- Asset Deal
Company takeover by way of acquisition of certain assets (instead of the shares). In contrast to this is the Share Deal.
- Asset Stripping
Sale of assets or sub-areas of an acquired company immediately after its acquisition. Typical motives are either the financing of the purchase price or the opportunity that the total value can be raised through the sale of individual parts. However, the tax consequences should be taken into account.
- Assets
A company's Assets are the sum of all factors of production required by the company in cash, all their rights (e.g. patents, licenses) and material resources (e.g. raw materials, machinery, buildings, land). A distinction must be made between fixed assets and current assets.
- Assets ratio 1
Provides information about how high the equity is in the ratio of fixed assets.
- Assets ratio 2
Provides information about how high the equity is plus the long-term debt in the ratio of fixed assets.
- Averaging Method
The term Averaging Method covers several methods of business valuation. Here, the yield value and the intrinsic value of a company are recorded. The determination of the value of the company is carried out in different ways with a different but fixed weighting of the values in the averaging. In Switzerland, the profitability is used twice and the asset value is used once to calculate the value of the company. The Stuttgart-based method uses the profitability once and the asset value twice for the calculation. The Berlin-based methods both values weighted equally.
- Benchmark
Benchmarking refers to the comparison of the performance of one’s own company with that of other companies. The performance counter of the other company is known as a Benchmark. The aim of such a comparison is to uncover opportunities for improvement and competitive disadvantages and ultimately to increase the performance of one’s own company.
- Break-even-Point
Time when the breakeven point is exceeded and a profit is realized or the level of revenue, which would cover the proceeds of the fixed and variable costs.
- Bridge Financing
Bridge financing is a generic term made by credit institutions for short-term or intermediate pre-financing of certain transactions (real estate purchase, company purchase) until the final follow-up financing.
- Burn Rate
Represents the time until a company has used the capital provided for it (the term originated during the Internet bubble at the turn of the millennium). The Burn Rate is of great importance particularly for start-up companies. The company's financial resources decrease in the initial phase of the company because of high fixed costs with only a low turnover.
- Business Angel
A wealthy individual (usually experienced entrepreneurs) who support young companies with capital as they are founded and/or through active support (coaching or management assistance) and contacts (they are rewarded through shareholdings in the company).
- Business plan
A description of the business model of a young company to present to investors, this includes information about product concept, market, team, management of future operations and economic analyses, etc.
- Buy-and-build Strategy
The acquisition of several companies in order to build a larger group/holding company.
- CAGR
Stands for Compound Annual Growth Rate. A growth rate is defined as the average relative increase of a variable per unit of time.
- CAPEX
The abbreviation CAPEX comes from the Anglo-Saxon term of Capital Expenditure. This term refers to the long-term assets of a company such as machinery, buildings or computer systems.
- Cash Flow
The Cash Flow from operating activities (Operating Cash Flow) includes all deposits and payments associated with the actual provision of services of the company. Examples are the sale of products or the payment of wages. The Cash Flow from investment activities (Cash Flow from Investment) consists of the deposits and withdrawals, which result from the investment or disinvestment of the company. Examples include the installation of a new production facility or the sale of a warehouse. The Cash Flow from financing activities (Cash Flow from Financing) includes all those deposits and withdrawals, which are related to the financing of business activities. Examples include interest payments or the payment of dividends, but also a borrowing or capital repayment.
- Cash Flow Deal
Traditional form of the Management Buyout (MBO), which is financed largely on the basis of the generated cash of a company. Key variable is the Cash Flow from which the return of the funds received and the service rate must be settled.
- Cash Ratio
Corresponds to the Quick Ratio. It is the ratio of liquid assets to the current liabilities of a company and therefore allows an analysis of how a company can meet its current short-term payment obligations solely by its liquid assets. Accounts receivable (debtors) are not included.
- Cash Value
The cash value or present value of the item refers to the expected value of a future cash amount. The cash value is obtained by discounting the future cash equivalent amount, with a capital interest, the expression of an alternative achievable interest rate.
