Terms Flashcards
Free Cash Flow
The cash a company generates after paying for operating expenses and capital expenditures, used to assess financial health
Terminal Value
The estimated value of a company’s cash flows beyond the forecast period, reflecting its long-term growth potential
WACC
WACC is the average rate of return that a company is expected to pay to all its capital providers—both equity and debt holders. It reflects the cost of financing a company’s assets and serves as the discount rate for valuing future cash flows.
Enterprise Value
Enterprise Value is the total value of a company, reflecting both its equity (value to shareholders) and its debt (value owed to creditors). It represents the cost of acquiring the entire business, including its obligations.
Net Debt
Net Debt is the total amount of a company’s financial obligations (debt) minus its cash and short-term investments. It shows whether a company has more debt than cash or vice versa, providing insight into its financial leverage.
Equity Value
Equity Value is the portion of a company’s value that belongs to shareholders. It is calculated by taking the company’s total value (enterprise value) and subtracting any debt while adding excess cash. It represents the residual claim on the company after debts are paid.
Cap Ex
Capital Expenditures are funds that a company uses to acquire, upgrade, or maintain physical assets such as property, buildings, technology, or equipment. These investments are made to improve or expand the business.
Risk Free Rate
The Risk-Free Rate is the theoretical return on an investment with no risk of financial loss, typically represented by government bonds in stable economies. It sets the baseline for comparing other investments that involve risk.
Liquidity
Liquidity refers to how quickly and easily an asset can be converted into cash without significantly affecting its market value. In financial terms, it is a measure of how accessible a company’s or individual’s resources are for immediate use.
Red Herring
In finance, a Red Herring refers to a preliminary prospectus filed by a company planning to issue securities, such as in an Initial Public Offering (IPO). It provides important information about the offering but does not yet include the final details, such as the offer price or the number of shares being issued. The term comes from the bold, red warning statement on the document that indicates it is not yet final or approved.
Interest Payments
tax deductible
Private Credit
These loans are not traded on public markets and are part of the broader private debt market, which has grown significantly over the last decade as an alternative to traditional bank loans and public debt markets.
Debt Financing
Debt financing refers to the process by which a company raises money by borrowing funds from external sources, such as banks, investors, or other financial institutions. In exchange for the borrowed funds, the company agrees to repay the principal amount along with interest over a specified period. This form of financing allows businesses to access capital without giving up ownership or equity in the company.
do not have to give up equity
First Day Returns on Average
20%
D/V
The Debt-to-Value (D/V) ratio is a financial metric that measures the proportion of a company’s value that is financed by debt. It reflects the company’s capital structure and highlights how much of its enterprise value (the combined value of its equity and debt) is funded through borrowing.
Price to Earnings
The Price-to-Earnings (P/E) ratio is a widely used financial metric that measures the relationship between a company’s stock price and its earnings per share (EPS). It helps investors assess how much they are paying for each dollar of the company’s earnings and provides insight into the company’s valuation.
NPV
Net Present Value (NPV) is a financial metric used to evaluate the profitability of an investment or project. It measures the difference between the present value of cash inflows and the present value of cash outflows over time. By discounting future cash flows to their present value, NPV accounts for the time value of money, which reflects the principle that money today is worth more than the same amount in the future.
+ or - decides the project
IRR
there can be multiple IRR’s
