Financial planning terms

Present valueThe current-value estimate produced by discounting a future amount or cash-flow stream.Formula output Discount rateThe rate assumption used to translate a future cash flow or future value into a present value.Formula input Net present valueThe net dollar result after discounting cash inflows and outflows to the calculation date.Formula output Internal rate of returnThe rate that makes a cash-flow stream have a net present value of zero.Formula output Future valueThe later-value estimate produced by compounding a starting amount, contributions, or both.Formula output Nominal returnInvestment return before adjusting for inflation.Formula input Real returnInvestment return after adjusting for inflation.Formula output InflationA price-growth assumption used to model future costs and purchasing power.Projection input Purchasing powerWhat a dollar amount can buy after considering prices and inflation.Projection concept Capital asset pricing modelA finance model that estimates required return from a risk-free rate, beta, and market risk premium.Formula model BetaA model input that describes market sensitivity in CAPM-style return estimates.Formula input Weighted average cost of capitalA blended capital-cost estimate based on equity, debt, and capital-structure assumptions.Formula output Bond durationA bond interest-rate sensitivity measure, often expressed in years.Formula output Yield to maturityThe bond yield implied by price, coupon payments, face value, and time to maturity.Formula output Dividend yieldAnnual dividend income divided by the price or value used in the calculation.Formula output Taxable-equivalent yieldThe taxable yield needed to match a tax-exempt yield after tax under the entered tax rate.Formula output Sharpe ratioA risk-adjusted return measure comparing excess return with volatility.Formula output Current ratioCurrent assets divided by current liabilities in a simplified liquidity calculation.Accounting ratio Quick ratioCash, marketable securities, and receivables divided by current liabilities.Accounting ratio Debt-to-equity ratioEntered debt divided by shareholders' equity in a simplified leverage calculation.Accounting ratio Interest coverage ratioEBIT divided by interest expense in a simplified coverage calculation.Accounting ratio Return on equityNet income compared with shareholders' equity or average equity, depending on the model.Accounting ratio Taxable incomeThe bracket-input amount used after deductions have been reflected.Tax input Net income for tax purposesA Canadian tax amount used in many benefit, credit, and threshold calculations.Tax input Marginal tax rateThe estimated tax effect of adding the next dollar or selected additional amount of income.Tax calculation Marginal effective tax rateThe selected tax, payroll, or recovery effect of adding an income amount, divided by that added income.Tax calculation Average tax rateTotal tax divided by the stated income base.Tax calculation Effective tax rateA broad rate measure whose meaning depends on the tax amount and income base compared.Tax calculation Eligible dividendA Canadian dividend category where the cash dividend is grossed up under eligible dividend rules.Tax calculation Non-eligible dividendA Canadian dividend category where the cash dividend is grossed up under non-eligible dividend rules.Tax calculation Gross-upA dividend tax adjustment that converts a cash dividend into a taxable dividend amount.Tax calculation Dividend tax creditA tax credit applied after the dividend has been grossed up to a taxable dividend amount.Tax calculation Capital gainThe positive result when disposition proceeds exceed adjusted cost base plus outlays and expenses.Tax calculation Capital lossThe negative result when disposition proceeds are less than adjusted cost base plus outlays and expenses.Tax calculation Taxable capital gainThe portion of a capital gain included in taxable income.Tax calculation Allowable capital lossThe portion of a capital loss recognized under capital-loss rules.Tax calculation OAS recovery taxThe threshold-based recovery calculation commonly called OAS clawback.Benefit and tax calculation CPP/QPP pension amountA monthly retirement pension estimate based on contribution history, start age, and program rules.Retirement benefit term CPP Post-Retirement BenefitA separate CPP benefit that may increase retirement income when someone works and contributes after starting CPP before age 70.Retirement benefit term RRSP deduction limitThe maximum RRSP, PRPP, SPP, and eligible spousal-plan contribution amount that may be deducted for a tax year.Registered-plan tax term Pension adjustmentA tax-reporting amount that generally reduces RRSP deduction room for the following year.Registered-plan tax term Mortgage stress testA mortgage qualification calculation using a qualifying rate that may be higher than the contract rate.Mortgage calculation GDS ratioGross debt service ratio, comparing selected housing costs with gross household income.Mortgage calculation TDS ratioTotal debt service ratio, comparing housing plus other debt payments with gross household income.Mortgage calculation Amortization periodThe repayment horizon used to calculate scheduled mortgage or loan payments.Mortgage input Prepayment privilegeA mortgage contract feature that may allow extra principal payments within stated limits.Mortgage term