT)?

A real estate investment trust (REIT) is a company that owns, operates, or finances income-generating real estate. Modeled after mutual funds, REITs pool the capital of numerous investors. This makes it possible for individual investors to earn dividends from real estate investments—without having to buy, manage, or finance any properties themselves.

What Is a Renewable Resource?

A renewable resource is one that can be used repeatedly and does not run out because it is naturally replaced. A renewable resource, essentially, has an endless supply such as solar energy, wind energy, and geothermal pressure. Other resources are considered renewable even though some time or effort must go into their renewal (e.g., wood, oxygen, leather, and fish). Most precious metals are renewable also. Although precious metals are not naturally replaced, they can be recycled because they are not destroyed during their extraction and use.

What Is Return on Assets—ROA?

Return on assets (ROA) is an indicator of how profitable a company is relative to its total assets. ROA gives a manager, investor, or analyst an idea as to how efficient a company's management is at using its assets to generate earnings. Return on assets is displayed as a percentage.

What Is Return on Equity (ROE)?

Return on equity (ROE) is a measure of financial performance calculated by dividing net income by shareholders' equity. Because shareholders' equity is equal to a company’s assets minus its debt, ROE is considered the return on net assets. ROE is considered a measure of how effectively management is using a company’s assets to create profits.

What Is Risk Averse?

The term risk-averse describes the investor who chooses the preservation of capital over the potential for a higher-than-average return.

What Is the Retention Ratio?

The retention ratio is the proportion of earnings kept back in the business as retained earnings. The retention ratio refers to the percentage of net income that is retained to grow the business, rather than being paid out as dividends. It is the opposite of the payout ratio, which measures the percentage of profit paid out to shareholders as dividends. The retention ratio is also called the plowback ratio.

What Is a Random Variable?

A random variable is a variable whose value is unknown or a function that assigns values to each of an experiment's outcomes. Random variables are often designated by letters and can be classified as discrete, which are variables that have specific values, or continuous, which are variables that can have any values within a continuous range.

What Is Risk Analysis?

Risk analysis is the process of assessing the likelihood of an adverse event occurring within the corporate, government, or environmental sector. Risk analysis is the study of the underlying uncertainty of a given course of action and refers to the uncertainty of forecasted cash flow streams, the variance of portfolio or stock returns, the probability of a project's success or failure, and possible future economic states. Risk analysts often work in tandem with forecasting professionals to minimize future negative unforeseen effects.

What is a Recession?

A recession is a macroeconomic term that refers to a significant decline in general economic activity in a designated region. It had been typically recognized as two consecutive quarters of economic decline, as reflected by GDP in conjunction with monthly indicators such as a rise in unemployment. However, the National Bureau of Economic Research (NBER), which officially declares recessions, says the two consecutive quarters of decline in real GDP are not how it is defined anymore. The NBER defines a recession as a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.

What Is Recapitalization?

Recapitalization is the process of restructuring a company's debt and equity mixture, often to make a company's capital structure more stable.

What Is a Revaluation?

A revaluation is a calculated upward adjustment to a country's official exchange rate relative to a chosen baseline. The baseline can include wage rates, the price of gold, or a foreign currency.

 

What Is Standard Deviation?

The standard deviation is a statistic that measures the dispersion of a dataset relative to its mean and is calculated as the square root of the variance. It is calculated as the square root of variance by determining the variation between each data point relative to the mean. If the data points are further from the mean, there is a higher deviation within the data set; thus, the more spread out the data, the higher the standard deviation.

What Is SWOT Analysis?

SWOT (strengths, weaknesses, opportunities, and threats) analysis is a framework used to evaluate a company's competitive position and to develop strategic planning. SWOT analysis assesses internal and external factors, as well as current and future potential.

What Is the S&P 500 Index?

The S&P 500 or Standard & Poor's 500 Index is a market-capitalization-weighted index of the 500 largest U.S. publicly traded companies. The index is widely regarded as the best gauge of large-cap U.S. equities. Other common U.S. stock market benchmarks include the Dow Jones Industrial Average or Dow 30 and the Russell 2000 Index, which represents the small-cap index.

The S&P does not currently provide the total list of all 500 companies on its website, outside of the top 10. Many of the top companies in the S&P 500 include technology firms and financial businesses.

What Is the Sarbanes-Oxley (SOX) Act of 2002?

The Sarbanes-Oxley Act of 2002 is a law the U.S. Congress passed on July 30 of that year to help protect investors from fraudulent financial reporting by corporations. Also known as the SOX Act of 2002 and the Corporate Responsibility Act of 2002, it mandated strict reforms to existing securities regulations and imposed tough new penalties on lawbreakers.

The Sarbanes-Oxley Act of 2002 came in response to financial scandals in the early 2000s involving publicly traded companies such as Enron Corporation, Tyco International plc, and WorldCom. The high-profile frauds shook investor confidence in the trustworthiness of corporate financial statements and led many to demand an overhaul of decades-old regulatory standards.

What Is the Securities and Exchange Commission (SEC)?

