Discounted Cash Flow: A method of valuing a project, company, or asset using the concepts of the time value of money.
Return on Investment: A performance measure used to evaluate the efficiency of an investment. ROI is calculated by dividing benefit (return) by cost.
Cash Flow Return on Investment: A valuation model that assumes the stock market sets prices based on cash flow, not on corporate performance and earnings. CFROI is calculated by dividing cash flow by market recapitalization.
Compound Annual Growth Rate: The year-over-year growth rate of an investment over a specified period of time. It is an imaginary number that describes the rate at which an investment would have grown if it grew at a steady rate.
Net Present Value: The sum of the present values (PVs) of a time series of cash flows, both incoming and outgoing. It compares the present value of money today to the present value of money in the future, taking inflation and returns into account.
Leveraged Buyout: An acquisition (usually of a company) where the purchase price is financed through a combination of equity and debt and in which the cash flows or assests of the target are used to secure and repay the debt.
An asset class consisting of equity securities in operating companies that are not publicily traded on a stock exchange.
An investment fund that can undertake a wider range of investment and trading activities than other funds, but which is only open for investment from particular types of investors specified by regulators. Hedge funds most commonly trade liquid securities on public markets. They employ a wide variety of investment strategies and make use of techniques such as short selling and leverage.
A contract between two parties that specifies conditions (especially the dates, resulting values of the underlying variables, and notional amounts) under which payments are to be made between the parties. Most developed countries give special legal exemptions that make derivatives an attractie legal form to extend credit. However, because of their complexity and lack of transparency derivatives can cause capital markets to underprice credit risk. The use of derivations to mask credit risk from third parties contributed to the financial crisis of 2008 in the United States.
Financial capital provided to early-stage, high-potential, high risk, growth startup companies, with the interest of generating a return through an eventual realization event, such as an IPO or trade sale of the company. Venture capital is a subset of private equity. Therefore, all venture capital is private equity, but not all private equity is venture capital.
Fixed Income (Bonds)
Any type of investment that is not equity, which obligates the borrower/issuer to make payments of a fixed schedule, even if the number of the payments may be variable.
The residual claim or interest of the most junior class of investors in assests, after all liabilites are paid. An equity investment generally refers to the buying and holding of shares of stock on a stock market by individuals and firms in anticipation of income from dividends and capital gains, as the value of the stock rises.
An interet rate a central bank charges depository institutions that borrow reserves from it. The Federal Reserve's discount window is an example of a discount rate.
Weighted Average Cost of Capital: A calculation of a firm's cost of capital in which each category of capital is proportionately weighted. All captial sources - common stock, preferred stock, bonds and any other long-term debt - are included in a WACC calculation.
Depreciation refers to 1) the decrease in value of assests, and 2) the allocation of the cost of assets to periods in which the assets are used.
The allocation of a lump sum amount to different time periods, particularly for loans and other forms of finance, including related interest of other finance charges.
Acid Test / Quick Ratio
Measures the ability of a company to use its near cash or quick assets to extinguish or retire its current liabilities immediately. A company with a Quick Ration of less than 1 cannot currently pay back its current liabilities.
Assets are economic resources. Anything tangible or intangible that is capable of being owned or controlled to produce value and that is held to have positive economic value is considered an asset. Assests represent value of ownership that can be converted into (or already is) cash.
The amount of sales generated for every dollar's worth of assets. It is calculated by dividing sales in dollars by assets in dollars.
A summary of the financial balances of a sole proprietorship, a business partnership, a corporation or other business organization, such as an LLC or an LLP. Assets, liabilities, and ownership equity are listed as of a specific date, such as the end of its financial year.
An estimation of the revenue and expenses over a specified future period of time. A surplus budget means profits are anticipated, a balanced budget means that revenues are expected to equal expenses, and a deficit budget means expenses will exceed revenues.
Total assets less current liabilities, or fized assets plus working capital. It is the value of the assets that contriubute to a company's ability to generate revenues, i.e. their liquidity.
The movement of money into or out of a business, project, or financial product. Measurement of cashflow can be used for calculating other parameters that give information on a company's value and situation.
A financial statement that shows how changes in balance sheet accounts and income affect cash and cash equivalents, and breaks the analysis down to operating, investing, and financing activities. The statement captures both the current operating results and the accompanying changes in the balance sheet.
Cost of Debt Ratio
The interest expense over a given period as a percentage of the average outstanding debt over the same period. For example: cost of interest divided by average outstanding debt.
Cost of Goods Sold: The inventory costs of those good a business has sold during a particular period. Costs include all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition.
A balance sheet account that represents the value of all assets that are reasonably expected to be converted into cash within one year in the normal course of business. Current assets include cash, accounts receivable, inventory, marketable securities, prepaid expenses and other liquid assets that can be readily converted to cash.
A liquidity ratio that measures a company's ability to pay short-term obligations. It is caluculated by dividing Current Assets by Current Liabilities.
All liabilities of the business that are to be settled in cash within the fiscal year or the operating cycle of a given firm, whichever period is longer. They are obligations that will be settled by current assets or by the creation of new current liabilities.
Payments made by a corporation to its shareholder members. It is the portion of corporate profits paid out to stockholders.