- Chief Executive Officer (CEO)
Chief Executive Officer
- Chief Financial Officer (CFO)
Chief Financial Officer
- Chief Organisation Officer (COO)
Chief Organisation Officer
- Chief Technological Officer (CTO)
Chief Technological Officer
- Co-Investment
Stake in a company with a minority share, whereby the support is given through a Lead Investor and thus reduces the support costs for the Co-Investor.
- Co-Lead Investments
Stake in a company at the same level as that of the Lead Investor. The latter assumes the true support of the investee.
- Collection Period
The accounts receivable period provides information on the time it takes the customer to make payments. It corresponds to the time between invoicing and payment by the customer. The higher the retention time of the debtor company, the slower the payment, the less favourable the liquidity.
- Confidentiality Agreement
Also Non-disclosure Agreement (NDA). Usually agreed on during the transfer of business plans and company presentations to third parties. The prospective buyer agrees that he will not share information with third parties.
- Consortium
Group of all supervising banks in the IPO.
- Consortium Leader
Leading bank in the IPO of a company.
- Contribution Margin
The contribution margin is the cost and performance calculation, the difference between the proceeds generated (revenue) and the variable costs. It is therefore the amount available to cover fixed costs.
- Co-Venturing
Stake in a company by several investors, one of whom acts as the Lead Investor.
- Current Ratio
Corresponds to the current ratio. It indicates the ratio of current assets to the current liabilities of a company. If the current ratio is less than 1, a part of current liabilities is not covered by the current assets, i.e. under certain circumstances assets must be sold to cover liabilities. Therefore, this liquidity ratio must always be greater than 1, whereby one should aim according to the so-called "banker's rule" (also known as Two-to-One-Rule) for a minimum value of 2.
- Deferred Taxes
Hidden tax charges or benefits that have arisen due to differences in approach and / or the valuation of assets and liabilities between the tax accounts and the trade balance and are expected to reduce in subsequent years, i.e. to lead to differences in the future between tax and perform trade-balance-sheet profits. Deferred tax assets should reflect the future tax benefits (future tax higher income potential) future tax expense, deferred tax liabilities (future tax higher yield potential).
- Dept Ratio
The Debt Ratio is the proportion of debt to total capital and total assets analogous to the equity ratio of the equity.
This key figure indicates the ratio between debt and equity. The higher the debt, the higher the debt ratio.
- Dilution
When a company issues additional shares at a lower price in the context of a capital increase and the existing shareholders do not participate according to their current share, the shares of existing shareholders lose value, they are diluted.
- Discounted-Cash-Flow Method
The possibility of determining the value of the company. Calculated on the basis of the discounted future Cash Flow over a certain period of time. The basis is the projected Free Cash Flow and a residual value that will be discounted to their present values.
In this method, the assets are allocated with an operational importance, namely the achievement of future income. The method assumes that the assets of the company generate a constant perpetuity of sustainable net profits. The capitalization of this income is calculated using the formula for eternal pensions of future earnings divided by the discount rate.
- Early Stage (Financing)
Financing in the first phase of young, privately owned companies with equity. Usually, specialized companies (venture capital firms) offer the Early-Stage financing. These companies often offer other services besides the financing for start-up companies such as consulting activities and regular monitoring of the overall activity of the company. This funding is often associated with great risk, but offers large profit potential in the event of a subsequent success of the new company.
- Earn-out
The portion of a company purchase price, which is conditional on the future success of the company. A key figure, usually the turnover, is defined for the compensation of the remaining company purchase price. A percentage of sales is determined to repay the purchase price.
- EBIT
Earnings before interest and taxes.
- EBIT Margin
A company's key figure that indicates the ratio of EBIT to sales as a percentage. It is particularly suitable for comparing the performance of different companies.
- EBITDA
Earnings before interest, taxes, depreciation and amortisation.
- EBITDA Margin
The EBITDA margin is calculated from the ratio of the EBITDA to sales as a percentage. It is suitable for comparing the operating performance of different companies, regardless of their investment cycle.
