COMPOUND INTEREST PRINCIPLE Definition

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COMPOUND INTEREST PRINCIPLE is where the interest is computed on principal plus interest earned in previous periods.

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EARNINGS RETENTION is the proportion of net income that is not paid in dividends. A firm earning $80 million after taxes and paying dividends of $20 million has a retention rate of $60 million/$80 million, or 75%. A high retention rate makes it more likely a firms income and dividends will grow in future years.

NORMALIZED EARNINGS is earnings that have been adjusted in order to take into account the effect of cycles in the economy.

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