Finance Glossary

Accretion

An M&A deal that increases the acquirer's EPS post-close.

e.g. If buyer P/E > target P/E in an all-stock deal, it's typically dilutive.

Alpha

Excess return of an investment vs its benchmark.

e.g. A fund beating the S&P 500 by 3% generated 3% alpha.

Amortization

Spreading the cost of an intangible asset over its useful life.

Asset-Backed Security (ABS)

A bond collateralized by a pool of receivables like auto loans or credit cards.

Backstop

A commitment to buy any unsold portion of an issuance.

Basis Point (bps)

1/100th of a percent. 50 bps = 0.50%.

Beta

A stock's volatility relative to the market. Used in CAPM.

e.g. Beta of 1.2 means the stock moves ~1.2x with the market.

Book Value

Equity on the balance sheet (assets − liabilities).

Bridge Loan

Short-term financing to bridge until permanent financing closes.

Bulge Bracket

The largest global investment banks (GS, MS, JPM, BofA, Citi, etc.).

Buyout

Acquisition of a controlling stake, often by a PE sponsor.

CAGR

Compound Annual Growth Rate. (End/Start)^(1/n) − 1.

CapEx

Capital Expenditure — spending on long-lived assets like PP&E.

CAPM

Capital Asset Pricing Model: Re = Rf + β(Rm − Rf).

Carried Interest

PE/HF performance fee, typically 20% of profits above a hurdle.

CIM

Confidential Information Memorandum — detailed sell-side marketing doc.

Comparable Companies

Public peers used to derive trading multiples for valuation.

Convertible Bond

Debt that can convert into equity at a preset ratio.

Cost of Equity

Required return for equity holders; CAPM is the standard estimate.

DCF

Discounted Cash Flow — valuation by discounting projected free cash flows.

Debt Capital Markets (DCM)

IB group that helps issue bonds and other debt securities.

Diligence

Buyer's investigation of a target's financials, legal, and operations.

Dilution

Reduction in EPS or ownership %; M&A deals can be dilutive.

Dividend

Cash distribution to shareholders.

D&A

Depreciation and Amortization — non-cash charges added back in EBITDA.

EBIT

Earnings Before Interest and Taxes (Operating Income).

EBITDA

EBIT + D&A. A common cash-flow proxy and multiple denominator.

EPS

Earnings Per Share = Net Income / diluted shares outstanding.

Equity Capital Markets (ECM)

IB group that handles IPOs, follow-ons, and convertibles.

Enterprise Value

EV = Equity + Debt + Preferred + Minority − Cash.

Equity Research

Sell-side analysts publishing ratings and price targets.

Equity Risk Premium (ERP)

Extra return investors demand for stocks over the risk-free rate.

Fairness Opinion

A banker's letter stating that deal consideration is fair from a financial POV.

Float

Shares freely traded in the market (excluding insiders, lockups).

Free Cash Flow

FCF = CFO − CapEx (the cash available after reinvestment).

Goodwill

Premium paid over book value in an acquisition; sits on the BS.

Gross Margin

(Revenue − COGS) / Revenue.

Haircut

A reduction applied to a value, e.g., for risk or collateral discount.

Hedge Fund

Lightly regulated pooled investment vehicle pursuing varied strategies.

Hostile Takeover

Acquisition opposed by the target's board.

IOI

Indication of Interest — non-binding bid in early sell-side rounds.

IPO

Initial Public Offering — a private company's first sale of stock to the public.

IRR

Internal Rate of Return — annualized return that NPVs cash flows to zero.

Junior Debt

Subordinated debt that gets paid after senior debt in bankruptcy.

Leverage

Use of debt to magnify returns; also Debt/EBITDA as a metric.

Leveraged Buyout (LBO)

Acquisition financed mostly with debt, repaid by target cash flows.

Liquidity

Ease of converting an asset to cash without moving its price.

Lockup

Period (usually 180 days) post-IPO when insiders cannot sell.

LOI

Letter of Intent — non-binding bid laying out price and major terms.

LTM

Last Twelve Months — trailing financial period for multiples.

M&A

Mergers & Acquisitions.

Mezzanine

Hybrid debt with equity-like features; sits between senior debt and equity.

Minority Interest

Portion of a consolidated subsidiary not owned by the parent.

MOIC

Multiple on Invested Capital — total cash out / cash in (used in PE).

NDA

Non-Disclosure Agreement — signed before sharing a CIM.

NOPAT

Net Operating Profit After Tax = EBIT × (1 − t).

Net Debt

Total Debt − Cash & Equivalents.

Net Working Capital

Current Operating Assets − Current Operating Liabilities.

Pari Passu

Equal ranking in claim priority.

Pitchbook

Banker presentation pitching ideas or capabilities to a client.

Poison Pill

Defensive measure making a hostile takeover prohibitively expensive.

Precedent Transactions

Past M&A deals used to derive transaction multiples.

Private Equity

Funds that buy entire companies, improve them, and exit in 3–7 years.

Pro Forma

'As if' financials reflecting a transaction or adjustment.

Roadshow

Pre-IPO management meetings with institutional investors.

S-1

SEC filing for an IPO containing the prospectus.

Sell-Side

Banks and brokers that sell securities and services to investors.

Senior Debt

Top-priority debt in the capital structure; lowest yield.

Sponsor

PE firm controlling a portfolio company.

Spread

Difference between two prices/yields, or banker fee on an issuance.

Subordinated

Lower priority claim in bankruptcy than senior debt.

Syndicate

Group of underwriters sharing an issuance.

Synergy

Cost or revenue benefit from combining two companies.

Tender Offer

Public offer to buy shares directly from holders at a stated price.

Term Sheet

Non-binding outline of key deal terms.

Terminal Value

Value of cash flows beyond the explicit forecast period in a DCF.

Underwriting

Bank's commitment to buy securities from issuer and resell to investors.

Unlevered FCF

FCF before interest — discounted at WACC in a DCF.

WACC

Weighted Average Cost of Capital — the DCF discount rate.

Working Capital

Current Assets − Current Liabilities.

Yield

Annual income from a security as a % of its price.