Glossary of Terms


Accounts Receivable Ageing
A periodic report showing all outstanding receivable balances, by customer, according to the length of time an invoice has been outstanding.

Accredited Investor
A person or entity that meets certain requirements under the federal securities laws for investment purposes. For example, a person is an accredited investor if he or she has a net worth (with spouse) that exceeds $1 million at the time of the purchase of securities, or has income either individually that exceeds $200,000 in each of the two most recent years or jointly with a spouse that exceeds $300,000 for the two most recent years.

When a firm buys another firm.

Acquisition of Assets
A merger or consolidation in which an acquirer purchases the selling firm’s assets.

Acquisition of Stock
A merger or consolidation in which an acquirer purchases the acquiree’s stock.

Acting In Concert
Actively co-operating, pursuant to an agreement or understanding (whether formal or informal) between persons, to be controllers of a company, through the acquisition by any of them of shares in that company.

Adjusted Book Value Method
A method within the asset approach whereby all assets and liabilities (including off-balance sheet, intangible, and contingent) are adjusted to their fair market value.

Agreement in Principle
An outline of the understanding between the parties, including the price and the major terms, often referred to as a letter of intent.

Angel Investor
A wealthy individual (accredited investor) who provides seed or early-stage financing from his or her own funds in return for equity. Angel investors sometimes provide industry knowledge and contacts, and sometimes play a direct role on the board, but infrequently participate in management. Angels invest either as individuals or in groups.

An announcement made to the public through the exchange or information system recognized for the purpose by the authority.

Announcement Date
Date on which particular news concerning a given company is announced to the public.

A regular periodic payment made by an insurance company to a policyholder for a specified period of time.

Anti-Dilution Provisions
An adjustment mechanism for preferred stock, options, or convertible securities that provides the holder the right to receive additional securities in the event of future financing in which securities are sold at a lower price than originally paid by the holder of the right.

Any or All Bid
This is often used in risk arbitrage. It is a takeover bid for which the acquirer offers to pay a set price for all outstanding shares of the target company, or any part there of; contrasts with a two-tier bid.

Arbitrage Pricing Theory
A multivariate model for estimating the cost of equity capital, which incorporates several systematic risk factors.

Asset Utilization Ratios
A group of ratios that measure the speed at which the firm is turning over or using its assets.

Assets Retained
Assets that an owner would keep after a merger or acquisition.

Assignment of Inventions Agreement
An agreement that states who owns the rights to intellectual property that is developed. An assignment of inventions agreement typically makes clear that an entity owns the relevant intellectual property developed by its employees, contractors, and agents.


Applies to derivative products. A group of stocks that is formed with the intention of either being bought or sold all at once, usually to perform index arbitrage or hedging.

A measure of systematic risk of a stock; the tendency of a stock’s price to correlate with changes in a specific index.

Bid Price
This is the quoted bid, or the highest price at which an investor is willing to buy a security. Available price at which an investor can sell shares of stock.

Blank Check Preferred Stock
Unissued class of preferred stock of a company, the terms and conditions of which (such as liquidation, voting, dividend, and conversion rights) may be expressly determined by the company’s board of directors without further shareholder approval. An issuer will typically use blank check preferred stock to simplify the process of creating a new series of preferred stock to raise additional funds from sophisticated investors without obtaining additional shareholder approval.

Blockage Discount
An amount or percentage deducted from the current market price of a publicly traded stock to reflect the decrease in the per share value of a block of stock that is of a size that could not be sold in a reasonable period of time given normal trading volume.

Book Cash
A firm’s cash balance as reported in its financial statements.

Book Value
See Net Book Value.

A symbol or name identifying suppliers of goods or services. The costs associated with establishing a brand are included in goodwill, and are amortizable for reporting but not for tax purposes.

Break-Even Analysis
An analysis of the level of sales at which a project would make a zero profit.

Bridge Financing
Interim financing used to meet a short-term, cash-flow need until more permanent financing (typically larger amounts) is secured. For example, bridge financing can be used to carry a firm to an initial public offering, a venture round of financing, or long-term debt.

