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MARGIN

After tax profit margin
• The ratio of net income to net sales.

Average pre tax profit margin
• Pre-tax Income divided by Sales. This measures how well management converts sales dollars into profits after deducting all the operating expenses for making and selling its products. Compare the last two years' pre-tax profit margins with the 5-year average to show the trend of growth.

Average profit margin
• See Average Pre-tax Profit Margin.

Before tax profit margin
• The ratio of net income before taxes to net sales.

Buy on margin
• A transaction in which an investor borrows to buy additional shares, using the shares themselves as collateral.

Contribution margin
• The difference between variable revenue and variable cost.

Dollar safety margin
• The dollar equivalent of the safety cushion for a portfolio in a contingent immunization strategy.

Effective margin
• EM. Used with SAT performance measures, the amount equaling the net earned spread, or margin, of income on the assets in excess of financing costs for a given interest rate and prepayment rate scenario.

Equitize a margin call
• Is an event whereby a previously unsatisfied margin call is eliminated by an effective transfer of ownership. In 1998, Long Term Capital Management transfereda portion of ownership to its creditors. In some respects, it was a debt for equity swap. The immediate benefit to the previous creditors is that the regulatory capital requirement is not impaired by a default. It also extends the horizon for position liquidation.

Gross margin
• Measures the percentage of each sales dollar remaining after the firm has paid the direct costs of the products sold (Cost of Goods Sold).
• Equals sales revenue less the cost of goods sold

Gross profit margin
• Gross profit divided by sales, which is equal to each sales dollar left over after paying for the cost of goods sold.

Initial margin
• Is the amount of funds and/or securities required to establish a position.

Initial margin requirement
• When buying securities on margin, the proportion of the total market value of the securities that the investor must pay for in cash. The Security Exchange Act of 1934 gives the board of governors of the Federal Reserve the responsibility to set initial margin requirements, but individual brokerage firms are free to set higher requirements. In futures contracts, initial margin requirements are set by the exchange.

Maintenance margin requirement
• A sum, usually smaller than -but part of the original margin, which must be maintained on deposit at all times. If a customer's equity in any futures position drops to, or under, the maintenance margin level, the broker must issue a margin call for the amount at money required to restore the customer's equity in the account to the original margin level. Related: margin, margin call.

Margin
• This allows investors to buy securities by borrowing money from a broker. The margin is the difference between the market value of a stock and the loan a broker makes. Related: security deposit (initial).
• Equals sales revenue minus the cost of goods sold and minus other variable expenses, such as shipping
• The use of borrowed money to purchase securities. This action is expressed by the phrase buying on margin.
• (1) In a repo or a reverse repurchase transaction, the amount by which the market value of the securities collateralizing the transaction exceeds the amount lent. (2) In futures markets, money buyers and seller must put up to ensure performance on the contracts. (3) In options, similar meaning as in futures for sellers of put and call options.
• Is the amount required to open a position. This amount is different for each futures market depending on each contract. Also, the dollar amount varies for each security and option account because of the variations in holdings among all accounts.

Margin account
• A brokerage account in which the broker lends the customer cash to purchase securities. The loan in the account is collateralized by the securities, and if the value of the stock drops sufficiently, the account holder will be required to deposit more cash or sell a portion of the stock. See also: Cash Account; Regulation T.

Margin account stocks
• A leverageable account in which stocks can be purchased for a combination of cash and a loan. The loan in the margin account is collateralized by the stock and, if the value of the stock drops sufficiently, the owner will be asked to either put in more cash, or sell a portion of the stock. Margin rules are federally regulated, but margin requirements and interest may vary among broker/dealers.

Margin call
• A demand for additional funds because of adverse price movement. Maintenance margin requirement, security deposit maintenance
• The Federal Reserve Board's demand that a customer deposit a specified amount of money or securities when a purchase is made in a Margin Account. The amount is expressed as a percentage of the market value of the securities at the time of purchase. The deposit must be made within one payment period. See also: Margin; Fed Call.
• Is the phrase used to represent a call for additional funds. This demand for more funds in either cash and/or securities is to restore an account to its initial margin requirement level. Generally, this occurs when the price action is adverse to the account holders positions. It can also reflect an increase in margin requirements.

Margin of profit ratio
• Also known as the Operating Profit Ratio. A measure of a corporation's relative profitability. It is calculated by dividing the operating profit by the net sales. See also: Profit Margin.

Margin of safety
• With respect to working capital management, the difference between 1) the amount of long-term financing, and 2) the sum of fixed assets and the permanent component of current assets.

Margin requirement
• Is the amount of funds necessary for a position or a portfolio's entire holdings.

Margin requirement options
• The amount of cash an uncovered (naked) option writer is required to deposit and maintain to cover his daily position valuation and reasonably foreseeable intra-day price changes.

Marginal
• Incremental.

Marginal analysis
• Economic principle that states that financial decisions should be made and actions taken only when the added benefits exceed the added costs.

Marginal cost of capital
• Abbreviated MMC. The firm's weighted average cost of capital (WACC) associated with its next dollar of total new financing.

Marginal cost of capital schedule
• Graph that relates the firm's weighted average cost of capital (WACC) to the level of total new financing.

Marginal tax rate
• The rate at which additional income is taxed.
• The tax rate that would have to be paid on any additional dollars of taxable income earned.
• The tax rate that would have to be paid on any additional dollars of taxable income earned.

Net interest margin
• A ratio used for evaluating management for bank stocks. Measures the difference between interest paid and interest collected.
• Is the difference between the interest revenue and the interest expense. Sometimes, it is referred to as the spread.

Net operating margin
• The ratio of net operating income to net sales.

Net profit margin
• Net income divided by sales; the amount of each sales dollar left over after all expenses have been paid.
• Measures the percentage of each sales dollar remaining after all expenses, including taxes, have been deducted.
• A measurement defined as the net income before non-recurring gains and losses, as a percentage of sales or revenues.

Operating margin
• Measures the percentage of each sales dollar remaining after all expenses associated with producing and selling the product and operating the company are deducted.
• A Value Line measurement defined as operating earnings (before deduction of Depreciation, Depletion, Amortization, Interest, and income tax) as a percentage of sales or revenues. See also: Value Line Financial Strength.

Operating profit margin
• The ratio of operating margin to net sales.

Original margin
• The margin needed to cover a specific new position. Related: Margin, security deposit (initial)
• See Initial Margin.

Profit margin
• Indicator of profitability. The ratio of earnings available to stockholders to net sales. Determined by dividing net income by revenue for the same 12-month period. Result is shown as a percentage.
• Measures the percentage of each sales dollar remaining after all expenses, including financing expenses and taxes have been deducted.
• See Pre-tax Profit on Sales.

Variation margin
• An additional required deposit to bring an investor's equity account up to the initial margin level when the balance falls below the maintenance margin requirement.

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