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Private Equity > General Terms > Flashcards

General Terms Flashcards

1
Q

Equity (formula)

A

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

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2
Q

Dividends

A

a share of a company’s profits passed on to the shareholders periodically (on a quarterly basis)

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3
Q

Hedge fund

A

pooled investment fund that trades in relatively liquid assets

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4
Q

Leverage

A

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

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5
Q

Derivitives

A

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)

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6
Q

Pro forma

A

method of calculating financial results using certain projections or presumptions

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7
Q

Shell company

A

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

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8
Q

Asset

A

a resource with economic value that is owned with the expectation that it will provide future benefit

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9
Q

Write off

A

accounting action, means to reduce the value of an asset while also debiting a liabilities account

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10
Q

Security

A

fungible and tradable financial instruments to raise capital

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11
Q

Convertible bonds

A

bonds that can be converted into shares of common stock in the issuing company

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12
Q

RBIC

A

rural business investment company

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13
Q

CAGR

A

compound annual growth rate

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14
Q

ROR (formula)

A

Rate of return = annual income + (ending price – beginning price)

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15
Q

Amortization

A

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

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16
Q

D&A

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

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17
Q

EBIT (formula)

A

Revenue - COGS

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18
Q

Realized investment

A

when an investment is sold for a higher price than what it was purchased

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19
Q

FMV (definition and conditions)

A

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

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20
Q

FAS 157 FMV

A

financial accounting standard 157 fair market value. Defines fair value, the disclosures, and establishes the framework for measuring fair value in GAAP

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21
Q

CRA

A

community reinvestment act

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22
Q

LOI

A

letter of intent

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23
Q

ROI

A

return on investment

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24
Q

ROE

A

return on equity

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25
Q

PIPE

A

private investment in PE

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26
Q

PIK

A

Payment in kind. The use of a good or service as payment instead of cash

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27
Q

Fiduciary

A

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

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28
Q

PPM

A

Private placement memorandum. A document created to sell investments in securities (typically stocks and bonds) to private investors

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29
Q

Claw back

A

recovery of money already distributed

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30
Q

In-specie

A

describes the transfer of an asset in its current form rather than in the equivalent amount of cash

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31
Q

ESG

A

Environmental social governance. A company’s commitment to do more than make a profit and contribute to the environment and social causes

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32
Q

Payor

A

someone who pays money in exchange for goods/services

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33
Q

Payor contracts

A

where a payor provides, arranges for, or assumes financial risk for some HC coverage

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34
Q

Blockers

A

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

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35
Q

Investment vehicle

A

product used by investors to gain positive returns. They can be low or high risk

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36
Q

Wall crossing

A

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

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37
Q

Red tape

A

excessive formality to rules

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38
Q

RFI

A

request for information

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39
Q

Medicare

A

covers patients over 65, though e/ end stage renal disease, and ALS

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40
Q

Medicaid

A

covers patients that are in financial need

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41
Q

Distribution waterfall

A

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

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42
Q

NSS

A

net share settlement

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43
Q

“In the money” (ITM)

A

below the underlying security’s price

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44
Q

“Out of the money” (OTM)

A

above the underlying security’s price

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45
Q

Put

A

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

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46
Q

Call

A

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

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47
Q

Tuck in acquisition (bolt-on)

A

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

48
Q

EPS

A

earnings per share

49
Q

D&I

A

diversity and inclusion

50
Q

NWC (definition and formula)

A

net working capital
Formula: NWC = (accounts receivable + inventory + prepaid expenses and other current assets) – ( accounts payable + accrued liabilities + other current liabilities)

51
Q

A/R

A

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

52
Q

A/P

A

Accounts payable. Amounts owed by a business to its suppliers shown as a liability on a company’s balance sheet.

