Financial Statements
the sum of the after-tax profit of a business plus depreciation and other noncash charges: used as an indication of internal funds available for stock dividends, purchase of buildings and equipment, etc.
Cash Flow
What does LP stand for?
Limited Partner
moneys owed; debts or pecuniary obligations
Liability
In a DCF, this weighted blend of the after tax cost of debt and the cost of equity serves as the discount rate applied to unlevered free cash flows and represents the blended return required by all capital providers.
WACC
When a company wants to raise money by selling small ownership pieces of itself to the public for the very first time, it does so through one of these offerings.
IPO
the monetary value of a property or business beyond any amounts owed on it in mortgages, claims, liens
Equity
This is how general partners in a private equity fund typically get paid their share of profits.
Carried Interest
Also called the statement of financial position, this report captures what a company owns, what it owes, and what remains for shareholders at a single moment in time rather than over a period.
Balance Sheet
Unlike comparable company analysis, this valuation method looks backward at actual M&A deals to derive multiples, and it typically produces higher values because the multiples include a control premium paid by the acquirer.
precedent transactions
When a company wants to raise money by selling small ownership pieces of itself to the public for the very first time, it does so through one of these offerings.
Dow Jones Industrial Average
any yearly period without regard to the calendar year, at the end of which a firm, government, etc., determines its financial condition.
Fiscal Year
This fee structure, standard across most hedge funds, charges investors a 2% annual management fee on assets plus a 20% performance fee on profits earned above a benchmark or hurdle.
Two / Twenty
Under the indirect method, preparers of this statement start with net income and then add back this non cash expense, which represents the periodic allocation of a tangible asset's cost over its useful life.
What is depreciation?
In a discounted cash flow model, this final period value typically represents the majority of total valuation and is most commonly calculated using the Gordon Growth formula, which divides the next year's free cash flow by the discount rate minus the perpetual growth rate.
Terminal Value
Paid out of a company's profits, usually on a quarterly basis, this cash payment to shareholders is one of the two main ways investors earn a return on a stock, the other being price appreciation.
Dividend
funds invested or available for investment in a new or unproven business enterprise.
Venture Capital
Investors in a private equity or venture capital fund commit capital up front but do not send the money until the fund manager issues one of these, a formal request to wire a portion of the commitment to be deployed into a specific investment.
Net income plus interest, taxes, depreciation, and amortization produces this controversial non GAAP profitability metric, famously dismissed by Charlie Munger as a proxy for cash earnings because it ignores the real cost of maintaining the asset base.
EBITDA
Calculated as EBIT times one minus the tax rate, plus depreciation and amortization, minus capex, minus the change in net working capital, this cash flow figure is the standard input to an unlevered DCF.
unlevered free cash flow, or free cash flow to the firm?
Filed within 40 days of quarter end, this SEC document contains a public company's unaudited quarterly financial statements, management discussion and analysis, and disclosures of any material risks that emerged during the period.
This contra equity account, which sits below retained earnings and reduces total stockholders' equity, is recorded at cost under the most common US method and does not create a gain or loss on the income statement when later reissued above or below its carrying value.
Treasury Stock
Calculated as total distributions plus remaining net asset value, divided by paid in capital, this private fund performance metric measures how many dollars an investor has received and still holds for every dollar actually contributed.
TVPI, or total value to paid in capital
Often called a company's takeout price, this capital structure neutral valuation metric equals market capitalization plus total debt, minus cash and cash equivalents, and is the numerator of the EV to EBITDA multiple.
enterprise value
Private equity firms typically hold an LBO target for about this many years before selling, long enough to improve the business and pay down debt but short enough to return capital to their investors.
five years? (Accept three to seven.)
When a short seller borrows shares and the stock price rises sharply, the broker may issue this demand for additional collateral, and failure to meet it can force the position to be closed out at a loss, sometimes triggering a cascade known as a short squeeze.
Margin Call