General Terms Flashcards
Equity (formula)
The amount of money that would be returned to a company’s shareholders if all of the assets were liquidated
Formula: Equity = Total assets - Total liabilities
Dividends
a share of a company’s profits passed on to the shareholders periodically (on a quarterly basis)
Hedge fund
pooled investment fund that trades in relatively liquid assets
Leverage
investment strategy of using borrowed money to increase the potential return of an investment. Can also refer to the amount of debt a firm uses to finance assets
Derivitives
financial security w/ a value that is reliant upon an underlying asset. It is contract between 2 or more parties, and the derivative derives its price from fluctuations in the underlying asset (ex/ stock, bonds, commodities, currencies, interest rates, market indexes)
Pro forma
method of calculating financial results using certain projections or presumptions
Shell company
company or corporation that only exists on paper (no office or employees), but can have a bank account and hold passive investments or be the registered owner of assets
Asset
a resource with economic value that is owned with the expectation that it will provide future benefit
Write off
accounting action, means to reduce the value of an asset while also debiting a liabilities account
Security
fungible and tradable financial instruments to raise capital
Convertible bonds
bonds that can be converted into shares of common stock in the issuing company
RBIC
rural business investment company
CAGR
compound annual growth rate
ROR (formula)
Rate of return = annual income + (ending price – beginning price)
Amortization
spreading payments over multiple periods. It is a non-cash expense that reduces the value of a company’s definite life intangible assets and also reduces reported earnings
D&A
depreciation and amortization. Reflects the discrepancies among different companies in capital spending and depreciation policy. It decreases a company’s reported earnings, but it does not decreases its FCF
EBIT (formula)
Revenue - COGS
Realized investment
when an investment is sold for a higher price than what it was purchased
FMV (definition and conditions)
Fair market value – price an asset would sell for on the open market
Conditions: buyers and sells are knowledgeable of the asset, behaving in their best interest, free of pressure to trade, given time to complete the transaction
FAS 157 FMV
financial accounting standard 157 fair market value. Defines fair value, the disclosures, and establishes the framework for measuring fair value in GAAP
CRA
community reinvestment act
LOI
letter of intent
ROI
return on investment
ROE
return on equity
PIPE
private investment in PE
PIK
Payment in kind. The use of a good or service as payment instead of cash
Fiduciary
A person who holds a legal or ethical relationship of trust with one or more other parties (person or group of persons). Typically, a fiduciary prudently takes care of money or other assets for another person
PPM
Private placement memorandum. A document created to sell investments in securities (typically stocks and bonds) to private investors
Claw back
recovery of money already distributed
In-specie
describes the transfer of an asset in its current form rather than in the equivalent amount of cash
ESG
Environmental social governance. A company’s commitment to do more than make a profit and contribute to the environment and social causes
Payor
someone who pays money in exchange for goods/services
Payor contracts
where a payor provides, arranges for, or assumes financial risk for some HC coverage
Blockers
a company that has been used by tax exempt individuals to protect their investments from taxation when they participate in PE or w/ hedge funds
Investment vehicle
product used by investors to gain positive returns. They can be low or high risk
Wall crossing
a publicly listed company tries to raise capital through large stock sales by having institutional investors pre-arranged to buy substantial blocks of newly issued stock ahead of a public announcement of the offering as part of a confidential offering
Red tape
excessive formality to rules
RFI
request for information
Medicare
covers patients over 65, though e/ end stage renal disease, and ALS
Medicaid
covers patients that are in financial need
Distribution waterfall
a way to allocate investment returns or capital gains among participants of a group or poled investment. It’s the pecking order in which returns are given to LPs and GPs
NSS
net share settlement
“In the money” (ITM)
below the underlying security’s price
“Out of the money” (OTM)
above the underlying security’s price
Put
Gives investors the right (not an obligation) to sell a stock in the future. Investors buy puts when they think a stock is going down. Puts allow them to sell at the strike price
Call
Gives investors the right (not an obligation) to buy a stock in the future. Investors buy calls when they think a stock will go up. Calls allow them to buy at the strike price
Tuck in acquisition (bolt-on)
When the acquiring company merges the acquired company into a division of the acquiring entity. The acquiring company wishes to obtain a significant comparative advantage but at a lower cost than would be required for the acquired company to implement the changes on their own. It is a buy and build strategy
EPS
earnings per share
D&I
diversity and inclusion
NWC (definition and formula)
net working capital
Formula: NWC = (accounts receivable + inventory + prepaid expenses and other current assets) – ( accounts payable + accrued liabilities + other current liabilities)
A/R
Accounts receivable. Amounts owed to a company for its products and services sold on credit shown as an asset on a company’s balance sheet
A/P
Accounts payable. Amounts owed by a business to its suppliers shown as a liability on a company’s balance sheet.