53
Q

DSO (definition and formula)

A

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

54
Q

Intrinsic value

A

valuation implied for a target by a DCF

55
Q

WACC

A

Weighted average cost of capital. A discount rate associated w/ its business and financial risks

56
Q

Capex

A

capital expenditures (not an expense)

57
Q

EMM

A

exit multiple method

58
Q

PGM

A

perpetuity growth method

59
Q

CIM

A

confidential info memo

60
Q

SG&A (SGA)

A

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

61
Q

PP&E

A

property, plant, and equipment. They are long term fixed assets, tangible

62
Q

YoY

A

year over year

63
Q

DIH (definition and formula)

A

Days inventory held. Projects inventory by measuring the days it takes a company to sell its inventory

Formula: DIH = (inventory / COGS) x 365

64
Q

Inventory

A

The value of a company’s raw materials, work in progress, and finished goods. An increase in inventory represents a use of cash

65
Q

Inventory turns (definition and fomula)

A

Measures the number of times a company turn over its inventory in a given year

Formula: Inventory turns = COGS / inventory

66
Q

DPO

A

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

67
Q

Accrued liabilities

A

Expenses such as salaries, rent, interest, and taxes that have been incurred by a company but not yet paid

68
Q

Underwritten financing

A

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

69
Q

MBO

A

management buyout. An LBO led by a target’s existing management team

70
Q

Multiple expansion

A

selling the target for a higher multiple of EBITDA upon exit

71
Q

TVM

A

Time value of money. For a given amount of cash at exit, a shorter timeline produces a higher IRR for the sponsor

72
Q

IRR

A

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

73
Q

NPV

A

Net present value. The difference between the present value of cash inflows and present value of cash outflows in a certain period of time

74
Q

Tranches

A

pieces of a pooled collection of securities that are split up according to risk in order to be marketable to investors

75
Q

Bullet loan

A

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

76
Q

QIB

A

qualified institutional buyers

77
Q

TMT

A

technology, media, telecom sector

78
Q

R&D

A

research and development

79
Q

REIT

A

real estate investment trust

80
Q

FY

A

fiscal year

81
Q

LTAC

A

long term acute care

82
Q

ALOS

A

average length of stay

83
Q

P&L

A

profit and loss

84
Q

DEi

A

diversity, equity, and inclusion

85
Q

MOIC

A

multiple on invested capital

86
Q

Overallotment

A

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

87
Q

Underwriters

A

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

88
Q

IVA

A

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

89
Q

IOI

A

indication of interest. Shows a conditional, non-binding interest in buying a security

90
Q

Operating margin

A

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).

91
Q

ACA

A

Affordable Care Act

92
Q

Q of E

A

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

93
Q

Discount rate

A

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

94
Q

Premium

A

The number of money investors are willing to pay in addition to the par value of the stock

95
Q

Subordinated debt

A

Any type of debt that’s paid after all other corporate senior debts and loans are repaid

96
Q

Unsubordinated debt

A

A type of obligation that must be repaid before any other form of debt.

97
Q

Conversion price

A

The price per share at which a convertible security, such as corporate bonds or preferred shares, can be converted into common stock

98
Q

Convertible bond

A

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.

99
Q

PAC

A

Post-acute care

100
Q

Management rollover

A

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

101
Q

Escrow

A

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

102
Q

Cash basis of accounting

A

Practice of recording revenue when cash has been received, and recording expenses when cash has been paid out

103
Q

Accrual basis of accounting

A

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.

104
Q

Matching principle

A

Requires that revenues and any related expenses be recognized together in the same reporting period

105
Q

Warrents

A

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.

106
Q

Working capital

A

A financial metric which represents operating liquidity available to a business, organization, or other entity, including governmental entities

107
Q

Operating expenses

A

An ongoing cost for running a product, business, or system

108
Q

Capital expenditures

A

The money an organization or corporate entity spends to buy, maintain, or improve its fixed assets

109
Q

Common stock

A

A security that represents ownership in a corporation. This form of equity ownership typically yields higher rates of return long term

110
Q

Prospectus

A

A disclosure document that describes a financial security for potential buyers

111
Q

Top line

A

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.

112
Q

CPA

A

Certified public accountant

113
Q

Run rate

A

The financial performance of a company, using current financial information as a predictor of future performance

114
Q

Quality of earnings

A

A report that dismisses any anomalies, accounting tricks, or one-time events that may skew the real bottom-line numbers on performance

115
Q

RAF score

A

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.

116
Q

Accretion

A

Refers to a positive change in value following a transaction

Private Equity (6 decks)

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