Burn Rate
The rate at which a company that is not profitable uses available cash to cover expenses that exceed revenues; the figure is usually expressed in monthly terms, as in a $100,000/month burn rate.

See Business Enterprise.

Business Broker or Intermediary
Professionals who arrange mergers, acquisitions, and various funding of companies with most of their transactions in the under $1 million market. Business brokers or intermediaries do not have their own funds to invest.

Business Enterprise
A commercial, industrial, service, or investment entity (or a combination thereof) pursuing an economic activity.

Business Issue
An area that is traditionally negotiated between the clients, rather than attorneys (or in some cases, an area that one or both lawyers don’t want to negotiate, for whatever reason).

Business Risk
The degree of uncertainty of realizing expected future returns of the business resulting from factors other than financial leverage. See financial risk.

Business Valuation
The act or process of determining the value of a business enterprise or ownership interest therein.

Purchase of a controlling interest or percent of shares of a company’s stock. A leveraged buyout is done with borrowed money.


Calendar Day
Any day, whether or not such a day is a business day.

Call Right
A right that enables one person (or the issuer) to purchase securities held by another, usually at a fixed price and after a specified date or the occurrence of a certain event.

Cap Table
Short for capitalization table, it is a summary of a company’s issued and outstanding securities.

Capital Asset Pricing Model (CAPM)
A model in which the cost of capital for any stock or portfolio of stocks equals a risk-free rate, plus a risk premium that is proportionate to the systematic risk of the stock or portfolio.

Capital Expenditure – CAPEX
The amount of capital expenditures a company is likely to have depends on the industry it occupies. Some of the most capital intensive industries include oil, telecom, and utilities.

In terms of accounting, an expense is considered to be a capital expenditure when the asset is a newly purchased capital asset or an investment that improves the useful life of an existing capital asset. If an expense is a capital expenditure, it needs to be capitalized; this requires the company to spread the cost of the expenditure over the useful life of the asset. If, however, the expense is one that maintains the asset at its current condition, the cost is deducted fully in the year of the expense.

Capital Gain
When a stock is sold for a profit, it’s the difference between the net sales price of securities and their net cost, or original basis. If the stock is sold below cost, the difference is a capital loss.

Capital Gains Distribution
Payments to mutual fund shareholders of profits from the sale of securities in a fund’s portfolio.

Capital Structure
The composition of the invested capital of a business enterprise; the mix of debt and equity financing.

The debt and/or equity mix that funds a firm’s assets. The combined sources of equity capital, consisting of convertible debt, common stock, and preferred stock. A conversion of a single period of economic benefits into value.

Capitalization Factor
Any multiple or divisor used to convert anticipated economic benefits of a single period into value.

Capitalization of Earnings Method
A method within the income approach whereby economic benefits for a representative single period are converted to value through division by a capitalization rate.

Capitalization Rate
Any divisor (usually expressed as a percentage) used to convert anticipated economic benefits of a single period into value.

Cash Flow
Cash that is generated over a period of time by an asset, group of assets, or business enterprise. It may be used in a general sense to encompass various levels of specifically defined cash flows.

Post-closing adjustments of any future stream of payments as a result of due diligence or post-closing negative discoveries, i.e. additional costs or payables, uncollectible notes, erroneous accruals.

Common Size Statements
Financial statements in which each line is expressed as a percentage of the total. On the balance sheet, each line item is shown as a percentage of total assets, and on the income statement, each item is expressed as a percentage of sales.

Common Stock
A type of security representing the residual ownership rights of a corporation. Usually, company’s founders, management, employees, and some angel investors own common stock, while other investors own preferred stock. In the event of a liquidation of a corporation, the claims of secured and unsecured creditors, debt holders, and holders of preferred stock take precedence over holders of common stock.

The power to direct the management and policies of a business enterprise.

Control Premium
An amount or a percentage by which the pro rata value of a controlling interest exceeds the pro rata value of a non-controlling interest in a business enterprise to reflect the power of control.

Convertible Debt
A debt instrument (such as a promissory note) that can be converted to equity of the issuer (either as common stock or preferred stock).

