Stock Variables in Finance and Economics
Overview: Stock variables in finance and economics are numeric values that represent snapshots taken at a point in time. The other principal category of financial and economic measurements is that of flow variables (follow the link for the definition thereof). While the phrase stock variable is a common part of economic parlance, it is less common in the lexicon of financial jargon, although the concept and the significance thereof are much the same in both fields.
Warning: Stock variables, it should be noted, are an entirely separate concept from that of common stock or the stock exchange. Do not confuse these superficially similar bits of terminology.
Examples in Economics: Some common examples of stock variables in economics include, but are not limited to:
Examples in Finance: Common stock variables in finance include, but are not limited to:
In fact, a balance sheet is a collection of stock variables, given that all the figures reported therein have been calculated as of a specified point in time. Exact categories and classifications used will vary by company and be influenced by industry practice and regulatory requirements.
Significance: Because stock variables are point in time observations, their values may not be representative of a company's normal financial position over a longer period of time, such as during the course of an entire fiscal quarter or fiscal year. This can be due either to random events or to the deliberate manipulation of financial results by the company, a process traditionally referred to as window dressing. For example, a clever chief financial officer or controller, working in concert with corporate treasury, might find a means for temporarily removing certain debts or loans from the company's balance sheet as of the reporting date, thereby enhancing the apparent financial strength of the firm.
The limitations of point in time stock variables as indicators of long term financial condition thus are a concern for financial analysts (such as those involved in stock research or general securities research) who are reliant on audited financial statements for their data.
Warning: Stock variables, it should be noted, are an entirely separate concept from that of common stock or the stock exchange. Do not confuse these superficially similar bits of terminology.
Examples in Economics: Some common examples of stock variables in economics include, but are not limited to:
- Capital stock (the estimated value of all fixed investments within an economic unit)
- Population
- Number of employed people
- Number of unemployed people
- Size of the total workforce
- The unemployment rate (ratio of the unemployed to the total workforce)
- Money supply
- Personal wealth
- Bank deposits
- Personal net worth
Examples in Finance: Common stock variables in finance include, but are not limited to:
- Assets
- Current assets
- Cash
- Accounts receivable
- Marketable securities
- Inventory
- Prepaid expenses
- Land
- Buildings
- Accumulated depreciation
- Goodwill
- Liabilities
- Current liabilities
- Accounts payable
- Salaries payable
- Interest payable
- Taxes payable
- Short term debt
- Long term debt
- Bank loans
- Mortgage obligations
- Deferred income taxes
- Capital stock
- Retained earnings
- Net worth
In fact, a balance sheet is a collection of stock variables, given that all the figures reported therein have been calculated as of a specified point in time. Exact categories and classifications used will vary by company and be influenced by industry practice and regulatory requirements.
Significance: Because stock variables are point in time observations, their values may not be representative of a company's normal financial position over a longer period of time, such as during the course of an entire fiscal quarter or fiscal year. This can be due either to random events or to the deliberate manipulation of financial results by the company, a process traditionally referred to as window dressing. For example, a clever chief financial officer or controller, working in concert with corporate treasury, might find a means for temporarily removing certain debts or loans from the company's balance sheet as of the reporting date, thereby enhancing the apparent financial strength of the firm.
The limitations of point in time stock variables as indicators of long term financial condition thus are a concern for financial analysts (such as those involved in stock research or general securities research) who are reliant on audited financial statements for their data.