- Economic Value Added (EVA)
Key figure, which is used in a comprehensive performance measurement and value. The Economic Value-Added-Value approach calculates the residual income of the investment being valued. An investment will create value in accordance with this approach if it generates a positive "spread" (difference) between the actual return and the demanded cost of capital.
- Employee stock options
Form of employee participation. The right to acquire shares or options on shares of your company at a discounted price after a specified waiting period.
- Entity Method
A variant of the Discounted-Cash-Flow valuation method based on total capital, with which the gross value of the company is determined. First, a detailed Free Cash Flow is drawn up over a period of five to ten years. These gross quantities are then discounted with the WACC. In order to obtain the effective value of equity, the borrowed capital must be subtracted.
- Equity
Equity
- Equity Kicker
Equity Kicker means the possibility of sharing in the company's success. This may, for example, be in the conversion of Mezzanine Capital into equity, i.e. a "real" participation. Equity stakes are also conceivable for a desired future IPO. Outside investors are thus given the opportunity to purchase shares in partnerships or corporations at a later date, often at special rates.
- Equity Ratio
The equity ratio indicates the proportion of economic equity to the adjusted total assets of a company. The higher the ratio, the lower the debt ratio.
- Equity Story
Documentation as part of an emission process, in which the essential characteristics of the company and its planned corporate strategy are shown (the success of the company, in the past and in the future).
- Equity-Method
A variant of the Discounted-Cash-Flow valuation method that directly determines the value of equity. First, a detailed planning of cash flow over a period of five to ten years. The interest and the growth rate of the debt are to be deducted from this. These net variables are then discounted with the cost of equity, which then gives the value of equity.
- Excess profit method
A traditional method of business valuation, where the company's value is determined using the profits. Profit is meant to denote that which is attained over the normal return of the asset value.
- Executive Summary
Summary of, for example, a business plan.
- Exit
Withdrawal from a capital investment. Whoever makes capital available to start-up companies, shall sell off his interest after a certain time in the company that has meantime become established, because this no longer lies in his capital focus. A withdrawal may be via an IPO or a sale to another company. This process is known as an Exit Strategy, because the intention is to realize a profit from the investment made.
- Expansion Financing
Growth and expansion financing. The company in question has reached the break-even point or makes a profit. The funds will be used to finance additional production capacity, product diversification and market expansion.
- Fair Value
The fair value is used according to IAS and US GAAP as a generic term for all market-related valuations. The Fair Value of an asset or a liability generally refers to the amount, which the two independent parties would be prepared to replace the asset and/or settle the liability with expertise and final determination.
- First Round Financing
The First Round Financing of a company is the first time that it receives external equity.
- Free Cash Flow
The Free Cash Flow refers to the operating Cash Flow minus the Cash Flow from investments. Free Cash Flow is the amount resulting from the overall consideration of the business. It is the only amount of money that is free to satisfy the requirements of investors.
- Fundraising
Procurement of investment capital. The start-up phase of a Venture Capital fund (VC fund), in which drawing funds are obtained for institutional, industrial or private investors. Most VC companies put funds aside at irregular intervals where they collect the money that they then invest in other companies. The better the track record of a Venture Capital company, the greater their chances to collect money in the future.
- Fusion
A Fusion is the equivalent of a merger of two or more companies into a whole new company. In reality, however, it is a so-called friendly takeover of one of the companies involved. The agreement on the word "fusion" should mitigate the sales character of the transaction to a third party. To the outside there should be no transferee and taken over company.
- Going concern value
The asset components are valued at those values, which their current replacement cost would be at market prices (reproduction value of the company). Replacement values are calculated from the acquisition cost at current prices less depreciation (consumption value based on age).
- Going Private
Repurchase of the stock of a company in private ownership.
- Going Public
IPO of a company. See IPO.
- Gross Margin
The gross margin indicates how much a company earned (as a percentage of sales) after deducting production costs. Other costs, e.g. for research and development, marketing and management, do not make up part of the value. The gross margin is therefore not to be equated with the operating result.
- Gross value of the company
A company's value before the deduction of liabilities. The gross value of the company is open to all investors.