Corporate Acquirer
A company seeking acquisitions that provide more than the profits and cash flow of the acquisition target and may include the desire to acquire operational economies, additional market share, technology, or some other synergy.

Co-Sale or Tag-Along Rights
These rights enable the holder to participate in a sale of stock from another shareholder to a third party, typically in proportion to the number of shares the holder holds in the company. Co-sale rights are usually designed and intended to protect the holder if a founder or a majority shareholder decides to sell his, her, or its interest in the company. The co-sale rights holder can participate in the sale, usually with the same terms and conditions as the founder or majority shareholder.

Cost Approach
A general way of determining a value indication of an individual asset by quantifying the amount of money required to replace the future service capability of that asset.

Cost of Capital
The expected rate of return that the market requires in order to attract funds to a particular investment.

A contractual obligation to do or not do something in the future. For example, an affirmative covenant could be to provide quarterly reports to investors, and a negative covenant could be to not enter into another financing without enabling existing investors to participate.

Cram-Down Financing
Financing that results in significant dilution of non-participating existing shareholders, usually reducing the value of the participating existing shareholders’ original investments or the rights held by such non-participating existing shareholders.

Cumulative Dividends
Dividends that accrue when unpaid and must be paid out before dividends are paid to subordinate classes of stock.


Deal Flow
The amount of potential investment that an investor reviews in a given period of time.

Deal Structure
The nature of the fee paid by the acquiring entity in a merger transaction. Typical deal structure may include stock or other valuables besides cash. The complex nature of deal structure is an important reason why middle market intermediaries are often hired.

This is typically (a) all interest-bearing debt, or (b) long-term, interest-bearing debt. When the term is used, it should be supplemented by a specific definition in the given valuation context.

Demand Registration Rights
Rights that enable a holder to demand that the company register the stock held by such holder under the Securities Act of 1933 in order to enable the holder to sell the stock in the public market without restrictions.

The reduction in the ownership percentage of shareholders caused by the issuance of new securities or the conversion of convertible securities of the issuer, typically with the connotation that the new securities are issued at a lower price than that paid in the previous round of financing.

Discount for Lack of Control
An amount or percentage deducted from the pro rata share of value of 100% of an equity interest in a business to reflect the absence of some or all of the powers of control.

Discount for Lack of Marketability
An amount or percentage deducted from the value of an ownership interest to reflect the relative absence of marketability.

Discount for Lack of Voting Rights
An amount or percentage deducted from the per share value of a minority interest voting share to reflect the absence of voting rights.

Discount Rate
A rate of return used to convert a future monetary sum into present value.

Discounted Cash Flow
A valuation method in which the present value is calculated for anticipated future company cash flows.

Discounted Cash Flow Method
A method within the income approach whereby the present value of future expected net cash flows is calculated using a discount rate.

Discounted Future Earnings Method
A method within the income approach whereby the present value of future expected economic benefits is calculated using a discount rate.

Discretionary Account
An account with an authorized person who is authorized to carry on managing activities, with the power to make investment decisions without prior reference to the holder of the account.

Payment made by a company to the owners of one or more of its types of securities.

Down Round
Financing in which the new securities are issued at a lower price than in the previous round of financing.

Drag-Along Rights
Rights that enable a shareholder or group of shareholders (usually those who own a controlling interest in the company) to compel other shareholders to sell their stock in the event a purchaser desires to purchase more than what the controlling shareholder(s) own(s).

Due Diligence
In the process of an acquisition, the acquiring firm is often allowed to see the target firm’s internal books. The acquiring firm does an internal audit. Offers are made contingent upon the resolution of the due diligence process.

Due Diligence
A prudent and proper investigatory process to assess a company and the viability of a potential transaction.


Earn Out
An arrangement in which sellers of a business may receive additional future payments if certain financial performance metrics are met.

Earnings before interest, taxes, depreciation, and amortization.

Economic Benefits
Inflows such as revenues, net income, net cash flows, etc.

Economic Life
The period of time over which property may generate economic benefits.

See Business Enterprise.

Enterprise-Wide Integration
A disciplined project management approach in which one infrastructure coordinates integration efforts and communications to all functional departments and business units, simultaneously.