The U.S. Securities and Exchange Commission (SEC) is an independent federal government regulatory agency responsible for protecting investors, maintaining fair and orderly functioning of the securities markets, and facilitating capital formation. It was created by Congress in 1934 as the first federal regulator of the securities markets. The SEC promotes full public disclosure, protects investors against fraudulent and manipulative practices in the market, and monitors corporate takeover actions in the United States. It also approves registration statements for bookrunners among underwriting firms.

What Is Short Selling?

Short selling is an investment or trading strategy that speculates on the decline in a stock or other securities price. It is an advanced strategy that should only be undertaken by experienced traders and investors.

What Is the Solvency Ratio?

The solvency ratio is a key metric used to measure an enterprise’s ability to meet its debt obligations and is used often by prospective business lenders. The solvency ratio indicates whether a company’s cash flow is sufficient to meet its short-and long-term liabilities. The lower a company's solvency ratio, the greater the probability that it will default on its debt obligations.

What Is a Spread?

A spread can have several meanings in finance. Basically, however, they all refer to the difference between two prices, rates or yields.

In one of the most common definitions, the spread is the gap between the bid and the ask prices of a security or asset, like a stock, bond or commodity. This is known as a bid-ask spread.

What is the Stock Market?

The stock market refers to the collection of markets and exchanges where regular activities of buying, selling, and issuance of shares of publicly-held companies take place. Such financial activities are conducted through institutionalized formal exchanges or over-the-counter (OTC) marketplaces which operate under a defined set of regulations. There can be multiple stock trading venues in a country or a region which allow transactions in stocks and other forms of securities.

What Is a Subsidiary?

In the corporate world, a subsidiary is a company that belongs to another company, which is usually referred to as the parent company or the holding company.

The parent holds a controlling interest in the subsidiary company, meaning it has or controls more than half of its stock. In cases where a subsidiary is 100% owned by another firm, the subsidiary is referred to as a wholly owned subsidiary. Subsidiaries become very important when discussing a reverse triangle mortgage.

What is a Stop-Limit Order?

A stop-limit order is a conditional trade over a set timeframe that combines the features of stop with those of a limit order and is used to mitigate risk. It is related to other order types, including limit orders (an order to either buy or sell a specified number of shares at a given price, or better) and stop-on-quote orders (an order to either buy or sell a security after its price has surpassed a specified point).

What Is Six Sigma?

Six Sigma is a quality-control methodology developed in 1986 by Motorola, Inc. The method uses a data-driven review to limit mistakes or defects in and process. Six Sigma emphasizes cycle-time improvement while at the same time reducing manufacturing defects to a level of no more than 3.4 occurrences per million units or events. In other words, the system is a method to work faster with fewer mistakes.

What Is a Sinking Fund?

A sinking fund is a fund containing money set aside or saved to pay off a debt or bond. A company that issues debt will need to pay that debt off in the future, and the sinking fund helps to soften the hardship of a large outlay of revenue. A sinking fund is established so the company can contribute to the fund in the years leading up to the bond's maturity.

What is a Tariff?

A tariff is a tax imposed by one country on the goods and services imported from another country.

What Is Technical Analysis?

Technical analysis is a trading discipline employed to evaluate investments and identify trading opportunities by analyzing statistical trends gathered from trading activity, such as price movement and volume.

 What Is Term Life Insurance?

Term life insurance, also known as pure life insurance, is a type of life insurance that guarantees payment of a stated death benefit if the covered person dies during a specified term. Once the term expires, the policyholder can either renew it for another term, convert the policy to permanent coverage, or allow the policy to terminate.

What Is Terminal Value (TV)?

Terminal value (TV) is the value of a business or project beyond the forecast period when future cash flows can be estimated. Terminal value assumes a business will grow at a set growth rate forever after the forecast period. Terminal value often comprises a large percentage of the total assessed value.

What Is Third World?

"Third World" is a phrase that can be used to describe a class of economically inferior nations. Historical observations have developed a four-part segmentation for dividing the world’s economies by economic status. Third World falls behind First World and Second World but is ahead of Fourth World though Fourth World countries are hardly recognized at all.

What Is Total Quality Management (TQM)?

Total quality management (TQM) is the continual process of detecting and reducing or eliminating errors in manufacturing, streamlining supply chain management, improving the customer experience, and ensuring that employees are up to speed with training. Total quality management aims to hold all parties involved in the production process accountable for the overall quality of the final product or service.

What Is a Trade Deficit?

A trade deficit occurs when a country's imports exceed its exports during a given time period. It is also referred to as a negative balance of trade (BOT).

What Is a Treasury Bill?

A Treasury Bill (T-Bill) is a short-term U.S. government debt obligation backed by the Treasury Department with a maturity of one year or less. Treasury bills are usually sold in denominations of $1,000. However, some can reach a maximum denomination of $5 million in non-competitive bids. These securities are widely regarded as low-risk and secure investments.

What Is the Triple Bottom Line (TBL)?

The triple bottom line (TBL) is a framework or theory that recommends that companies commit to focus on social and environmental concerns just as they do on profits. The TBL posits that instead of one bottom line, there should be three: profit, people, and the planet. A TBL seeks to gauge a corporation's level of commitment to corporate social responsibility and its impact on the environment over time.

