Business Definitions – E

early adopters – One type of adopter in Everett Rogers’ diffusion of innovations framework that describes buyers that follow “innovators” rather than be the first to purchase.

early majority – One type of adopter in Everett Rogers’ diffusion of innovations framework that describes those interested in new technology that wait to purchase until these innovations are proven to perform to the expected standard.

earnings – Also called income or profits, earnings are the famous “bottom line”: sales less costs of sales and expenses.

Earnings Before Interest and Taxes (EBIT) – Earnings before interest and taxes.

Earnings Before Interest Taxes Depreciation and Amortization (EBITDA) – Earnings Before Interest, Taxes, Depreciation and Amortization: equal to the Gross Margin (The difference between total sales revenue and total direct cost of sales) minus Total Operating Expenses (Tax-deductible expenses incurred in conducting normal business operations, such as wages and salaries, rent, etc.) , plus any Depreciation (The loss of value of assets over time) and amortization. This is similar to Earnings Before Interest and Taxes (EBIT). The difference between the two is that EBIT subtracts all expenses, including depreciation, as an expense, and EBITDA subtracts all expenses except depreciation and amortization.

economies of scale – The benefit that larger production volumes allow fixed costs to be spread over more units lowering the average unit costs and offering a competitive price and margin advantage. Producing in large volume often generates economies of scale. The per-unit cost of something goes down with volume because vendors charge less per unit for larger orders, and often production techniques and facilities cost less per unit as volume increases. Fixed costs are spread over larger volume.

effective demand – When prospective buyers have the willingness and ability to purchase an organization’s offerings.

effective tax rate – The effective tax rate is a comparison of final tax payments compared to actual profits. Usually the effective tax rate is somewhat less than the nominal tax rate because of deductions, credits, etc.

Entrepreneur In Heat (EIH) – Entrepreneur in Heat describes an entrepreneur that continues to develop new products and services beyond what the venture can support and inadvertently may diminish the focus and effectiveness of the activities supporting the venture’s primary revenue streams.

entrepreneur – Someone who starts a new business venture; someone who recognizes and pursues opportunities others may not see as clearly, and finds the resources necessary to accomplish his or her goals.

equity – Business ownership; capital. Equity can be calculated as the difference between assets and liabilities.

equity financing – The sales of some portion of ownership in a venture to gain additional capital for start-up.

evaluating ideas and opportunities – The process of considering ideas versus opportunities, and then screening those opportunities using objective criteria as well as personal criteria.

Everett Rogers – Author who studied and published work on the diffusion of innovation.

exclusive distribution – A distribution strategy whereby a producer sells its products or services in only one retail outlet in a specific geographical area.

expense – Websters calls it “a spending or consuming; disbursement, expenditure. What’s important about expenses for the purpose of business accounting is that expenses are deductible against taxable income. Common expenses are rent, salaries, advertising, travel, etc. Questions arise because some businesses have trouble distinguishing between expenses and purchase of assets, especially with development expenses. When your business purchases office equipment, if you call that an expense then you can deduct that amount from taxable income, so it reduces taxes.

experience curve – A visual representation, often based on a function of time, from exposure to a process that offers greater information and results in enhanced efficiency and operations advantage.

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