The owner’s interest in property after deduction of all liabilities.

Equity Net Cash Flows
Those cash flows available to pay out to equity holders (in the form of dividends) after funding operations of the business enterprise, making necessary capital investments, and increasing or decreasing debt financing.

Equity Risk Premium
A rate of return added to a risk-free rate to reflect the additional risk of equity instruments over risk-free instruments (a component of the cost of equity capital or equity discount rate).

Excess Earnings
That amount of anticipated economic benefits that exceeds an appropriate rate of return on the value of a selected asset base (often net tangible assets) used to generate those anticipated economic benefits.

Excess Earnings Method
A specific way of determining a value indication of a business, business ownership interest, or security determined as the sum of a) the value of the assets derived by capitalizing excess earnings, and b) the value of the selected asset base. Also frequently used to value intangible assets. See excess earnings.

Exit Strategy
The method or plan for enabling shareholders to sell their shares and earn a return on investment. Typically, it refers to either the sale of the company or a public offering.


Fair Market Value
The price, expressed in terms of cash equivalents, at which property would change hands between a hypothetical willing and able buyer, and a hypothetical willing and able seller, acting at arms’ length in an open and unrestricted market, when neither is under compulsion to buy or sell and when both have reasonable knowledge of the relevant facts.

Fairness Opinion
An opinion about whether or not the consideration in a transaction is fair from a financial point of view.

Financial Risk
The degree of uncertainty of realizing expected future returns of the business resulting from financial leverage.

The sale of a company within a year or two of it being bought.

Forced Liquidation Value
Liquidation value, at which the asset or assets are sold as quickly as possible, such as at an auction.

A person who participates in the creation of a company.

Founders’ Stock
Nominally priced common stock issued to founders, officers, employees, directors, and consultants at or around the time a company is formed.

Full-Ratchet, Anti-Dilution Protection
Rights that enable investors to reduce the share price at which they can convert their earlier investment, or debt, to the lower price per share that the company subsequently sells or issues its securities.

Fully Diluted Basis
The total number of shares of common stock issued by a company, assuming all warrants, options, and other rights are exercised and all preferred stock and other convertible securities are converted to common stock.


Going Concern
An ongoing operating business enterprise.

Going Concern Value
The value of a business enterprise that is expected to continue to operate into the future. The intangible elements of going concern value result from factors such as having a trained work force, an operational plant, and the necessary licenses, systems, and procedures in place.

That intangible asset arising as a result of name, reputation, customer loyalty, location, products, and similar factors not separately identified.

Goodwill Value
The value attributable to goodwill (see Goodwill).

Guideline Public Company Method
A method within the market approach whereby market multiples are derived from market prices of stocks of companies that are engaged in the same or similar lines of business and that are actively traded on a free and open market.


HR Financial Due Diligence
Investigative stage of an M&A assessing HR financial risks, liabilities, and plan structures of compensation, benefits, and pension plans.

Human Capital Due Diligence
Investigative stage of an M&A assessing human capital aspects including culture, organizational structure, performance management, and workforce-development approaches.

Human Capital Integration
M&A stage that integrates HR processes and policies and enables HR to support human-capital aspects (i.e. communication, training, retention, etc.) of integration across the enterprise.


In Play
Company that has become the target of a takeover, and whose stock has become a speculative issue.

Income (Income-Based) Approach
A general way of determining a value indication of a business, business ownership interest, security, or intangible asset using one or more methods that convert anticipated economic benefits into a present single amount.

Independent Advisor
An advisor who is not influenced or controlled in any way (directly or indirectly) by the offeror or the offeree.

Initial Public Offering (Or IPO)
The first registered offering of securities to the public that is in compliance with the Securities and Exchange Commission requirements.

Inside Round
A round of financing in which the investors are the same or a subset of investors that invested in a previous round.

Institutional Investor
Large, licensed entities that invest capital on behalf of companies or individuals.

Intangible Assets
Nonphysical assets such as franchises, trademarks, patents, copyrights, goodwill, equities, mineral rights, securities, and contracts (as distinguished from physical assets) that grant rights and privileges and have value for the owner.

