Glossary
The terms, explained the way a mentor would.
Not just definitions — how each term actually shows up in a technical interview.
A
- Accounts PayableAccountingAccounts Payable is a liability on the Balance Sheet that represents amounts owed to suppliers or vendors for goods and services that have been received but not paid for yet.
- Accounts ReceivableAccountingAccounts Receivable is a Balance Sheet item that represents bills sent to customers for services already rendered. This is different than Deferred Revenue.
- Accrual & Cash-Based AccountingAccountingAccrual Accounting records revenues and expenses when they are earned or incurred, regardless of when cash is received or paid.
- Accrued CompensationAccountingAccrued Compensation is a Balance Sheet item that refers to employee costs that a company owes to its employees but has not paid yet.
- Accrued ExpensesAccountingAccrued Expenses is a liability on the Balance Sheet and refers to expenses that a company has incurred during a specific accounting period but has not yet paid as of the balance sheet dates.
- Additional Paid-In Capital (APIC)Capital StructureAdditional Paid-In Capital is a line under Shareholders’ Equity on the Balance Sheet that represents the amount investors pay for a company’s stock above its par value, reflecting the premium...
- Asset Write-DownsAccountingAsset write-downs occur when a company reduces the book value of an asset on its balance sheet because its current market value or recoverable amount is lower than its carrying value.
B
- Balance SheetFinancial StatementsA balance sheet is a financial statement that provides a snapshot of a company's financial position at a specific point in time, showing its assets, liabilities, and equity.
- BetaCost of CapitalWhat is Beta?
- Bottoms Up Revenue ModelBusiness & GrowthA bottoms up revenue model builds revenue projections starting at a highly granular level using unit economics such as # of units sold, price per unit, customer acquisition cost and average...
C
- Capital Asset Pricing Model (CAPM) & Cost of Equity (CoE)Cost of CapitalThe CAPM is a north star formula that is used to calculate the Cost of Equity (CoE).
- Capital Expenditures (CapEx)AccountingCapital Expenditures are funds a company uses to acquire, maintain or upgrade its PP&E (Plant, Property & Equipment) or technology.
- Cash Flow StatementFinancial StatementsA cash flow statement is a financial report that tracks a company's cash inflows and outflows over a specific period, categorizing them into operating, investing, and financing activities.
- Cash Flow from FinancingFinancial StatementsCash Flow from Financing refers to the section of a company’s Cash Flow Statement that shows the cash inflows and outflows related to activities that affect the company’s capital structure.
- Cash Flow from InvestingFinancial StatementsCash Flow from Investing refers to the section the Cash Flow Statement that shows the cash spent on and received from investments in long-term assets.
- Cash Flow from OperationsFinancial StatementsCash Flow from Operations is a section on the Cash Flow Statement referring to cash generated or used by the company’s core business operations during a specific period.
- Cash Interest vs. PIK InterestPrivate Equity & LBOWhen you take out a loan, you either pay the Interest in either Cash or PIK (Paid in Kind).
- Common StockCapital StructureCommon Stock is a part of Shareholders’ Equity on the Balance Sheet and reflects the par value of the shares issued by the company.
- Comparable CompaniesValuationComparable Companies is a valuation methodology that refers to how bankers use public market valuations of similar companies to determine how much to value the company they’re working with.
- Control PremiumValuationA control premium in M&A refers to the additional amount a buyer is willing to pay above the fair market value of a company's shares to acquire a controlling interest, reflecting the value of...
- Convertible DebtCapital StructureConvertible Debt is a type of financing where a company issues bonds or loans that can be converted to a predefined number of equity shares at a later date or under certain conditions.
- Convertible Preferred StockCapital StructureConvertible Preferred Stock is a type of preferred equity that gives its holders the option to convert their preferred shares into a specified number of common shares.
- Cost of Debt (CoD)Cost of CapitalThe Cost of Debt (CoD) is the aggregate interest rate across all loans. You calculate it by putting the total amount of interest over the total amount of debt.