- Hands Off
Hands Off is the term used for a passive support of a company that is being established. The influence on the Executive Board is limited to participation on the advisory board or the board of the company.
- Incubator
Bodies or institutions that entrepreneurs support in the founding of companies. The founder generally has access to professional counselling, coaching qualification or support through the necessary infrastructure such as office space and communications technology. In addition, the access to networks is supported. Incubator centres are often linked to public institutions such as technology centres to support start-ups or Venture Capital companies or Business Angels.
- Initial Public Offering (IPO)
The initial public offering of shares of a company.
- Institutional Investors
Large institutions such as banks, insurance companies, pension funds or large corporations that invest in equity funds.
- Internal Rate of Return (IRR)
The IRR is the discount rate at which the present value (PV) of net cash flow (NCF), a project is equal to its initial investment. The discount rate at which the Net Present Value (NPV) of the project is equal to zero.
- Investor Relations
Active management of relations with current and potential investors, analysts and financial media with the aim of fostering a binding to with these target groups to the shares of their own company.
- Joint Venture
Cooperation agreement for the joint operations of a company, the capital to be introduced, the know-how to be supplied, etc.
- KMU
SME is an abbreviation for "small and medium-sized enterprises".
- Later Stage Financing
Financing of expansions, acquisitions, bridgings, etc. at established companies.
- Lead Investor
In a syndicate of Venture Capital companies (VC companies), the investor with the largest share assumes both the organization of the financing and the Hands-on support.
- Letter of Intent (LoI)
Written declaration in advance of a transaction in which the intention of the buyer and seller to complete the corporate sale is announced.
- Leverage
Level of external debt of a company, usually expressed as the ratio of debt to equity.
- Leveraged Buy-out (LBO)
Predominantly debt-financed corporate takeovers.
- Liquidation Value
Denotes the (theoretical) amount that can still be achieved in the event of liquidation with the disposal of all business objects.
- Listing
Listing a company on the stock exchange.
- Lock-up Period
The Lock-up Period or waiting period means the period in which the shareholders agree not to sell any shares after the Going Public of its holdings. The Lock-up Period is controlled very differently in Europe.
- Make or Buy
Deciding whether a product or a service is to be made (make) or bought (buy).
- Management buy-in (MBI)
A Management buy-in is when a company is taken over by external management or the acquisition is forced by an investor using a foreign management. This comes about especially when an external management believes that the company is being badly managed and could be more efficient through better management. This is also the opportunity to take over a company in a succession planning.
- Management Buy-out (MBO)
The purchase of a company or part of a company or a controlling interest thereon by the company's management. Often, such a buyout is done with the help of private equity investors and a large proportion is financed with borrowed capital (Leveraged Buy-out, LBO), because managers may not have the financial means themselves.
- Market Capitalization
Market Capitalization expresses the market value of a corporation. It is calculated by multiplying the share price by the number of shares.
- Market Value
The Market Value is the price achievable under normal conditions, without regard to unusual or personal circumstances.
- Merger & Acquisition
Merger (also Fusion) and Acquisition (also Takeover, Purchase). Mergers & Acquisitions, M & A for short, the technical term for the entire market of corporate transfers.
- Mergers & Acquisitions Business
This is about the transfer of shares and entire companies for a commission. The benefits of M & A companies include, among other things, consulting, property search, buyer and seller search, implementation support and funding.
- Merging
Specialist term for matching different data in a database. For example, matching the data from a buyer (purchase price, location, interests, sector) with those of the seller (purchase price, location of the business, industry) - "merged". The aim of Merging is to determine any matches.
- Mezzanine
Mezzanine capital or Mezzanine financing (derived from the architectural term in the sense of a mezzanine floor) is a collective term to describe types of financing, which in their legal and economic configurations is a hybrid between equity and debt. Thereby in the classic version, a company is supplied with economic or shareholders' equity, without granting the investors voting rights or reasonable control of the residual interest as genuine partners.
- Net asset value
The net asset value is the replacement value. This refers to the amount of money you must spend to replicate an existing business exactly. The net asset value includes all tangible and intangible assets of the company (such as patents and licenses), can be sold in the market.