The combination of two or more firms to form a new entity.

Internal Rate of Return
A discount rate at which the present value of the future cash flows of the investment equals the cost of the investment.

Intrinsic Value
The value that an investor considers, on the basis of an evaluation or available facts, to be the true or real value that will become the market value when other investors reach the same conclusion. When the term applies to options, it is the difference between the exercise price and strike price of an option and the market value of the underlying security.

Invested Capital
The sum of equity and debt in a business enterprise.

Invested Capital Net Cash Flows
Those cash flows available to pay out to equity holders (in the form of dividends) and debt investors (in the form of principal and interest) after funding operations of the business enterprise and making necessary capital investments.

Investment Banker
A firm that raises capital, trades in securities, or facilities or brokers mergers and acquisitions (or a combination of some or all of these).

Investment Risk
The degree of uncertainty of the realization of expected returns.

Investment Value
The value to a particular investor based on individual investment requirements and expectations.

Refers to the company that issued or sold its securities.


Joint Venture
A venture by partnership or conglomerate designed to share risk or expertise. An agreement or understanding between two or more companies in which the companies work together for a particular business undertaking.


Key Person Discount

An amount or percentage deducted from the value of an ownership interest to reflect the reduction in value resulting from the actual or potential loss of a key person in a business enterprise.


Lead Investor
The investor who manages the negotiation, documentation, and closing of a round of financing, and typically makes the largest investment in such round.

Levered Beta
The beta (see beta) reflecting a capital structure that includes debt.

Limited Appraisal
The act or process of determining the value of a business, business ownership interest, security, or intangible asset with limitations in analyses, procedures, or scope.

Liquidation Preference
The amount of assets holders of preferred stock are entitled to prior to any distribution of assets to holders of common stock upon a liquidation event, such as the dissolution or sale of the company. The preference amount is often based on the original purchase price paid by the holders of preferred stock, or a multiple thereof (e.g., a 2x liquidation preference).

Liquidation Value
The net amount that would be realized if the business is terminated and the assets are sold piecemeal. Liquidation can be either orderly or forced.

The ability to quickly convert property to cash or pay a liability.

Liquidity Event
In corporate finance, a liquidity event is the purchase or sale of a corporation or an initial public offering. A liquidity event is a typical exit strategy of a company, as the liquidity event typically converts the ownership equity held by a company’s founders and investors into cash.

A liquidity event should not be confused with the liquidation of a company, in which the company’s business is discontinued.

Living Dead
Refers to investors who go through a few down rounds of financing, are unwilling or unable to invest any more, and for whose interests in the company there is no liquidation event on the horizon. When the term is applied to a company, it means that the company continues to operate, even though the company is insolvent or has little chance of thriving.

Lock-Up Provision
A contractual requirement that for a period of time (such as 180 days) a shareholder is restricted from selling such shareholder’s securities following a public offering.


Majority Control
The degree of control provided by a majority position.

Majority Interest
An ownership interest greater than 50% of the voting interest in a business enterprise.

Market (Market-Based) Approach
A general way of determining a value indication of a business, business ownership interest, security, or intangible asset by using one or more methods that compare the subject to similar businesses, business ownership interests, securities, or intangible assets that have been sold.

Market Capitalization of Equity
The share price of a publicly traded stock multiplied by the number of shares outstanding.

Market Capitalization of Invested Capital
The market capitalization of equity, plus the market value of the debt component of invested capital.

Market Multiple
The market value of a company’s stock or invested capital, divided by a company measure (such as economic benefits, number of customers).

The ability to quickly convert property to cash at minimal cost.

Marketability Discount
See Discount for Lack of Marketability.

Acquisition in which all assets and liabilities are absorbed by the buyer. More generally, any combination of two companies.

Merger and Acquisition Method
A method within the market approach whereby pricing multiples are derived from transactions of significant interests in companies engaged in the same or similar lines of business.

Merger Premium
The part of a buyout or exchange offer that represents a value over and above the market value of the acquired firm.

Mezzanine Financing
Typically, a hybrid of debt and equity financing that is used to finance the expansion of an existing company. It is generally subordinated to debt provided by senior lenders, such as banks.

