An easement in gross is a legal right granted to an individual allowing him or her to use property that isn’t below to him or her. It is a type of permission that is considered void if the underlying property is sold, transferred or inherited by a party outside the easement in gross agreement.
Explanation :
A person who owns a property has the right to allow others to use the premises as he wishes. Nevertheless, differently from a regular easement, which is an agreement that directly affects the land or property itself, an easement in gross is one that is tied to the current owner and to the beneficiary. In the situation that the property gets transferred to another party by any means, the easement in gross becomes null and the new owner is not bound to fulfill the parameters of the agreement anymore. Therefore, the beneficiary can’t demand the fulfillment of such easement in that scenario, as the contract is attached to the individual and not the property itself. These agreements are very useful to permit others to access and use certain areas of a property. Their main benefit is that their non-transferable character avoids any depreciation on the property’s value, as the new owner will not have to honor such agreements.
In a nutshell :
- The individual who benefits from the easement in gross is unable to transfer the associated rights to any other person.
- If the property is transferred to another owner, through sale, inheritance or any other mechanism, the current easement in gross is considered void.
- The new property owner can attempt to reach a new easement in gross agreement, but there is no guarantee the right will be granted.
An easement is a legal concept that defines a situation where a property is used by a third party for a specific purpose. In other words, it is a legal permission to use someone else’s property with a predefined motive.
Explanation :
Easements are common in the field of real estate. They are mostly employed by utility companies to occupy a portion of the property to widen the reach of their services by building infrastructure on the site. These easements must be accepted by the property owner for them to be legal and the easement will normally be attached to the land itself, not the owner. This means that the easement will be active even if the land is sold to someone else. Easements normally include a payment for the property owner, as a compensation for the land’s usage. In some cases, easements are enforced by federal or state laws, depending on the nature of the requirement. Either way, the purpose of these agreements is to allow a third party to use the property space for its own benefit.
In a nutshell :
- An easement is an agreement between two parties, where one is granted land access in exchange for a fee.
- Utility easements are the most common, such as when a telephone or power company runs lines through a property for which they’ve been granted an easement.
- A private easement agreement is a deal between two parties that gives one the right to use a piece of the other’s property for their personal needs.
- An easement of necessity happens when an individual needs to use another individual’s property so as to gain access to their own.
Earnings per share or EPS sounds pretty self explanatory, right? It’s the amount of earnings for each share of the company. Well, it is a little more complicated than that.
Explanation :
Earnings per share is the amount of earning or net income that can be allocated to each outstanding common stock share. Make a note that only common stock is used for the calculation of earnings per share. Preferred stock is not taken into consideration. Preferred dividends are however taken into consideration because these reduce the amount of money available to common stock shareholders.
Think about it like this. If the company paid all of its expenses and preferred dividends, the remaining money left would be earnings that could be split up amongst the common stock shareholders because all the other company obligations have been taken care of. Earnings per share is the total dollar amount of earnings that can be given to each common stock after preferred dividends are paid. Remember, preferred stock dividends are generally paid before common stock dividends. This is one of the advantages of owning preferred stock. This is how you calculate basic earnings per share.
In a nutshell:
- Earnings per share (EPS) is a company’s net profit divided by the number of common shares it has outstanding.
- EPS indicates how much money a company makes for each share of its stock and is a widely used metric for estimating corporate value.
The word earnings can be used in a number of different ways in the accounting world. I know this can be kind of confusing when you are first trying to get a handle on these accounting concepts. Luckily, earnings is usually only used in two different ways: topline or bottom-line earnings.
Explanation :
Topline earnings make up the total revenue or gross sales of a company. This number is usually the first number presented on a Profit and Loss statement. Many people refer to the topline as earnings because this is the amount of money that a company earned throughout the year. This form of earnings can be interchangeable with the term revenues. Bottom-line earnings are the complete opposite. When someone uses the word earnings to refer to bottom-line earnings, they are really talking about net income or net earnings. This is usually the last number presented on a Profit and Loss statement. This usage makes sense too when you think about it. Net income is the amount of money that the company actually gets to keep. This is the money left over after it has paid all of its expenses. So some people look at this as the true earnings of the company.
In a nutshell :
- Earnings refer to a company’s profits in a given quarter or fiscal year.
- Earnings are a key figure used to determine a stock’s value.
- A company’s earnings are used in many common ratios.
- Earnings have a big impact on stock price, and as a result, the numbers are subject to potential manipulation.
FIFO method, first-in, first-out, is an inventory valuation and cost allocation system that assigns costs to merchandise based on the order it was purchased; the first products purchased should be the first ones sold.
Explanation :
FIFO is better termed as a philosophy that companies use when evaluating the inventory of a business. Many food-based businesses, such as grocery stores, ensure that this principle operates by placing the oldest food items in the front and the newer ones in the back. FIFO itself is an acronym for ‘first-in, first-out’. FIFO method is the most common way of evaluating and calculating an organization’s inventory. The purpose of having a method for evaluating inventory is important because inventory is not all at a uniform price.
In a nutshell :
- First In, First Out (FIFO) is an accounting method in which assets purchased or acquired first are disposed of first.
- FIFO assumes that the remaining inventory consists of items purchased last.
- An alternative to FIFO, LIFO is an accounting method in which assets purchased or acquired last are disposed of first.
- Often, in an inflationary market, lower, older costs are assigned to the cost of goods sold under the FIFO method, which results in a higher net income than if LIFO were used.