- Cost of Goods Sold (COGS)Financial StatementsThe Cost of Goods sold refers to the total direct costs a company incurs to produce the goods it sells, including the cost of raw materials and labor directly used to create the product.
D
- Deferred RevenueAccountingDeferred Revenue is a Balance Sheet liability that refers to revenue that has been paid for but cannot be recognized yet because the services have not been rendered yet.
- Depreciation & Amortization (D&A)AccountingDepreciation and Amortization are accounting methods used to allocate the cost of tangible and intangible assets over their useful lives.
- Disaster ExpensesAccountingDisaster expenses on an income statement are costs incurred due to natural or man-made disasters, such as hurricanes, earthquakes, floods, fires, or accidents.
- Discounted Cash Flow (DCF)ValuationA DCF analysis is a valuation method used to estimate the intrinsic value of an asset or business by forecasting its future cash flows and discounting them back to their present value using a...
E
- EBIATFinancial StatementsStands for Earnings Before Interest After Tax.
- EBITDAFinancial StatementsEBITDA stands for Earnings Before Interest, Taxes, Depreciation and Amortization. It is the amount of profit left over after Revenue has been reduced by Cost of Goods Sold and Operating Expenses.
- EBITDA MultiplesValuationEBITDA multiples are calculated using Purchase Price / EBITDA. So, if a business was purchased for $200 and had EBITDA of $10, this would be a 20.0x multiple.
- Enterprise Value (EV)ValuationEnterprise Value is a measure of a company’s total value and is the what the total value of the business is in a valuation context.
- Equity ValueValuationEquity Value represents the total value of a company’s equity as perceived by the market.
G
- G&A (General & Administrative)Financial StatementsG&A (General & Administrative) is a section within the Operating Expenses section of a P&L, along with R&D (Research & Development) and S&M (Sales & Marketing).
- Go-to-MarketBusiness & GrowthRefers to a company's strategy for launching a product or service, reaching target customers, and achieving competitive positioning.
- GoodwillValuationGoodwill is an intangible asset that arises when a company acquires another for a price higher than the fair value of its net assets.
- Gross ProfitFinancial StatementsGross Profit is the amount of dollars remaining after Revenue has been reduced by Cost of Goods Sold (COGS).
I
- Industry PremiumValuationAn Industry Premium refers to an additional premium added to a company’s Cost of Equity to account for the unique risks and opportunities associated with a specific industries.
- Internal Rate of Return (IRR)Private Equity & LBOIRR simply means the annual rate of return for an investment, most commonly used when discussing PE returns.
- InventoryAccountingInventory is a Balance Sheet item that refers to the value of a company’s goods that are either available for sale or are in the process of being manufactured at a specific point in time.
L
M
- Market ReturnCost of CapitalThe Market Return is commonly used in the CAPM formula to calculate the Cost of Equity (CoE). It is typically quantified as the average return for a major market index like the S&P 500.
- Market Risk Premium (MRP)Cost of CapitalThe Market Risk Premium is the additional return investors expect for taking on the risk of investing in the stock market instead of a risk-free security.
- Minority InterestValuationMinority Interest represents the portion of a subsidiary company’s equity that is not owned by the parent company.
- Money on Invested Capital (MOIC)Private Equity & LBOMOIC refers to the absolute dollar gain of an investment, irrespective of time.
N
- Net DebtValuationNet Debt is a measure of a company’s financial leverage. It indicates how much debt would remain if the company used all its cash to pay down it’s debt.
- Net IncomeFinancial StatementsNet Income is the “bottom line” and the last line in the income statement. It represents the amount of money that remains after accounting for all expenses.
O
- One-Time Legal ExpensesAccountingOne-Time Legal Expenses refer to expenses that are one-time and non-recurring in nature such as lawyer fees for an employee lawsuit or for an acquisition.
- Operating ExpensesFinancial StatementsOperating Expenses are the bucket that contains all General & Administrative (G&A), Sales & Marketing (S&M) and Research & Development (R&D) expenses.
- Operating IncomeFinancial StatementsOperating profit is similar to EBITDA as it’s used a profitability metric. But, it includes depreciation and amortization.