Mid-Year Discounting
A convention used in the Discounted Future Earnings Method that reflects economic benefits being generated at midyear, approximating the effect of economic benefits being generated evenly throughout the year.

Minority Discount
A discount for lack of control applicable to a minority interest.

Minority Interest
An ownership interest of less than 50% of the voting interest in a business enterprise.

The inverse of the capitalization rate.


Net Book Value
With respect to a business enterprise, the difference between total assets (net of accumulated depreciation, depletion, and amortization) and total liabilities, as they appear on the balance sheet (synonymous with Shareholder’s Equity). With respect to a specific asset, the capitalized cost less accumulated amortization or depreciation as it appears on the books of the accounts of the business enterprise.

Net Cash Flows
When the term is used, it should be supplemented by a qualifier. See equity net cash flows and invested capital net cash flows.

Net Present Value
The value, as of a specified date, of future cash inflows, less all cash outflows (including the cost of investment) calculated using an appropriate discount rate.

Directs that the parties to that particular agreement are not bound or exclusively committed by its provisions.

Directs that the signing party will not engage in any activities that compete with the organization being departed from.

Non-Operating Assets
Assets not necessary to ongoing operations of the business enterprise. {Note in Canada, the term used is redundant assets.}

Normalized Earnings
Economic benefits adjusted for nonrecurring, noneconomic, or other unusual items to eliminate anomalies and/or facilitate comparisons.

Normalized Financial Statements
Financial statements adjusted for non-operating assets and liabilities and/or for nonrecurring, noneconomic, or other unusual items to eliminate anomalies and/or facilitate comparisons.

No-Shop Requirement
A contractual requirement that prevents a company from soliciting or negotiating other deals for a specified period of time, while it is exclusively negotiating with a potential investor, group of investors, or acquirers.


Offeree Company
A company listed on the Exchange (or unlisted company in the case of reversed takeover) in respect to which a takeover offer has been made.

A person who makes or intends to make a takeover offer that is subject to the Takeover Regulations.

Ongoing M&A Capabilities
An established set of an organization’s M&A competencies set in a replicable process to increase success in all future M&As.

Optimal Portfolio
An efficient portfolio most preferred by an investor because its risk/reward characteristics approximate the investor’s utility function. A portfolio that maximizes an investor’s preferences with respect to returns and risk.

Orderly Liquidation Value
Liquidation value at which the asset or assets are sold over a reasonable period of time to maximize proceeds received.

Outstanding Stock
Shares of stock that have been issued and are not held by the issuer.


Pari Passu
A Latin term referring to the equal treatment of two or more parties in an agreement. For example, an investor may want to have a certain right that is pari passu with investors in a previous financing round.

Participating Preferred Stock
Preferred stock that entitles the holder not only to the holder’s stated liquidation preference, but also allows the holder to participate in liquidating distributions to holders of common stock, after the initial liquidation preference is distributed to the holders of preferred stock.

Participation Right
A right that enables the holder to purchase the holder’s pro-rata percentage of the company’s equity securities in future rounds, enabling the holder to maintain his, her, or its percentage ownership in the company.

Payment In-Kind Dividends
A dividend paid in equity rather than cash.

A requirement that in order retain a right, the holder must do or pay something in the future. In the venture capital context, if a holder of preferred stock desires to maintain certain rights as a preferred stockholder, he, she, or it must participate and invest pro rata in future financings or lose those rights.

Piggyback Registration Right
A right that enables an investor to force an issuer to register the investor’s previously issued, but unregistered, shares of the issuer in the event the issuer decides to register some of its other securities.

Placement Agent
An individual or firm that assists with identifying investors to purchase securities.

Designation of British public limited company equivalent to U.S. public company.

Pooling of Interests
An accounting method for reporting acquisitions accomplished through the use of equity. The combined assets of the merged entity are consolidated using book value, as opposed to the purchase method, which uses market value. The merging entities’ financial results are combined as though the two entities have always been a single entity.

Portfolio Company
A company that has received an investment from a venture capital fund is said to be a portfolio company of that venture capital fund.

