Definition of Reserve ratios

Reserve ratios

Specified percentages of deposits, established by the Federal reserve Board, that banks must
keep in a non-interest-bearing account at one of the twelve Federal reserve Banks.

Required reserves

The dollar amounts based on reserve ratios that banks are required to keep on deposit at a Federal reserve Bank.

Asset activity ratios

ratios that measure how effectively the firm is managing its assets.

Capitalization ratios

Also called financial leverage ratios, these ratios compare debt to total capitalization
and thus reflect the extent to which a corporation is trading on its equity. Capitalization ratios can be
interpreted only in the context of the stability of industry and company earnings and cash flow.

Common stock ratios

ratios that are designed to measure the relative claims of stockholders to earnings
(cash flow per share), and equity (book value per share) of a firm.

Coverage ratios

ratios used to test the adequacy of cash flows generated through earnings for purposes of
meeting debt and lease obligations, including the interest coverage ratio and the fixed charge coverage ratio.

Customary payout ratios

A range of payout ratios that is typical based on an analysis of comparable firms.

Excess reserves

Any excess of actual reserves above required reserves.

Feasible target payout ratios

Payout ratios that are consistent with the availability of excess funds to make
cash dividend payments.

Federal Reserve System

The central bank of the U.S., established in 1913, and governed by the Federal
reserve Board located in Washington, D.C. The system includes 12 Federal reserve Banks and is authorized
to regulate monetary policy in the U.S. as well as to supervise Federal reserve member banks, bank holding
companies, international operations of U.S.banks, and U.S.operations of foreign banks.

Financial leverage ratios

Related: capitalization ratios.

Free reserves

Excess reserves minus member bank borrowings at the Fed.

Leverage ratios

Measures of the relative contribution of stockholders and creditors, and of the firm's ability
to pay financing charges. Value of firm's debt to the total value of the firm.

Liquidity ratios

ratios that measure a firm's ability to meet its short-term financial obligations on time.

Liquidity ratios

ratios that measure a firm's ability to meet its short-term financial obligations on time.

Market value ratios

ratios that relate the market price of the firm's common stock to selected financial
statement items.

Official reserves

Holdings of gold and foreign currencies by official monetary institutions.

Profitability ratios

ratios that focus on the profitability of the firm. Profit margins measure performance
with relation to sales. Rate of return ratios measure performance relative to some measure of size of the
investment.

Rate of return ratios

ratios that are designed to measure the profitability of the firm in relation to various
measures of the funds invested in the firm.

Reserve

An accounting entry that properly reflects the contingent liabilities.

Reserve currency

A foreign currency held by a central bank or monetary authority for the purposes of
exchange intervention and the settlement of inter-governmental claims.

Reserve requirements

The percentage of different types of deposits that member banks are required to hold
on deposit at the Fed.

Short-term solvency ratios

ratios used to judge the adequacy of liquid assets for meeting short-term
obligations as they come due, including
1) the current ratio,
2) the acid-test ratio,
3) the inventory turnover ratio, and
4) the accounts receivable turnover ratio.

profit ratios

ratios based on sales revenue for a period. A measure of
profit is divided by sales revenue to compute a profit ratio. For example,
gross margin is divided by sales revenue to compute the gross margin
profit ratio. Dividing bottom-line profit (net income) by sales revenue
gives the profit ratio that is generally called return on sales.

Federal Reserve (the Fed)

The central bank in the United States, responsible for setting interest rates.

Excess Reserves

reserves of commercial banks in excess of those they are legally required to hold.

Federal Reserve Banks

The twelve district banks in the Federal reserve System.

Federal Reserve Board

Board of Governors of the Federal reserve System.

Federal Reserve System

The central banking authority responsible for monetary policy in the United States.

Foreign Exchange Reserves

A fund containing the central bank's holdings of foreign currency or claims thereon.

Fractional Reserve Banking

A banking system in which banks hold only a fraction of their outstanding deposits in cash or on deposit with the central bank.

International Reserves

See foreign exchange reserves.

Legal Reserve Requirement

See reserve requirement.

Required Reserves

reserves that the central bank requires commercial banks to hold.

Reserve Currency

A currency, frequently the U.S. dollar, that is used by other countries to denominate the assets they hold as international reserves.

Reserve Ratio

See reserve requirement.

Reserve Requirement

Fraction of total deposits that a commercial bank is required by the central bank to hold in the form of reserves.

Reserves

Commercial banks' reserves consist of their holdings of cash and their balances in deposits with the central bank. See also foreign exchange reserves, excess reserves, required reserves, reserve requirement.

Reserve Ratio

This calculation is used by states to determine the unemployment contribution rate to charge employers. The ongoing balance of a firm’s unclaimed
contributions from previous years is reduced by unemployment claims for the past year and then divided by the average annual payroll, resulting in a "reserve ratio".

Cookie Jar Reserves

An overly aggressive accrual of operating expenses and the creation of
liability accounts done in an effort to reduce future-year operating expenses.

Reserved material

Material that has been reserved for a specific purpose.

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