Shortfall
 |
Definition of 'Shortfall'The amount by which a financial obligation or liability exceeds the amount of cash that is available. A shortfall can be temporary in nature, arising out of a unique set of circumstances or it can be persistent, in which case it may indicate poor financial management practices. Regardless of the nature of a shortfall, it is a significant concern for a company, and is usually corrected promptly through short-term loans or equity injections. |
|
Investopedia explains 'Shortfall'For example, a temporary shortfall for a small company may arise when an accident at its production facility impedes output and revenues in a particular month. In this case, the company may resort to short-term borrowings to meet payroll and other operating expenses.A typical long-term shortfall is the pension shortfall faced by many organizations whose pension obligations exceed the return they can generate from their pension assets. This situation generally occurs when returns from equity markets are well below average. Shortfall risk can be mitigated through the use of efficient hedging strategies, which aim to offer protection from adverse price movements. As an example, resource companies often sell part of their future output in the forward market, especially if they are expecting to incur substantial capital expenditures in future. Such hedging helps to ensure that the finances required for a future financial obligation are available. |
Related Definitions
Articles Of Interest
-
Will Your Retirement Income Be Enough?
Find out how to determine whether you're on the path to a comfortable retirement, or financial ruin. -
The Investing Risk Of Underfunded Pension Plans
Determine the risk to a company's EPS and financial condition resulting from an underfunded pension plan. -
Top 3 Retirement Savings Tips For 55- To 64-Year-Olds
Find ways to save money and increase your nest egg for the fast-approaching golden years. -
How To Evaluate Pension Risk By Analyzing Annual Costs
Learn how to assess whether a company's pension plan is posing more risks than what the footnotes indicate. -
5 ETFs Flaws You Shouldn't Overlook
Despite their popularity, exchange traded funds have some drawbacks that investors should know about. -
Using The Price-To-Book Ratio To Evaluate Companies
The P/B ratio can be an easy way to determine a company's value, but it isn't magic! -
Liquidity Vs. Solvency
Learn about the differences between these two words and how each one is used in the stock market. -
Should You Invest Your Entire Portfolio In Stocks?
It is true that stocks outperform bonds and cash in the long run, but that statistic doesn't tell the whole story. -
The Uses And Limits Of Volatility
Check out how the assumptions of theoretical risk models compare to actual market performance. -
R-Squared
Learn more about this statistical measurement used to represent movement between a security and its benchmark.