Portfolio Discount
An amount or percentage deducted from the value of a business enterprise to reflect the fact that it owns dissimilar operations or assets that do not fit well together.

Conditions or events that are activated after a transaction is finalized.

Post-Money Valuation
The value of a company after investors invest in a given round of financing.

Pre-Emptive Right
The right of an existing shareholder to purchase such shareholder’s pro rata share of any new stock that is being issued by the company prior to that stock being offered to new investors. Pre-emptive rights are similar to participation rights.

Preferred Stock
Stock that gives its holders certain rights, preferences, and privileges over holders of common stock and other securities.

Premise of Value
An assumption regarding the most likely set of transactional circumstances that may be applicable to the subject valuation, for example, going concern, liquidation.

Pre-Money Valuation
The value of a company before investors invest in a given round of financing.

Present Value
The value, as of a specified date, of future economic benefits and/or proceeds from sale, calculated using an appropriate discount rate.

Price/Earnings Multiple
The price of a share of stock divided by its earnings per share.

Private Placement Memorandum (PPM) or offering Memorandum
A document explaining the details of an investment opportunity related to the sale of unregistered securities to potential investors.

Purchase Method
Accounting for an acquisition using market value for the consolidation of the two entities’ net assets on the balance sheet.

Pure Play
An acquired company that is in only one business.

Put Right
A right that enables the holder to force the company or another investor to purchase the holder’s securities, usually for a prior agreed-upon price, after a specified date or the occurrence of a specified event.


Qualified Public Offering (QPO)

A public offering that meets certain requirements, as agreed between investors and an issuer, such as a minimum amount or a specified return for holders of preferred stock.


Rate of Return
An amount of income (loss) and/or change in value realized or anticipated on an investment, expressed as a percentage of that investment.

Restructuring a company’s debt and equity mixture, most often with the aim of making a company’s capital structure more stable. Essentially, the process involves the exchange of one form of financing for another, such as removing preferred shares from the company’s capital structure and replacing them with bonds.

Redeemable Preferred
Preferred stock that can be redeemed by its holder in exchange for a prior agreed upon price.

Redundant Assets
See Non-operating Assets.

Reg D or Regulation D
Refers to certain alternative rules promulgated by the Securities and Exchange Commission that enable an issuer to sell its securities with certain restrictions, without registering them, to a limited number of people, most or all of whom must meet certain standards of sophistication or wealth (see accredited investor). Each rule under Reg D has different requirements, such as those relating to the size of the offering, the number of investors, and the types of required disclosures.

Related Party
A person who, in relation to each of the offeror (or any of its affiliates) and the offeree company (or any of its affiliates), satisfies one or more of the following conditions: 1) he is (or was within the 12 months before the date of the offer) a shareholder holding 20% or more of the equity of the company, or will become a shareholder holding 20% or more of the equity of the company as a result of the offer being accepted, or a person acting in concert with such a person; or 2) he is (or was within the 12 months before the date of the offer) a director or shadow director.

Replacement Cost New
The current cost of a similar new property having the nearest equivalent utility to the property being valued.

Report Date
The date conclusions are transmitted to the client.

Reproduction Cost New
The current cost of an identical new property.

Required Rate of Return
That rate of return that investors demand from an investment (securities) to compensate them for the amount of risk involved.

Required Rate of Return
The minimum rate of return acceptable by investors before they will commit money to an investment at a given level of risk.

Residual Value
The value as of the end of the discrete projection period in a discounted future earnings model.

Redeploying the asset and liability structure of the firm. This can be accomplished through repurchasing shares with cash or borrowed funds, acquiring other firms, or selling off unprofitable or unwanted divisions.

Return On Equity
The amount, expressed as a percentage, earned on a company’s common equity for a given period.

Return On Invested Capital
The amount, expressed as a percentage, earned on a company’s total capital for a given period.

Return On Investment
See Return on Invested Capital and Return on Equity.

Reverse Takeover
An arrangement in which a listed company makes an offer for an unlisted company on terms that (a) the listed company will offer new shares itself to the shareholders of the unlisted company in exchange for their shares, and (b) the number of shares to be issued by the listed company under this arrangement is so large that the shareholders of the unlisted company acquire, between them, control of the listed company.