What is a Trust?

A trust is a fiduciary relationship in which one party, known as a trustor, gives another party, the trustee, the right to hold title to property or assets for the benefit of a third party, the beneficiary. Trusts are established to provide legal protection for the trustor’s assets, to make sure those assets are distributed according to the wishes of the trustor, and to save time, reduce paperwork and, in some cases, avoid or reduce inheritance or estate taxes. In finance, a trust can also be a type of closed-end fund built as a public limited company.

What Is a Trustee?

A trustee is a person or firm that holds and administers property or assets for the benefit of a third party. A trustee may be appointed for a wide variety of purposes, such as in the case of bankruptcy, for a charity, for a trust fund, or for certain types of retirement plans or pensions. Trustees are trusted to make decisions in the beneficiary's best interests and often have a fiduciary responsibility to the trust beneficiaries.

What Is Transfer Pricing?

Transfer pricing is an accounting practice that represents the price that one division in a company charges another division for goods and services provided. Transfer pricing allows for the establishment of prices for the goods and services exchanged between a subsidiary, an affiliate, or commonly controlled companies that are part of the same larger enterprise. Transfer pricing can lead to tax savings for corporations, though tax authorities may contest their claims.

What Is the Time Value of Money (TVM)?

The time value of money (TVM) is the concept that money you have now is worth more than the identical sum in the future due to its potential earning capacity. This core principle of finance holds that provided money can earn interest, any amount of money is worth more the sooner it is received. TVM is also sometimes referred to as present discounted value.

What Is a Traveler’s Check?

A traveler’s check is a once-popular but now largely outmoded medium of exchange utilized as an alternative to hard currency. The product typically is used by people on vacation in foreign countries. It offers a safe way to travel overseas without cash. The issuing party, usually a bank, provides security against lost or stolen checks. Beginning in the late 1980s, traveler’s checks have increasingly been supplanted by credit and prepaid debit cards.

What Is a Turnkey Business?

A turnkey business is a business that is ready to use, existing in a condition that allows for immediate operation.

The term "turnkey" is based on the concept of only needing to turn the key to unlock the doors to begin operations. To be fully considered a turnkey solution, the business must function correctly and at full capacity from the moment when it is initially received.

What Is an Underwriter?

An underwriter is any party that evaluates and assumes another party's risk for a fee. The fee is often a commission, premium, spread, or interest. Underwriters are critical to the financial world including the mortgage industry, insurance industry, equity markets, and common types of debt security trading. A lead underwriter is called a book runner.

What Is a Unicorn?

A unicorn is a term used in the venture capital industry to describe a privately held startup company with a value of over $1 billion. The term was first popularized by venture capitalist Aileen Lee, founder of CowboyVC, a seed stage venture capital fund based in Palo Alto, California.

What Is the Unemployment Rate?

The unemployment rate is the share of the labor force that is jobless, expressed as a percentage. It is a lagging indicator, meaning that it generally rises or falls in the wake of changing economic conditions, rather than anticipating them. When the economy is in poor shape and jobs are scarce, the unemployment rate can be expected to rise. When the economy is growing at a healthy rate and jobs are relatively plentiful, it can be expected to fall. 

What Is Unlevered Free Cash Flow (UFCF)?

Unlevered free cash flow (UFCF) is a company's cash flow before taking interest payments into account. Unlevered free cash flow can be reported in a company's financial statements or calculated using financial statements by analysts. Unlevered free cash flow shows how much cash is available to the firm before taking financial obligations into account.

The Formula for UFCF is:

{UFCF} = {EBITDA} - {CAPEX} - {Working Capital} - {Taxes}

Where:

 {UFCF} = {Unlevered free cash flow}

Unsecured Note

An unsecured note is a loan that is not secured by the issuer's assets. Unsecured notes are similar to debentures but offer a higher rate of return. Unsecured notes offer less security than a debenture. Such notes are also often uninsured and subordinated. The note is structured for a fixed period of time.

What Is Universal Banking?

Universal banking is a system in which banks provide a wide variety of comprehensive financial services, including those tailored to retail, commercial, and investment services. Universal banking is common in some European countries, including Switzerland.

What Is an Unlawful Loan?

An unlawful loan is a loan that fails to comply with—or contravenes—any provision of prevailing lending laws. Examples of unlawful loans include loans or credit accounts with excessively high interest rates or that exceed the legal size limits that a lender is permitted to extend.

What is Unlevered Beta ?

Beta is a measure of market risk. Unlevered beta (or asset beta) measures the market risk of the company without the impact of debt. Unlevering a beta removes the financial effects of leverage thus isolating the risk due solely to company assets. In other words, how much did the company's equity contribute to its risk profile.

What Is Universal Life (UL) Insurance?

Universal life (UL) insurance is permanent life insurance with an investment savings element and low premiums that are similar to those of term life insurance. Most UL insurance policies contain a flexible-premium option. However, some require a single premium (single lump-sum premium) or fixed premiums (scheduled fixed premiums).

 

(Source: Investopedia)