*Financial Terms*

**Accretion/Dilution Analysis:** Accretion/dilution analysis is the assessment of the transaction’s impact on the earnings per share of a private company. If earnings per share have increased, the transaction is accretive while if the earnings per share have decreased after the transaction, the transaction is dilutive.

**Burn Rate: **Burn rate is the rate at which a new company uses up its venture capital to finance overhead before generating positive cash flow from operations. In other words, it’s a measure of negative cash flow.

**Compounding:** The ability of an asset to generate earnings, which are then reinvested in order to generate their own earnings. In other words, compounding refers to generating earnings from previous earnings.

**Discounting:** The process of determining the present value of a payment or a stream of payments that is to be received

**Dividends:** A share of a company’s net profits distributed by the company to a class of its shareholders.

**EBIT:** Earnings Before Interest and Tax. Sometimes referred to as operating profit.

**EBITDA:** Earnings Before Interest, Taxation, Depreciation, and Amortization.

**Enterprise Value:** Enterprise Value (EV), also known as Total Enterprise Value (TEV), Entity Value, or Firm Value (FV) is a measure reflecting the market value of a whole business. It is the sum of claims of all the security-holders: debt holders, preferred shareholders, minority interest, common equity holders, and others.

**Entity Value:** See Enterprise Value.

**Equity Total:** assets less total liabilities. Also called total shareholders’ equity or net worth.

**Free Cash Flow:** Free cash flow (FCF) yield is a measure of value that investors often look at to determine the potential return on investment.

**Hurdle Rate:** A hurdle rate is the minimum amount of return that a person requires before they will make an investment in something.

**Internal Rate of Return:** Internal rate of return (IRR) is the discount rate often used in capital budgeting that makes the net present value of all cash flows from a project equal to zero. The higher a project’s internal rate of return, the more desirable it is to undertake the project. As such, IRR can be used to rank several prospective projects a firm is considering.

**Net Debt:** Net debt is all interest bearing debt (often referred to as gross debt) less cash, cash equivalents and marketable securities. Net debt assumes that cash and marketable securities are “surplus” or “redundant” and can be used to pay down debt. In practice, It is important to assess whether all cash, cash equivalents, and marketable securities truly are “redundant” or readily disposable.

**Net Income:** Net income is a company’s total earnings (or profit). Net income is calculated by taking revenues and adjusting for the cost of doing business, depreciation, interest, taxes and other expenses. This number is found on a company’s income statement and is an important measure of how profitable the company is over a period. The measure is also used to calculate earnings per share.

**Net Operating Profit After Tax Net Operating Profit After Tax (NOPAT):** is a company’s after-tax operating profit for all investors, including shareholders and debt holders.

**Net Present Value:** Net Present Value is the sum of the present values of a time series of future cash flows.

**Non-operating assets: ** Classes of assets that are not essential to the operations of a business, but may still generate income or provide return on investment.

**NOPLAT / NOPAT: ** NOPAT is typically defined as EBIT x (1 – effective tax rate).

**Internal Rate of Return:** Internal rate of return (IRR) is the discount rate often used in capital budgeting that makes the net present value of all cash flows from a project equal to zero. The higher a project’s internal rate of return, the more desirable it is to undertake the project. As such, IRR can be used to rank several prospective projects a firm is considering.

**Net Debt :**Net debt is all interest bearing debt (often referred to as gross debt) less cash, cash equivalents and marketable securities. Net debt assumes that cash and marketable securities are “surplus” or “redundant” and can be used to pay down debt. In practice, It is important to assess whether all cash, cash equivalents, and marketable securities truly are “redundant” or readily disposable.

**Net Income:** Net income is a company’s total earnings (or profit). Net income is calculated by taking revenues and adjusting for the cost of doing business, depreciation, interest, taxes and other expenses. This number is found on a company’s income statement and is an important measure of how profitable the company is over a period. The measure is also used to calculate earnings per share.

**Net Operating Profit After Tax Net Operating Profit After Tax (NOPAT):** is a company’s after-tax operating profit for all investors, including shareholders and debt holders.

**Net Present Value:** Net Present Value is the sum of the present values of a time series of future cash flows.

**Non-operating assets:** Classes of assets that are not essential to the operations of a business, but may still generate income or provide return on investment.

**NOPLAT / NOPAT:** NOPAT is typically defined as EBIT x (1 – effective tax rate).

**Normalized Earnings:** Earnings adjusted for non-recurring items, over/under depreciation, profit/loss on sale of assets, etc. so that earnings reflect the ongoing performance of the company.