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What is Times Interest Earned (TIE)?
Times Interest Earned (TIE) is also known as the interest coverage ratio, is a cash-flow analysis that compares the pre-tax earnings of a company to the total amount of interest payable on their debt obligations. A healthy ratio indicates that a company will probably not default on loan repayments. To compute this ratio, divide a company’s annual income before taxes by their annual interest payments on debt obligations. This ratio is not concerned with the actual principal due on loans since the principal amount is already pegged to some of the assets on the books of the company, and other fundamental equations will already factor that in. Continue reading...
What is a time spread?
A ‘Time Spread,’ also called a Calendar Spread or a Horizontal Spread, involves the use of multiple options of the same type (either all calls or all puts), with the same strike price but different expiration dates. Generally traders will sell a near-term option (take a short position) and buy a far-term option (take a long position). The strategy is virtually identical whether calls or puts are used. Continue reading...
What is Earnings Before Interest Depreciation and Amortization (EBIDA)?
EBIDA is one of the family of earnings metrics which give the analyst, investor, or accountant an opportunity to view earnings, which is synonymous with net income, with a few factors added back into it. In this case, interest payments on debt, depreciation of hard assets on the standard IRS schedules, and amortization of principal debts are all added back into the earnings of the company for the current period. Not to be confused with EBITDA, its more popular counterpart. Continue reading...
What is an Earnings Recast?
An earnings recast is a revision of previous earnings reports, in which a company has made different choices with their accounting methodology that they feel are a better representation of their accounts. A common time to do this is after a company has divested itself of a subsidiary, when it will publish recast financial statements from the preceding years that show the company’s performance without the subsidiary being included. Continue reading...
What is Earnings Momentum?
Earnings momentum is an indicator that is computed by not just looking at the earnings performance and estimations of a company, but looking at the positive or negative direction of earnings and the acceleration in that direction. Momentum in securities is much like momentum in physics. Where there is momentum, it is hard to slow things down and charge direction. Instead of looking only at the growth of earnings, which could be the slope of the inclining line, momentum also looks for increases in change to the growth rate, making earnings growth more parabolic or exponential. Continue reading...
What is Retained Earnings?
A company may reinvest earnings instead of paying out dividends. These earnings do not necessarily sit in a retained earnings account, but are used to improve the business and make it more profitable. This could even include paying off debt. Retained earnings is found in the Shareholder’s Equity portion of a company’s balance sheet. Despite the fact that earnings have not been dispensed to them in the form of dividends or share buybacks, shareholders will see the value of their stock appreciate when earnings are retained and used to grow the business. Continue reading...
What is an Earnings Call?
An earnings call is when a company opens up a teleconference line or webcast that the public can join to hear the company management talk about how the company performed recently, their plans for the future, and the market forces that exist in the current environment. Most publicly traded companies today have adopted this practice. Earnings calls may take place once a year or during earnings seasons after the quarterly earnings have been announced in a press release. Companies often have one executive whose job is to interface with the shareholders in such settings, but various executives are often given a chance to present some thoughts. Continue reading...
What is an Interest Rate?
An interest rate is a simple financial principle that’s been around for centuries, whereby a borrower has to pay for money borrowed. The interest rate is agreed to between the lender and the borrower, and there may be provisions under which the rate could change over the course of a loan. In simple terms, an interest rate is the cost of money. Continue reading...
What is Accrued Interest?
Accrued Interest applies to a bond or loan, accounting for the interest that is calculated per diem for the time between payments. Accrued Interest is the amount of interest that has "built up" between the last payment and the present, with regards to bonds and loans. If a bond is sold from one person to another, and the corporation or municipality that issued the bond pays out an interest payment at regular intervals, the sale price will have to factor-in the "accrued interest" since the last distribution, and the buyer will have to pay the seller for the accrued interest due while the latter held the bond. Continue reading...
What is Minority Interest?
Minority interest is a portion of a company’s stock that is not owned by the parent company, and refers to a type of ownership that generally cannot exert influence over a company’s business decisions. If an outside investor or another company has a less than 50% stake in a company via shares, then they are said to have a minority interest. From an accounting standpoint, only the dividends of a minority interest are counted on a company’s books. If they exert influence over the decision-making, then a percentage of the income may also need to be included. Continue reading...
What does Earnings mean?
Earnings is another word for the net income of a company. It is one of the most important numbers in corporate finance. If a company cannot show earnings, and growth in earnings, investors aren’t going to stick around. Earnings are normally computed as revenue minus taxes and expenses. It is synonymous with net income. Earnings is a positive cash outlay for the year, which means the company is not operating at a deficit. Continue reading...
What is the Interest Coverage Ratio?
Also known as the debt service ratio, The interest coverage ratio is a measure of how many times a company can pay the interest owed on its debt with EBIT. To calculate it, you simply divide EBIT (earnings before interest and taxes) by interest expense. A company with a low interest coverage ratio means it has fewer earnings available to make interest payments, which can imply solvency issues and could mean a company would be at risk if interest rates go up. Continue reading...
What is Earnings Season?
Earnings season describes not one, but four times in a year, when corporations release their quarterly earnings reports. Investors look forward to this time because they are able to get an update about how the year is going, compared to projections. After each fiscal quarter ends, there are a few weeks in which companies file their quarterly reports with the SEC and announce their current earnings and sales numbers. Each of these periods is known as earnings season. Continue reading...
What are Earnings per Share (EPS)?
EPS is derived by taking the net income of a company and dividing it by the share price. That gives an individual investor an idea of how much growth was captured by their shares. Earnings per share is one of the main articles that is announced by the quarterly reports given by companies to their investors. Earnings per share does not mean that each share has appreciated a certain amount, but if the quarterly reports in earnings seasons stir up demand for the shares based on solid fundamentals at a company, it can result in a higher price per share. Continue reading...
What is short interest?
Short interest is a term used to describe how many short positions are open for a given security or market at a given time. It is often expressed as a percentage of the total securities outstanding and is used for the short interest ratio. This serves as a gauge of bearish market sentiment, since short-sellers are expecting price action to trend downward. The short interest ratio (SIR) provides a context for the quantity of short interest outstanding by stating this amount in relation to the average daily trading volume. Continue reading...
Stocks and ETFs: AI Real Time Patterns
The best way to make money with pattern trading is to use our premium tool, Real Time Patterns (RTP Stocks, ETFs) You will get real time signals to buy and/or sell stocks or ETFs based on intraday price information. RTP analyzes 39 types of patterns for stocks, penny stocks, and ETFs in real time with the following time-frames: 5min, 15 min, 30 min, 1hour, 4 hours, and 1 day. To access, from the menu bar, simply click the Trading tab, then click on Real Time Patterns. Continue reading...
What is Income?
Income is a stream, series, or lump sum of cash or cash equivalents that is paid to an individual or entity based on work performed, goods sold, ownership rights, or by being a creditor to whom interest is paid. It is received when a net result is positive, and is sometimes referred to as the “bottom line.” Income can be viewed from a itemized, current perspective or as a balance sheet item for an entire accounting period, such as a year. It also might be discussed as a gross (pre-tax) or net (post-tax) amount. Continue reading...
What is Earnings Before Tax (EBT)?
Earnings before tax (EBT) is used to look at cash flows after expenses but before taxes. In a world without tax, this is what earnings would look like. Taking advantage of an advantageous tax-event, or hiring a better CPA, or merging with a company that can reduce the tax implications of some regular transactions, can bring earnings closer to their before-tax amount. Earnings before tax from an accounting standpoint is net income (which is another word for earnings) with taxes added together with it. Continue reading...
What is Time Value of Money?
The Time Value of Money is a theme for discourse and calculations related to the effect of interest on money over time, and the interrelation between Present Value and Future Value. The Time in the equation of Rate of Return x Time x Present Value = Future Value has a value and an effect on the Future Value (or the Present Value depending on what you're solving for). The Time Value of Money is, at it's simplest, something which nearly everyone has seen but hasn't heard called by that name: turn this amount of money into that amount of money by letting it grow in the market for a length of time. Continue reading...
What does open interest mean?
Open interest is a measurement of the outstanding open positions in a derivative security. Strong open interest means the derivative will have high liquidity. Open Interest is not the same thing as Trading Volume, but it does give an indication of liquidity and activity in a derivative. Open Interest is the number of open positions for a derivative, like an option. The Options Clearing Corporation tallies up the ‘open interest’ numbers, but they are not posted until the morning following the count. Open Interest isn't necessarily indicative of a bullish or bearish forecast for the underlying security, but it does generally mean that the option will have high liquidity and that a seller will be able to find a buyer. Continue reading...