Key Terms Flashcards
What is a 10k
A 10k is an annual report filed by U.S. public companies with the SEC, providing a comprehensive overview of a company’s financial condition and operations
What is Accretion/Dilution analysis?
Accretion/Dilution analysis evaluates the impact of acquisition on the acquirer’s earnings per share, indicating whether it enhances or diminishes shareholder value
What is Arbitrage
Arbitrage involves buying and selling the same asset in different markets to profit from price differences.
What is a Balance sheet?
A financial statement that presents a snapshot of a company’s assets, liabilities, shareholder equity at a specific point in time
What is Beta
Measures the volatility of a security or portfolio relative to the market, indicating its riskiness
Bond
Fixed income securities that represent a loan made by an investor to a borrower, typically corporate or governmental. They pay periodic interest payments and return the principal amount at maturity
Buy-side
Refers to firms that purchase securities and other investment products and includes investment managers, pension funds, and hedge funds. They make investments for the benefit of their clients
Calendarization
Involves adjusting financial statements of companies with different fiscal year ends to make them comparable
Capital Asset Pricing Model (CAPM)
A model used to determine the expected return of an asset, based on its beta and expected market returns
Cash flow statement
A financial statements that summarizes a company’s cash inflows and outflow from operating, investing, and financing activities over a specific period
Cost of Goods Sold (COGS)
Represents the direct costs of producing the goods sold by a company, including raw materials, labor, and manufacturing overhead
Credit Rating
An assessment of the creditworthiness of a borrower, representing an evaluation of their ability to repay borrows funds
Deferred Revenue
Represents payments received by a company for goods or services that have not yet been delivered or performed
Depreciation Tax Shield
Refers to the tax saving that a company realizes from claiming depreciation expense on its taxable income
Discounted Cash Flow
DCF valuation method used to estimate the value of an investment based on its expected future cash flows adjusted for the time value of money
Dividend Yield
A financial ratio that shows how much money a company pays out in dividends each year relative to its stock price
Due Diligence
The comprehensive appraisal of a business undertaken by a prospective buyer, especially to establish its assets and liabilities and evaluate its commercial potential
Earnings Before Interest, Taxes, Depreciation, Amortization (EBITDA)
A measure of a company’s operational performance, excluding interest taxes, depreciation, and amortization
Earnings Per Share (EPS)
Represents the portion of a company’s profit allocated to each outstanding share of common stock, serving as an indicator of a company’s profitability
Enterprise Value
A measure of a company’s total value, including market capitalization, debt, and cash, providing a comprehensive valuation metric
Equity Value
The value of a company’s equity, calculated by subtracting total liabilities from total assets
Financial Leverage
The use of borrowed funds to acquire assets and increase the return on investment
Financial modeling
Involves creating a representation of a company’s financial situation to aid in decision making, valuation, and investment analysis
Fixed income
Refers to investment securities that pay fixed interest or dividend income until maturity such as bonds and preferred stocks
Free Cash Flow
The cash generated by a company that is available for distribution to investors after paying for expenses, investments, and debt repayment
Generally Accepted Accounting Principles (GAAP)
The standardized guidelines and principles for financial accounting and reporting in a specific jurisdiction, ensuring consistency and comparability
Gross Profit Percentage
(Gross profit / Revenue) - also the higher the better
Hedge Funds
Investment funds that employ various strategies to earn active returns for their investors. They can invest in a diverse range of assets, often using leverage
Income statement
A financial statements that summarizes a company’s revenues expenses and profits or losses over a specific period
Initial Public Offering (IPO)
The process by which a private company offers its shares to the public for the first time, becoming a publicly traded company.
Internal Rate of Return (IRR)
The discount rate at which the NPV of an investment is 0, representing the expected annualized return of the investment
Last Twelve Months (LTM)
Refers to the financial data for the most recent 12 month period available
Leveraged Buyout (LBO)
The acquisition of a company’s using a significant amount of borrowed money to meet the cost of acquisition. The assets of the company being acquired usually serve as collateral for the loans (ex. Excess cash)
Liquidity
Refers to the ease with which an asset can be converted into cash without affecting its market price
Market Capitalization
The total market valid if a company’s outstanding shares of stock, calculated by multiplying the share price by the number of outstanding shares
Mergers & Acquisitions (M&A)
Refers to the consolidation of companies or assets through various types of financial transactions, including mergers, acquisitions, consolidations and purchases
Mutual Funds
Pool money from many investors to purchase a diversified portfolio of stocks, bonds, or other securities. They are managed by professional fund managers
Negative working Capital
Occurs when a company’s current liabilities exceed its current assets, indicating potential liquidity problems
Net Present Value (NPV)
A valuation method that calculated the present value of future cash flows less the initial infant cost, helping to determine the profitability of an investment.
Net Profit Margin
Net profit margin(NI/S) * Asset turnover ratio (S/A) * equity multiple (A/E)
Net Working Capital (NWC)
The difference between a company’s current assets and current liabilities, representing its operational liquidity
Next Twelve Months (NTM)
Referee to the financial data projected for the upcoming twelve month period
Operating Leverage
Measures how much changes in sales affect operating income, indicating the level of fixed costs in a company’s cost structure
Paid-In-Kind
Refers to interest or dividends paid by issuing additional securities instead of cash
Portfolio Management
Involves making investment decisions to achieve an investors financial goals while managing risk
Price to Earnings Ratio (P/E Ratio)
A valuation ratio calculated by dividing the market value per share by the earnings per share, indicating how much each investors ate willing to pay for each dollar of earnings
Private Equity
Refers to investment funds organized as limited partnerships that invest in private companies or conduct buyouts of public companies. The goal is to improve and sell them for a profit
Property, Plant & Equipment (PP&E)
Tangible assets that a company uses in its operations to produce good and services
Purchase Price Allocation
The allocation of the purchase price paid in an acquisition to the assets, liabilities, and intangible assets acquired, for accounting and tax purposes
Research & Development
Refers to the activities undertaken by a company to innovate and introduce new products and services or to improve existing ones
Return on Equity
Net income / equity
Return on investment (ROI)
Measures the profitability of an investment, calculated as the net gain relative to the initial investment cost
Revenue Run Rate (RR)
A projection of future revenues based on the current periods revenue, usually calculated on a monthly or quarterly basis
Selling, General, Admin
Includes all non-production costs incurred by a company such as sales and marketing expenses, rent, and office supplies
Sell- Side
Referee to firms that issue, sell, or treads securities and includes investment banks, advisory services, and brokers. They serve as intermediaries between buyers and sellers. (Goldman Sachs, Morgan Stanley, BoA)
Short Selling
The practice of selling borrowed securities in anticipation of a price decline, with the intention of buying them back at a lower price.
Stocks
Ownership in a company and constitute a claim on part of the company’s assets and earnings z there are two main type of stock: commons and preferred
Sustainable growth
What is the maximum growth rate they can achieve without additional equity or debt financing
- (ending equity - beg equity)/ beg equity * retention rate
Total Addressable Market (TAM)
When modeling a private company you start with the TAM and figure out what percentage of recent or of the TAM the company could get
Venture Capital
A form of private equity financing provided by investors to startups and early stage companies with high growth potential in exchange for equity or ownership stake
Weighted Average Cost of Capital (WACC)
Represents the average rate of return a company is expected to pay its security holders, weighted according to the proportion of of debt and equity in the company’s capital structure
