What Is Overdraft Protection? Overdraft protection is an optional service that prevents the rejection of charges to a bank account (primarily checks, ATM transactions, debit-card charges) that are in excess of the available funds in the account. Overdraft protection, sometimes called cash-reserve checking, is used most frequently as a cushion for checking accounts, but it also can be applied
What Is Overextension? The term “overextension” refers to a situation in finance in which an individual or corporation has more debt than they can handle and repay. Consumers who must use more than a third of their net income to repay debt are generally considered to be overextended. They may need to consolidate their debts
What Is an Overfunded Pension Plan? An overfunded pension plan is a company retirement plan that has more assets than liabilities. In other words, there is a surplus amount of money needed to cover current and future monthly benefits to retirees. Although accounting standards allow the company to record the surplus as net income, it cannot
What Is Overhead? Overhead refers to the ongoing business expenses not directly attributed to creating a product or service. It is important for budgeting purposes but also for determining how much a company must charge for its products or services to make a profit. In short, overhead is any expense incurred to support the business
What Is the Overhead Rate? The overhead rate is a cost allocated to the production of a product or service. Overhead costs are expenses that are not directly tied to production such as the cost of the corporate office. To allocate overhead costs, an overhead rate is applied to the direct costs tied to production
What Is an Overhead Ratio? An overhead ratio is a measurement of the operating costs of doing business compared to the company’s income. A low overhead ratio indicates that a company is minimizing business expenses that are not directly related to production. The Formula for the Overhead Ratio Is The overhead ratio is arrived at
What Is Overlapping Debt? Overlapping debt refers to the financial obligations of one political jurisdiction that also falls partly on a nearby jurisdiction. Overlapping debt is common in the U.S. because most states are divided into numerous jurisdictions for different tax purposes, such as building a new public school or building a new road. Key
What Is Overleveraged? A business is said to be overleveraged when it is carrying too much debt when compared to its operating cash flows and equity. An overleveraged company has difficulty in paying its interest and principal payments and is often unable to pay its operating expenses because of excessive costs due to its debt
What Is an Over-Line? In the insurance industry, the term “over-line” refers to the portion of an insurance company’s coverage that exceeds the normal amount of coverage that they provide. Over-line coverage can occur when an insurer underwrites more policies than normal, or when a reinsurer accepts a larger amount of liabilities through a reinsurance
What Is an Overnight Position? Overnight positions are open trades that have not been closed or liquidated by the end of the normal trading day. Overnight positions are not held by day traders but are quite common in foreign exchange and futures markets. Long-term investors naturally hold overnight positions on an ongoing basis. Key Takeaways