DSO (definition and formula)
Days sales outstanding. Provides a gauge for how well a company is managing the collection of it’s A/R by measuring the number of days it takes to collect payment after the sale of a product or service. The lower the DSO, the faster a company receives cash from credit sales
Formula: DSO = (A/R / sales) x 365
Intrinsic value
valuation implied for a target by a DCF
WACC
Weighted average cost of capital. A discount rate associated w/ its business and financial risks
Capex
capital expenditures (not an expense)
EMM
exit multiple method
PGM
perpetuity growth method
CIM
confidential info memo
SG&A (SGA)
Selling, growth, and administrative expense. Sum of all direct and indirect selling expenses and all general and administrative expenses (G&A) of a company. Includes the costs to sell and deliver products and services and the costs to manage the company
PP&E
property, plant, and equipment. They are long term fixed assets, tangible
YoY
year over year
DIH (definition and formula)
Days inventory held. Projects inventory by measuring the days it takes a company to sell its inventory
Formula: DIH = (inventory / COGS) x 365
Inventory
The value of a company’s raw materials, work in progress, and finished goods. An increase in inventory represents a use of cash
Inventory turns (definition and fomula)
Measures the number of times a company turn over its inventory in a given year
Formula: Inventory turns = COGS / inventory
DPO
Days payable outstanding. Measures the number of days it takes for a company to make a payment on its outstanding purchases of goods and services. The higher a company’s DPO, the more time it has available to use its cash on hand for various business purposes before paying outstanding bills
Accrued liabilities
Expenses such as salaries, rent, interest, and taxes that have been incurred by a company but not yet paid
Underwritten financing
specific conditions in an investment banks commitment letter that includes the sponsor’s contribution of an acceptable level of cash equity and a minimum level of EBITDA for the target
MBO
management buyout. An LBO led by a target’s existing management team
Multiple expansion
selling the target for a higher multiple of EBITDA upon exit
TVM
Time value of money. For a given amount of cash at exit, a shorter timeline produces a higher IRR for the sponsor
IRR
Internal rate of return. Method of calculating an investments rate of return. Internal b/c it doesn’t include external factors like inflation, cost of capital, risk free rates
NPV
Net present value. The difference between the present value of cash inflows and present value of cash outflows in a certain period of time
Tranches
pieces of a pooled collection of securities that are split up according to risk in order to be marketable to investors
Bullet loan
loan that requires a balloon payment (lump sum) at the end of the term. No payments or interest only payments can be made through the life of the loan
QIB
qualified institutional buyers
TMT
technology, media, telecom sector
R&D
research and development
REIT
real estate investment trust
FY
fiscal year
LTAC
long term acute care
ALOS
average length of stay
P&L
profit and loss
DEi
diversity, equity, and inclusion
MOIC
multiple on invested capital
Overallotment
an option commonly available to underwriters that allows the sale of additional shares that a company plans to issue in an IPO or secondary/follow-on offering
Underwriters
the party that assesses and evaluates the risk of whatever their particular field has (mortgage, loan, health policy, investment, etc.) and whether or not it is worth it for their company to assume that risk
IVA
Industry value added. The market value of goods and services produced by the industry minus the COGS used in production. It is also described as the industry’s contribution to GDP, or profit plus wages and depreciation
IOI
indication of interest. Shows a conditional, non-binding interest in buying a security
Operating margin
Also called return on sales (ROS). It’s a measure of how much profit a company makes on a dollar of sales after paying for variable costs of production (like wages and raw materials), but before paying interest or taxes.
Formula: operating income (EBIT = Revenue - COGS) / net sales (revenue).
ACA
Affordable Care Act
Q of E
Quality of earnings. A company’s quality of earnings is revealed by dismissing any anomalies, accounting tricks, or one-time events that may skew the real bottom-line numbers on performance. Once these are removed, the earnings that are derived from higher sales or lower costs can be seen clearly. It is oriented around defining true EBITDA for LTM
Discount rate
The interest rate used for DCF analysis to account for the time value of money. This discount rate is used to arrive at the present values of future cash flows
Premium
The number of money investors are willing to pay in addition to the par value of the stock
Subordinated debt
Any type of debt that’s paid after all other corporate senior debts and loans are repaid
Unsubordinated debt
A type of obligation that must be repaid before any other form of debt.
Conversion price
The price per share at which a convertible security, such as corporate bonds or preferred shares, can be converted into common stock
Convertible bond
a type of hybrid security that has features of a bond, such as interest payments, while also having the option to own the underlying stock.
PAC
Post-acute care
Management rollover
The amount of equity the managers of a target acquisition invest from the buyout into the new company which is now controlled by the financial sponsor
Escrow
A contractual arrangement in which a third party (the stakeholder or escrow agent) receives and disburses money or property for the primary transacting parties, with the disbursement dependent on conditions agreed to by the transacting parties
Cash basis of accounting
Practice of recording revenue when cash has been received, and recording expenses when cash has been paid out
Accrual basis of accounting
Practice of recording revenue when earned and expenses are recorded when liabilities are incurred or assets consumed, irrespective of any inflows or outflows of cash.
Matching principle
Requires that revenues and any related expenses be recognized together in the same reporting period
Warrents
A security that entitles the holder to buy the underlying stock of the issuing company at a fixed price called exercise price until the expiration date.
Working capital
A financial metric which represents operating liquidity available to a business, organization, or other entity, including governmental entities
Operating expenses
An ongoing cost for running a product, business, or system
Capital expenditures
The money an organization or corporate entity spends to buy, maintain, or improve its fixed assets
Common stock
A security that represents ownership in a corporation. This form of equity ownership typically yields higher rates of return long term
Prospectus
A disclosure document that describes a financial security for potential buyers
Top line
A reference to gross figures reported by a company, such as sales or revenue. It is called the top line because it is displayed at the very top of a company’s income statement, and is reserved for the reporting of gross sales or revenue.
CPA
Certified public accountant
Run rate
The financial performance of a company, using current financial information as a predictor of future performance
Quality of earnings
A report that dismisses any anomalies, accounting tricks, or one-time events that may skew the real bottom-line numbers on performance
RAF score
Risk adjusted factor score. Medical risk adjustment model used to represent a patient’s health status. RAF scores are used to predict the cost for a healthcare organization to care for a patient.
Accretion
Refers to a positive change in value following a transaction
