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Definition or financial glossary - Letter E

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-          EAR What is the EAR? The exact meaning is Equivalent Annual Rate or Effective Annual Rate. The EAR is an indicator in the form of annual percentage that reveals the cost or effective yield of a financial product, and that includes the nominal interest rate, expenses and bank charges and the term of the transaction. In other words, the EAR is the interest rate difference that it does not collect commissions or expenses-only compensation received by the owner of the money by transferring it temporarily. The calculation of the EAR is based on the interest rate and the assumption made that the interest earned is reinvested at the same interest rate. That is the general rule. But the calculation of the EAR may be slightly different depending on the banking product in question. The term TAE appears so much in the products I save like in the lendings so much hypothecary as consumption. Usually, the EAR does not include costs which the customer can avoid (for example, costs of transfer of funds), which are paid to third parties or companies (brokerage, taxes and notary fees) and expenses for insurance or guarantees (except premiums aimed at ensuring to the entity the repayment of credit in the event of death, disability or unemployment, provided that the entity imposes its subscription to the granting of credit).  

-          Earnout The earnout is an Anglo-Saxon term to describe a mechanism much used in contracts of sale of businesses, especially those that have a high growth potential, by which a portion of the agreed price to buy a company remains suspended to the coming years it meets certain business parameters: net sales, EBITDA, number of clients, etc. The acquiring company typically pays 60-80% of the purchase price in cash at the time of purchase and the remaining 20-40% is structured as an earn-out to be paid within the agreed time if the acquired business achieves the agreed objectives. It is common practice too, especially in the technology sector, the permanence of the founding team of the company in order to collect the earnout. The deadline for this additional payment is usually 2-4 years. After the transaction, the company purchased happens to be under the control of the acquirer, which may create a perverse incentive if the amount of the earnout is significant. That is why it is preferable to choose an indicator as sales, less manipulable accounted for the benefits, for example.  

-          EBITDA It is the acronym for Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA). It is an indicator of the performance of a company used by fundamental analysts. It is obtained from the results of a company like calculating the difference between the gross and operating the undertaking before subtracting interest expense, depreciation and corporate tax. EBITDA is used to analyze the profitability of a company's business base, for it there removes the effects of financing and accounting decisions. It can be used to compare results, whether between companies (horizontal analysis) or between the same company in different periods (vertical analysis), either by dividing the term between investment or between sales made over a period of time. It is important to note that does not reflect the cash flow of the business and that does not include changes in working capital or capital expenditures.  

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