- Net asset value method
This method assesses those assets of a company, which can be sold separately. The intangible, non-marketable assets that can have a significant value with the continuation of its operating businesses (e.g., customers) are not part of the valuation.
- Net Corporate Value
Corporate value net of debt. The net corporate value is that portion that is attributable to equity holders, and is thus equated with the effective value of the equity.
- Net Current Assets
Current assets minus current liabilities.
- Net Present Value (NPV)
The Net Present Value (Discounted Cash Flow method or even Net Present Value or NPV for short) is a dynamic process of capital budgeting. By discounting at the beginning of the investment the payments that are made at arbitrary times become comparable.
- Net Sales
Revenue, net of tax and revenue losses.
- NOPAT
The Net Operating Profit after Tax is calculated from the EBIT less approximate taxes (EBIT multiplied by tax rate).
- NOPLAT
Based on the NOPAT (EBIT net of income taxes), the NOPLAT also takes into account the fact that no taxes are paid on the interest. The NOPLAT is sometimes referred to as Earnings before interest (EBI).
- OOE
Abbreviation for other operating expenses.
- Oversubscription
If the demand for the shares of an initial listing is greater than the number of shares issued, the shares are oversubscribed. A ten-fold oversubscription therefore means that the demand is ten times greater than the quota of shares available.
- Owner’s Profit EBITDA
The owner’s profit at the EBITDA level (profit variable in the income statement before interest, taxes, depreciation and other value adjustments) is calculated from the EBITDA as per the income statement. Added to this besides the salary of the owner also all non-operating expenses (including tax-driven optimizations) that are directly or indirectly to be considered as benefits in favour of the owner. Thus, the official final balance sheet is adjusted and the effective performance of the company is represented.
- Pay-back period
This is the period in which the sum of capital inflows of an investment object (for the static calculation of amortization) or its present value (for the dynamic calculation of amortization) exceeds the investment amount for the first time. This period is called the amortization period or payback period.
- Payment Period
The Payment Period provides information about the company's rate of payment of accounts payable. It tells you how many days a company takes for the payment of vendor invoices. The higher the average payable period, the lower the liquidity.
- Practical Method
Method for business valuation (cf. averaging method).
- Price Earning Ratio
PER (price-earnings ratio)
- Private Equity
Private Equity is a form of equity where the capital received from the investor is not tradable in regulated markets (stock exchanges).
- Private Placement
Private placement of shares without recourse to the stock market as opposed to the Public Offering.
- Public Offering
Public offering of shares on the stock market as opposed to the Private Placement.
- Purchase Price
The Purchase Price is the price of a company to which both parties have agreed. The Purchase Price may differ from the value observed in the price finding as well as the previously agreed price determination. The Purchase Price of a company is its market price. Here, various Purchase Prices can be distinguished. There is, among other things, a price for the substance of the company, the profitability of the company and for the future potential of the company.
- Quick Ratio
This corresponds to the current ratio. It indicates the ratio of the financial assets plus the value of investments and current receivables to the current liabilities of a company. It is a measure of whether a company is able to pay its current liabilities. With a Quick Ratio that is less than 1, a part of the short-term liabilities are not covered by the short-term assets that are available. This can result in a liquidity bottleneck.
- Replacement value
Acquisition value of a company's existing asset at the time of its replacement.
- Residual Value
When carrying out an evaluation using the Discounted-Cash-Flow method, the Cash Flows for a certain time period can be projected and discounted at the current time. The sum is identified for all of the following Cash Flows in the forecast period, and the present value of them is determined, which is then known as the Residual Value. In calculating the residual value, great care is needed, because even small deviations result in large differences in value assumptions.
- Return on Assets (ROA)
The Return on assets (or ROA) indicates how efficiently the capital investment of an investment project was within a billing period. The Return on Assets is also known as the Return on Investment. It indicates how efficiently the capital investment of an investment project was within a billing period.
- Return on Equity (ROE)
The Return on Equity or ROE documents what has been earned by the capital invested by the investor within a billing period.