P
- P&L / Income StatementFinancial StatementsA P&L / Income Statement is a financial report that summarizes a company's revenue, expenses, and net income or loss over a specific period.
- PP&E (Plant, Property & Equipment)AccountingPP&E is a Balance Sheet item that represents tangible assets that a company uses in its operations and are expected to provide economic benefits for over a year.
- Precedent TransactionsValuationPrecedent Transactions is a valuation methodology that refers to how bankers use transactions of similar companies to determine how much to value the company they’re working with.
- Preferred StockCapital StructurePreferred Stock is a type of equity that has characteristics of both debt and equity. Preferred Shareholders typically have:
- Prepaid ExpensesAccountingPrepaid expenses are an asset on the balance sheet. They represent expenses that have been paid for but not yet accrued.
- Pretax Income (EBT)Financial StatementsPretax income is the amount of money earned before taxes are subtracted.
- Price / Earnings (P/E) RatioValuationA Price / Earnings ratio is a measure of a company’s Share Price over their Earnings Per Share (Net Income per Share).
- Private Equity (PE)Private Equity & LBOA PE firm is a company that uses debt to purchase a company, hoping to flip it on in 3-6 years at a favorable return.
R
- R&D (Research & Development)Financial StatementsR&D is a section in Operating Expenses, along with G&A (General & Administrative) and S&M (Sales & Marketing).
- Retained EarningsAccountingRetained Earnings is on the Balance Sheet and pertains to the portion of the company’s Net Income that is not distributed to shareholders as dividends, but is instead kept within the company to be...
- RevenueFinancial StatementsThe amount of Sales that a business generated over a time period. It is at the top of the Income Statement. If you sell 10 flowers for $1, you generated $10 in Revenue.
- Revenue MultiplesValuationRevenue multiples are Purchase Price / Revenue multiples. So if a business was bought for $100 and had $10 of Revenue, they would have a Revenue multiple of 10.0x
- Risk-Free RateCost of CapitalThe Risk-Free Rate is the return on an investment that carries no risk of financial loss. Typically this is the yield on a 10-year US Treasury Bond.
S
- S&M (Sales & Marketing)Financial StatementsS&M is a section of Operating Expenses along with G&A (General & Administrative) and R&D (Research & Development).
- ScaledBusiness & GrowthAnother way of saying a business is big relative to its peers. Google is scaled, a local IT services company is not.
- Size PremiumValuationA size premium is an additional return added to the cost of equity in a Discounted Cash Flow (DCF) analysis to account for the higher risk associated with investing in smaller companies, which...
- Stock OptionsCapital StructureStock Options give an investor or employee the right to purchase shares of a company at a pre-determined strike price.
- Stock-Based CompensationAccountingStock-Based Compensation refers to payments made to employees, executives or stakeholders using the company’s equity.
- Synergies: 1 + 1 = 3ValuationSynergies refer to the potential benefits that arise when two companies combine, resulting in greater value than the sum of their individual parts.
T
- TAM, SAM, SOMBusiness & GrowthTotal Addressable Market (TAM), Serviceable Addressable Market (SAM) and Serviceable Obtainable Market (SOM) are all measures of market size.
- Terminal Value & Terminal Growth RateValuationTerminal Value
- Time Value of Money (TVM)Cost of CapitalThe TVM is a concept that simply states money today > money tomorrow. Reason being is that money today can be invested.
- Top Down Revenue ModelBusiness & GrowthA Top Down Revenue Model forecasts revenue by using market metrics like TAM and SAM to estimate overall market size, then estimating current market share and then forecasting how that will change...
- Treasury StockCapital StructureTreasury stock refers to shares that a company has issued and later repurchased from shareholders.
W
- Weighted Average Cost of Capital (WACC)Cost of CapitalThe WACC is the average rate of return a company is expected to pay its investors (debt & equity) weighted by their respective proportions in the company’s capital structure, reflecting the...
- Working Capital (WC)AccountingWorking Capital is a measure of a business’s short-term financial health. It is calculating by subtracting Current Liabilities from Current Assets: