Finance Abbreviations
88 abbreviations · part of Business & Finance Abbreviations
Corporate finance, valuation, private equity, venture capital and investment banking abbreviations, from return measures such as ROI and IRR to deal terms such as LBO, LOI and PIPE. Analysts, bankers, founders and CFOs use them in financial models, pitch books, term sheets and earnings calls. Many are formulas, so entries give the calculation or rule of thumb along with how the measure is interpreted and where it can mislead.
| Abbreviation | Stands for | Description |
|---|---|---|
| ABL | Asset-based lending | Business lending secured by specific assets, usually accounts receivable and inventory, with the amount available tied to a borrowing base calculated as a percentage of… |
| APA | Asset purchase agreement | Acquisition contract in which a buyer purchases selected assets of a business, and assumes only specified liabilities, instead of buying the company's stock. |
| APV | Adjusted present value | Valuation method that values a company or project first as if it were financed entirely with equity, then adds the present value of financing side effects, chiefly… |
| ARR | Annual recurring revenue | Annualized value of a company's contracted subscription revenue at a point in time, typically monthly recurring revenue times twelve. |
| ATM | At-the-market offering | Method for a listed company to raise equity gradually by selling new shares into the open market at prevailing prices through a broker, rather than in a single priced… |
| AUM | Assets under management | Total market value of the investments that a fund manager, bank or adviser manages on behalf of clients. |
| CAGR | Compound annual growth rate | Constant yearly growth rate that would take a value from its starting level to its ending level over a given number of years, smoothing out year-to-year swings. |
| CapEx | Capital expenditure | Money a company spends to buy, upgrade or extend the life of long-term physical or intangible assets such as buildings, machinery, vehicles and software. |
| CAPM | Capital asset pricing model | Model that estimates an investment's expected return as the risk-free rate plus beta times the market risk premium. |
| CCC | Cash conversion cycle | Number of days between paying for inventory and collecting cash from customers, calculated as DIO plus DSO minus DPO. |
| CIM | Confidential information memorandum | Detailed marketing document prepared by a sell-side adviser describing a company for sale, including its history, products, customers, management, financials and growth… |
| CVC | Corporate venture capital | Investment by an established company directly into outside startups, usually through a dedicated venture arm, to gain strategic insight, partnerships or future… |
| D/E | Debt-to-equity ratio | Leverage ratio equal to total debt, or sometimes total liabilities, divided by shareholders' equity, showing how much a company relies on borrowing relative to owner… |
| DCF | Discounted cash flow | Valuation method that estimates what a business, project or asset is worth today by forecasting its future free cash flows and discounting them at a rate reflecting… |
| DCM | Debt capital markets | Investment bank team that helps companies, governments and agencies raise money by issuing bonds, notes and other debt securities. |
| DD | Due diligence | Investigation a buyer, investor or lender carries out before a transaction to verify facts and uncover risks, covering financial, legal, tax, commercial, operational… |
| DIO | Days inventory outstanding | Average number of days a company holds inventory before selling it, calculated as inventory divided by cost of goods sold, multiplied by days in the period. |
| DPI | Distributions to paid-in capital | Ratio of the cash and stock a private equity or venture fund has actually returned to investors divided by the capital they have contributed. |
| DPO | Days payable outstanding | Average number of days a company takes to pay its suppliers, calculated as accounts payable divided by cost of goods sold, multiplied by days in the period. |
| DSCR | Debt service coverage ratio | Ratio of cash flow available for debt payments to the required principal and interest payments over a period. |
| DSO | Days sales outstanding | Average number of days a company takes to collect payment after a sale, calculated as accounts receivable divided by revenue, multiplied by the number of days in the… |
| EAR | Effective annual rate | Actual annual interest rate earned or paid after accounting for compounding within the year. |
| ECM | Equity capital markets | Investment bank team that helps companies raise money by issuing shares, including IPOs, follow-on offerings, block trades and convertible bonds. |
| ERP | Equity risk premium | Extra return investors expect from holding stocks instead of risk-free government bonds, compensating them for the higher risk of equities. |
| ESOP | Employee stock ownership plan | In the United States, a tax-qualified retirement plan that invests primarily in the sponsoring employer's stock, giving employees an ownership stake that grows with… |
| EV | Enterprise value | Total value of a company's operating business to all capital providers, calculated as market capitalization plus debt, preferred stock and minority interest, minus cash… |
| EV/EBITDA | Enterprise value to EBITDA | Valuation multiple dividing a company's enterprise value by its earnings before interest, taxes, depreciation and amortization. |
| EVA | Economic value added | Measure of the profit a company earns above the full cost of all its capital, calculated as NOPAT minus WACC multiplied by invested capital. |
| FCF | Free cash flow | Cash a company generates from operations after paying for the capital expenditures needed to maintain and grow its asset base, commonly calculated as operating cash… |
| FCFE | Free cash flow to equity | Cash flow available to common shareholders after operating costs, taxes, reinvestment and all payments to and from lenders, including interest and net borrowing. |
| FCFF | Free cash flow to the firm | Cash flow available to all capital providers, both lenders and shareholders, after operating expenses, taxes, capital expenditure and working-capital investment but… |
| FICC | Fixed income, currencies and commodities | Trading business of an investment bank covering government and corporate bonds, interest rate derivatives, foreign exchange, credit and commodities. |
| FP&A | Financial planning and analysis | Corporate finance function responsible for budgeting, forecasting, management reporting and analysis that supports decisions by the CEO, CFO and business leaders. |
| FV | Future value | Value that a sum invested today, or a series of payments, will grow to at a given interest rate after a specified number of periods, assuming compounding. |
| GP | General partner | Manager of a private equity, venture capital or real estate fund who makes investment decisions, oversees portfolio companies and bears unlimited liability for the… |
| HNWI | High-net-worth individual | Person with substantial investable assets, conventionally at least $1 million excluding the primary residence, who is targeted by private banks and wealth managers. |
| HoldCo | Holding company | Parent company whose main purpose is to own shares in other companies, its subsidiaries, rather than to run operations itself. |
| IB | Investment banking | Segment of banking that advises companies and governments on mergers and acquisitions and helps them raise capital by underwriting stock and bond issues. |
| IBD | Investment banking division | Part of a bank that houses its advisory and capital-raising teams, including M&A, industry coverage groups and capital markets origination, as distinct from sales and… |
| ICR | Interest coverage ratio | Ratio of operating earnings, usually EBIT or EBITDA, to interest expense, showing how many times a company could pay its interest bill from profits. |
| IOI | Indication of interest | Preliminary, non-binding expression of interest from a potential buyer in an M&A auction, usually giving a valuation range and key assumptions. |
| IRR | Internal rate of return | Discount rate at which the net present value of a series of cash flows equals zero, representing the annualized return an investment is expected to generate. |
| LBO | Leveraged buyout | Acquisition of a company financed largely with borrowed money, typically 50 to 70 percent of the price, with the target's own assets and cash flows used to secure and… |
| LOI | Letter of intent | Preliminary document outlining the main terms of a proposed transaction, such as an acquisition, lease or joint venture, before the parties negotiate a definitive… |
| LP | Limited partner | Investor in a private equity, venture capital, hedge or real estate fund who contributes capital but plays no role in managing the fund and whose liability is limited… |
| LTM | Last twelve months | Most recent twelve-month period of a company's financial results, the version preferred in investment banking, credit agreements and M&A to show current performance… |
| M&A | Mergers and acquisitions | Area of corporate finance covering the buying, selling and combining of companies, including mergers, acquisitions, divestitures and tender offers. |
| MAC | Material adverse change | Contract clause, common in merger and loan agreements, that lets a party refuse to close or declare a default if the other party suffers a significant negative change… |
| MBO | Management buyout | Acquisition in which a company's existing managers buy all or most of the business they run, usually with backing from private equity investors and bank debt. |
| MIRR | Modified internal rate of return | Variant of IRR that assumes positive cash flows are reinvested at a specified rate, usually the cost of capital, and that outflows are financed at a set rate. |
| MOIC | Multiple on invested capital | Ratio of the total value an investment has returned or is worth to the capital invested in it, expressed as a multiple such as 2.5x. |
| MRR | Monthly recurring revenue | Predictable subscription revenue a business expects to receive each month, normalized to remove one-off fees and the effect of annual prepayments. |
| NewCo | New company | Newly formed company created for a specific transaction, such as acquiring a target, holding a spun-off business or combining two merging companies. |
| NOPAT | Net operating profit after tax | Operating profit adjusted for taxes as if the company had no debt, typically calculated as EBIT times one minus the tax rate. |
| NPV | Net present value | Sum of a project's future cash flows discounted back to today at a required rate of return, minus the initial investment. |
| NTM | Next twelve months | Forward-looking twelve-month period used for forecasts and forward valuation multiples, based on analyst estimates or management guidance. |
| NWC | Net working capital | Current operating assets, mainly receivables and inventory, minus current operating liabilities such as payables and accrued expenses. |
| OCF | Operating cash flow | Cash generated by a company's normal business activities during a period, shown as the first section of the cash flow statement. |
| OpCo | Operating company | Company in a group that actually runs the business, employing staff, holding contracts and generating revenue, as distinct from a holding company or property company. |
| OpEx | Operating expenditure | Ongoing costs of running a business day to day, such as salaries, rent, utilities, marketing and software subscriptions, which are expensed in the period they are… |
| PE | Private equity | Asset class and industry in which funds raise capital from institutional investors and wealthy individuals to buy stakes in private companies, or to take public… |
| PI | Profitability index | Capital-budgeting ratio equal to the present value of a project's future cash flows divided by its initial investment. |
| PIK | Payment in kind | Feature of a loan, bond or preferred stock that lets the borrower pay interest or dividends by issuing more of the security, or adding to principal, instead of paying… |
| PIPE | Private investment in public equity | Sale of shares or convertible securities by a publicly traded company directly to selected investors, such as hedge funds or private equity firms, usually at a discount… |
| PV | Present value | Current worth of a future sum of money or stream of cash flows, discounted at a rate that reflects the time value of money and risk. |
| QoE | Quality of earnings | Due diligence analysis, usually by an accounting firm, that tests whether a target company's reported earnings are accurate, recurring and sustainable. |
| RAROC | Risk-adjusted return on capital | Banking performance measure that divides risk-adjusted net income, after deducting expected losses, by the economic capital allocated to cover unexpected losses. |
| RCF | Revolving credit facility | Committed bank line that lets a company borrow, repay and reborrow up to a set limit during the facility's term, paying interest on drawn amounts and a commitment fee… |
| ROA | Return on assets | Ratio of net income to average total assets, measuring how efficiently a company turns everything it owns into profit regardless of how those assets are financed. |
| ROCE | Return on capital employed | Profitability ratio equal to EBIT divided by capital employed (total assets minus current liabilities), showing how efficiently a company uses its long-term funding to… |
| ROE | Return on equity | Profitability ratio equal to net income divided by average shareholders' equity, showing how much profit a company generates with the money shareholders have invested. |
| ROI | Return on investment | Profitability measure that compares the gain or loss from an investment with its cost, usually expressed as a percentage: gain minus cost, divided by cost. |
| ROIC | Return on invested capital | Measure of how well a company generates operating profit from the capital provided by both shareholders and lenders, usually calculated as NOPAT divided by invested… |
| ROS | Return on sales | Operating profitability ratio equal to operating profit divided by revenue, showing how many cents of operating profit a company earns per dollar of sales. |
| RRR | Required rate of return | Minimum annual return an investor or company demands to take on an investment, given its risk and the return available on alternatives. |
| S&T | Sales and trading | Investment bank division that buys and sells securities, currencies, commodities and derivatives for institutional clients and makes markets in them. |
| SAFE | Simple agreement for future equity | Startup financing instrument in which an investor pays money now for the right to receive shares in a future priced equity round, usually at a discount or subject to a… |
| SOTP | Sum of the parts | Valuation approach that values each business segment of a company separately, often using different multiples or DCFs, then adds them together and subtracts net debt. |
| SPA | Share purchase agreement | Definitive contract in which a buyer agrees to acquire shares of a company from its owners, setting out price, conditions, warranties, indemnities and closing mechanics. |
| SPV | Special purpose vehicle | Legal entity, usually a company or trust, created for a single narrow purpose such as holding an asset, financing a project or securitizing loans, so that its risks are… |
| TLB | Term loan B | Institutional term loan, usually floating rate, sold to investors such as CLOs and loan funds rather than held by banks, with minimal amortization (often 1 percent a… |
| TSR | Total shareholder return | Combined return to shareholders over a period from share price change plus dividends, assuming dividends are reinvested, expressed as a percentage. |
| TTM | Trailing twelve months | Most recent twelve-month period of financial data, regardless of fiscal year end, usually built from the last four quarterly reports. |
| TVM | Time value of money | Principle that a sum of money is worth more today than the same sum in the future, because money available now can be invested to earn a return. |
| TVPI | Total value to paid-in capital | Private-fund performance multiple equal to cumulative distributions plus the current value of remaining investments, divided by the capital LPs have paid in. |
| VC | Venture capital | Form of private equity financing that invests in early-stage, high-growth startups in exchange for equity, accepting a high risk of failure for the chance of very large… |
| WACC | Weighted average cost of capital | Average rate a company must pay to finance its assets, weighting the after-tax cost of debt and the cost of equity by their shares of the capital structure. |
| WC | Working capital | Difference between a company's current assets and current liabilities, indicating whether it has enough short-term resources to meet obligations due within a year. |
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