- Return on Investment (ROI)
This is the gross return of a company, which is calculated from dividing the profit before interest by the full amount of operating capital used (debt and equity). It indicates how efficiently a company has used it available capital.
- Return on Sales (ROS)
This corresponds to the net profit divided by sales. The ROS is a measure of the profitability of a company. The operating margin shows the operational efficiency of a company.
- Second Round Financing
The second round of financing for a company that has already received its first round of venture capital.
- Secondary Purchase
A secondary purchase is an exit option of a Venture Capital company. The Venture Capital company hereby sells its shares in another private equity firm.
- Seed Capital
The term Seed Capital refers to the venture capital for a future business. It is invested by an investment company during the phase of its establishment, when the business idea is being developed. The young company can then have access to the Seed Capital until the development of a prototype is complete.
- Seed-Phase / Pre-Seed-Phase
Phase prior to the formal establishment of a business (pre-founding phase).
- Sensitivity Analysis
The Sensitivity Analysis is a method for testing the effect of changes in input variables to the corresponding output. It is used to determine the stability of the result, if the input variables are subject to a range of variation, and the identification of the relevant input variables, to order to influence this in terms of the output optimization.
- Service Fee
Service Fee = Retainer Fee or Start Fee. This is the fee charged by a company or agent prior to starting their work. Solely the sincerity of the seller to carry out the sale of the company is to be verified with the collection of fees.
- Share Deal
Company takeover by purchase of shares.
- Spin-off
In the spin-off, the original company remains. Only one or several parts go, which make for a definable unit, and are transferred to an existing or newly created company.
The Spin-off and becoming independent of a department or a business unit of a company / a business concern.
- Start-up
The phase immediately after the founding of a company, often the term for a young company.
- Start-up Financing
Young companies that are not yet established, but that are established in order to achieve an innovative business idea with low start-up capital and are usually dependent very early on either on the receipt of Venture Capital and Seed Capital (possibly by Business Angels) or an Initial Public Offering (IPO) to expand their businesses and strengthen their capital base.
- Stock Turnover
The Stock Turnover defines the period for which an inventory is sufficient for the planned consumption of material. A low Stock Turnover can lead to shortage costs, a high stock turnover capital commitment or storage costs.
- Stuttgart method
The Stuttgart method is a method for business valuation (cf. Averaging method).
- Subordinated Dept
The subordination refers to the ranking of external investors with one another, especially for cases of comparison or liquidation.
- Subscription period
Period within which investors may draw new shares. This takes the form of a declaration of intent in which the investors commit to purchase a specified number of shares.
- Success Fee
The Success Fee will be paid to a Business Broker after the successful completion of a corporate transaction. In general, the Success Fee is payable at the moment of sale, since this is when the work of the corporate broker ends.
- SWOT-Analyse
Analysis of Strengths, Weakness, Opportunities, Threats, or just the strengths, weaknesses, opportunities and risks.
- Syndication
Several private equity firms merge in order to finance even larger high-risk investments.
- Track Record
The Track Record of an investment company or a company, a manager or entrepreneur.
- Transaction Multiples
Ratio figures derived from effective rates of company purchases.
- Unique Selling Proposition (USP)
A marketing term. It is a "unique selling proposition" or USP.
- Venture Capital (VC)
Venture capital, risk-bearing capital. The financing of young companies by institutional investors (e.g. VC companies) or informal investors (Business Angels, for example). The provision is, as opposed to lending, not dependent on the existence of eligible lending assets of the company or the owner, but instead solely on the expected earnings opportunities of the company to be financed.
- WACC
The WACC is an average overall cost of capital, which is calculated as a weighted average of debt and equity cost ratio of the capital market. The debt and equity shares based on the market value are to be used for the weighting.
- Working Capital (Net Working Capital)
This term refers to the net current assets, i.e. all the working capital that is tied up in the short-term (inventories, receivables with a one-year maturity, cash and prepaid expenses), net of current liabilities.
- Yield Value
The value of a company from the "eternal" capitalization of earnings. This future success refers to the sustainable and attainable, future profitability of the company by taking into account the rate of interest.