| Vertical Equity |
| The principle that people with different incomes should pay different rates of tax. A method of collecting income tax in which the taxes paid increase with the amount of earned income. The driving principle behind vertical equity is the notion that those who are more able to pay taxes should contribute more than those who are not. |
| Activity Ratio |
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An indicator of how rapidly a firm converts various accounts into cash or sales. In general, the sooner management can convert assets into sales or cash, the more effectively the firm is being run.
Such ratios are frequently used when performing fundamental analysis on different companies. The asset turnover ratio and inventory turnover ratio are good examples of activity ratios. |
| Intaxification |
| The feeling of satisfaction and joy that a tax refund creates in a person. This feeling is somewhat misguided because the tax is only refunded because the person paid too much tax during the previous year. |
| Revenue Ruling |
| A decree issued by the IRS that essentially has the force of law. A revenue ruling outlines the IRS's interpretation of the tax laws and is binding on all IRS employees. Revenue rulings are published in the Cumulative Bulletin and are issued only from the National Office of the IRS. |
| Return On Equity - ROE |
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The amount of net income returned as a percentage of shareholders equity. Return on equity measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested.
ROE is expressed as a percentage and calculated as:
Return on Equity = Net Income/Shareholder's Equity
Net income is for the full fiscal year (before dividends paid to common stock holders but after dividends to preferred stock.) Shareholder's equity does not include preferred shares.
Also known as "return on net worth" (RONW). |
| Hybrid Annuity |
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A form of repurchase agreement in which an investor sells a mortgage-backed security during one period and repurchases it in a subsequent period. While the investor gives up access to the principal and interest on the loan that is sold, the proceeds from the sale of the security could be reinvested and then used to repurchase the security later.
The investor hopes that the difference between the original price and the repurchase price ("the drop") is high. A large difference between the original price and the repurchase price results in the security being considered "on special". |
| Junk Fees |
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Nebulous charges assessed at the closing of a mortgage that go to the originator or lender. These fees are hidden in the mortgage documents and are usually assessed as raw dollars rather than "points" or a percentage of the loan.
Junk fees may or may not pay for an actual service to the borrower, but they typically are not known to the borrower prior to signing.
Some common fees that may be considered junk fees include settlement fees, sign-up fees, underwriting fees, funding fees, translation fees and messenger fees. |
| Debenture |
| An unsecured debt backed only by the company, not by any collateral. Although there are no pledges of specific assets, debenture holders are still considered creditors if bankruptcy occurs. Debentures are usually used by governments and large companies. They can be a great tool to raise funds and still leave specific assets free to be used for financing in the future. |
| Preemptive Right |
| A privilege extended to select shareholders of a corporation that will give them the right to purchase additional shares in the company before the general public has the opportunity in the event there is a seasoned offering. A preemptive right is written in the contract between the purchaser and the company, but does not function like a put option. |
| Pick-Up Tax |
| A tax imposed by state authorities based on the estate tax credit the U.S. federal government allows on the federal estate tax return. As this tax is imposed at the state level, the amounts owing vary state to state. And because estates are taxed at the federal level only when the minimum federal estate threshold has been surpassed, state pick-up taxes are not always applied. |