The full disclosure concept is an accounting principle that requires management to report all relevant information about the company’s operations to creditors and investors in the financial statements and footnotes. In other words, GAAP requires that management tell external users material information about the company that they can use to base their decisions on.
Explanation :
The purpose of the full disclosure principle is to share relevant and material financial information with the outside world. Since outsiders don’t know the details of a company’s business deals, contracts, and loans, it’s difficult to form an opinion of the entity. Relevant information to outsiders is anything that could change an external user’s decision about the company. This can include transactions that have already occurred as well as future events contingent on third parties. Any type of information that could sway the judgment of an outsider should be included in the financial statements in an effort to be transparent.
In a nutshell:
- Disclosure is the process of making facts or information known to the public, which can help identify and prevent fraud.
- Proper disclosure by financial firms is meant to make its customers, investors, and analysts aware of pertinent information and create fairness in markets.
- Even with only partial disclosure, one can easily be drowned in information.
- To make the most of full disclosure, investors need to become educated in investing theory to know what information they should be demanding to fit a given technique.
Future value (FV) is the amount to which a current investment will grow over time when placed in an account that pays compound interest. In other words, it’s the value of a dollar at some point in the future adjusted for interest.
Explanation :
FV is one of the most important concepts in finance, and it is based on the time value of money. Investors need to know what the FV of their investment will be after a certain period of time, calculated based on an assumed growth rate. For instance, a $1,000 investment that pays a fixed interest rate of 5% will be $2,654 after 20 years, all things being equal. Therefore, the FV uses a single upfront investment and a constant rate of growth during the time horizon of the investment. On the downside, the FV is not adjusted for high inflation or changes in the interest rates, which are factors with a negative impact on any investment.
In a nutshell :
- Future value (FV) is the value of a current asset at some point in the future based on an assumed growth rate.
- Investors are able to reasonably assume an investment’s profit using the FV calculation.
- Determining the FV of a market investment can be challenging because of market volatility.
Front office is the division of the company that has direct contact with the clients, such as the corporate finance personnel in a financial services company.
Explanation :
In its most broad definition, the FO is responsible for generating a firm’s revenues, and, therefore, it integrates the sales and trading personnel, which may be people who work in the investment banking, private equity, trading floor, etc. depending on the type of the company. Some people argue that the traders should not be considered front as they are not coming in direct contact with the clients. However, they are generating revenues for the firm. Another special type of front office is the equity research department, which, although is not generating revenues, has a direct impact on the firm’s revenues with the reports that the analysts produce. So, at the end of the day, it all boils down to the roles that people play in a company and how these roles can positively contribute to the firm’s income.
In a nutshell :
- On a conceptual level, the operations of many firms are divided into three parts: the front office, the middle office, and the back office.
- The front office is typically composed of customer-facing employees, such as the marketing, sales, and service departments.
- Because the front office has the most direct contact with clients, it is responsible for generating the bulk of revenues for the firm.
- The front office relies on the back office for support in the form of human resources, internet technology (IT), accounting, and secretarial functions.
A floating currency is a monetary system that is not backed by gold or assets and tends to fluctuate in value due to supply and market expectations. Its value is also determined by global demand and the level of foreign reserves.
Explanation :
Floating currencies have floating exchange rates, which change based on the demand and supply mechanisms of the foreign exchange market. When the demand for a currency is high, the currency appreciates in value, thus impacting the country’s exports. A strong currency shifts consumers to a cheaper currency, thus lowering the demand for the exported goods.In the long run, exporters have to lower their prices to attract consumers, thus lowering their profits and facing the risk of going out of business. Conversely, when the demand for a currency is low, the currency depreciates in value, thus impacting the country’s importers. A weak currency makes imported goods expensive. Therefore, consumers buy domestic goods, thus stimulating the domestic economy. In both cases, a floating currency tends to be volatile.
In a nutshell :
- A floating exchange rate is one that is determined by supply and demand on the open market.
- A floating exchange rate doesn’t mean countries don’t try to intervene and manipulate their currency’s price
- since governments and central banks regularly attempt to keep their currency price favorable for international trade.
A flat tax, also called a proportional tax, is an income tax that enacts a constant proportional rate to all taxpayers regardless of income. In other words, all taxpayers would pay the same percentage of their income to the government irrespective of their total earnings.
Explanation :
The concept of a flat tax rate has been discussed as an option for the US tax code for many years. It’s an appealing and intriguing concept because it does away with the unfair and disproportionate progressive tax system that we have today. Under a flat system each taxpayer would pay the rate of tax on all of their income. There wouldn’t be an incremental income bracket system. It simplifies all of the current brackets down to one. Many leading economists, financiers, and political figures view this system as a fairer taxing policy than the current one. Many also believe that a flat taxing system would be easier to comply with and more equitable for taxpayers. The main argument against this system is that it disproportionately burdens the poor because they have less disposable income to pay the same rate as the rich.
In a nutshell :
- A flat tax applies the same rate to every taxpayer regardless of their income bracket, allowing for no deductions or exemptions.
- The opposite of a flat tax would be a progressive tax, whose rate would rise in proportion to a taxpayer’s income.
- Fans of flat taxes note it makes filing easier, and that it incentivizes people to earn more because they won’t be penalized with a higher tax bill.
- Flat tax critics argue that the system effectively penalizes lower-wage earners, making them pay a higher percentage of their income.
- U.S. payroll taxes are a type of flat tax.