Rights offering
An offering of securities only to current shareholders of an issuer.

Risk Premium
A rate of return added to a risk-free rate to reflect risk.

Risk-Free Rate
The rate of return available in the market on an investment free of default risk.

Road Show
A series of presentations made in several cities to potential investors.

Rule of Thumb
A mathematical formula developed from the relationship between price and certain variables based on experience, observation, hearsay, or a combination of these; usually industry specific.


Seamless Transition
Describes the most advantageous method of completing all the necessary tasks to absorb and manage all the operational, financial, and organizational aspects of an acquisition.

Securities and Exchange Commission (Or SEC)
The federal agency that is in charge of enforcing the federal securities laws and regulating the securities industry (including the stock exchanges).

Selling Memorandum
A description of the business including its history, products, markets, management, facilities, competition, financial statements, product literature, and a review of its prospects.

Special Interest Purchasers
Acquirers who believe they can enjoy post-acquisition economies of scale, synergies, or strategic advantages by combining the acquired business interest with their own.

Standard of Value
The identification of the type of value being used in a specific engagement; for example, fair market value, fair value, investment value.

Strategic Acquisition
The purchase of an operating business that supplements the buyer’s strengths or complements the buyer’s weakness matrix.

Stripped Down Preferred
A type of preferred stock that carries only the very basic rights of preferred stock (e.g., a liquidation preference), but does not carry the variety of other rights (contractual or otherwise) frequently associated with the issuance of preferred stock.

Sustaining Capital Reinvestment
The periodic capital outlay required to maintain operations at existing levels, net the tax shield available from such outlays.

A group of investors who participate in a round of financing or a group of investment banks that participate in a public offering.

The feature of a system whereby, when the parts are properly interrelated and functioning, an output is achieved that is greater than, or superior to, the effects obtained when the parts function independently.

Systematic Risk
The risk that is common to all risky securities and cannot be eliminated through diversification. The measure of systematic risk in stocks is the beta coefficient.


The acquisition or the proposed acquisition of control of a company listed on the Exchange.

Tangible Assets
Physical assets (such as cash, accounts receivable, inventory, property, plant, and equipment, etc.).

Term Sheet
A document that outlines the key terms of a proposed transaction. The term sheet is typically non-binding, except for certain provisions.

Terminal Value
See residual value.

Transaction Method
See Merger and Acquisition Method.


Unconditional As To Acceptances
The offer is no longer conditional upon receipt by the offeror of acceptances from the shareholders of the offeree company.

Underwater Option
An option is underwater when the current fair market value of the underlying shares is less than the option exercise price to purchase those shares.

Unlevered Beta
The beta (see beta) reflecting a capital structure without debt.

Unsystematic Risk
The risk specific to an individual security that can be avoided through diversification.


Valuation Approach
A general way of determining a value indication of a business, business ownership interest, security, or intangible asset using one or more valuation methods.

Valuation Date
The specific point in time when the valuator’s opinion of value applies (also referred to as Effective Date or Appraisal Date).

Valuation Method
Within approaches, a specific way to determine value.

Valuation Procedure
The act, manner, and technique of performing the steps of an appraisal method.

Valuation Ratio
A fraction in which a value or price serves as the numerator and financial, operating, or physical data serve as the denominator.

Value to the Owner
See Investment Value.

Veto Rights
Negotiated rights that enable the holder to prevent a company from taking certain actions or to cause it to take certain actions.

Voting Control
Dejure control of a business enterprise.


A derivative security that gives the holder the right to purchase securities (usually common stock) from the issuer at a specific price within a certain timeframe.

Weighted Average Anti-Dilution Protection
Adjusts the investor’s conversion price downward based on a weighted average formula reflecting the number of new shares sold and the new price per share at which the additional shares were issued. It can be a narrow-based, weighted average, or a broad-based, weighted average. Compare to full-ratchet anti-dilution protection.

Weighted Average Cost
The cost of capital (discount rate) determined by the weighted average, at market value, of the cost of all financing sources in the business enterprise’s capital structure.




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