75 Glossary of Key Terms

amortization
the process of spreading business costs in accounting; similar to depreciation, but differs in that it generally refers to intangible assets such as patents or copyrights
capital employed
also known as funds employed; the total amount of capital used for the acquisition of profits by a firm or on a project
common stock
a security that represents partial ownership of a corporation
comparable company analysis (comps)
a method for valuating a company using the metrics of other businesses of similar size in the same industry
depreciation
the process of spreading business costs in accounting; similar to amortization, but differs in that it generally refers to fixed, tangible assets such as buildings, machinery, furniture, fixtures, and equipment
discounted cash flow (DCF)
a method for estimating the value of an investment based on the present value of its expected future cash flows
dividend
a sum of money paid regularly (typically quarterly) by a company to its shareholders out of its profits or reserves
dividend discount model (DDM)
a quantitative method for predicting the price of a company’s stock based on the theory that its present-day price is worth the sum of all of its future dividend payments when discounted back to their present value
dividend yield
a financial ratio (dividend/price) that shows how much a company pays out in dividends each year relative to its stock price, expressed as a percentage
earnings per share (EPS)
the ratio of a company’s profits to the outstanding shares of its common stock; serves as an indicator of a company’s profitability
EBIT
short for earnings before interest and taxes; an indicator of a firm’s profitability before the effects of interest or taxes; also referred to as operating earnings, operating profit, and profit before interest and tax
efficient markets
markets in which costs are minimal and prices are current, fair, and reflective of all available relevant information
enterprise value (EV)
a company’s total value; often used as a more comprehensive alternative to equity market capitalization
enterprise value (EV) multiples
also known as company value multiples; ratios used to determine the overall value of a company and, by extension, the value of its common stock
equity multiples
metrics that calculate the expected or achieved total return on an initial investment
Gordon growth model
a methodology used to determine the intrinsic value of a stock based on a future series of dividends that grow at a constant rate
growth rate
the rate at which the dollar amount of dividends paid on a specific stock holding increases
intangible assets
assets that are not physical in nature, such as goodwill, brand recognition, and intellectual property (i.e., patents, trademarks, and copyrights)
intrinsic value
the value of a firm’s stock based entirely on internal factors, such as products, management, and the strength of company brands in the marketplace
market capitalization
the value of a company traded on the stock market, calculated by multiplying the total number of shares by the current share price
NASDAQ (National Association of Securities Dealers Automated Quotations)
short for National Association of Securities Dealers Automated Quotations; an American stock exchange based in New York City, ranked second behind the New York Stock Exchange in terms of total market capitalization of shares traded
net book value
also called net asset value (NAV); the total assets of a company minus its total liabilities
NYSE (New York Stock Exchange)
the world’s largest stock exchange by market capitalization of its listed companies, based in New York City; often referred to as the “Big Board”
perpetuity
in terms of investments, an annuity with no end date
precedent transaction analysis (precedents)
a method for valuating a company in which the price paid for similar companies in the past is considered an indicator of the company’s current value
preferred stock
stock that entitles the holder to a fixed dividend, the payment of which takes priority over payment of common stock dividends
price-to-book (P/B) ratio
also called the market-to-book (M/B) ratio; a metric used to compare a company’s market capitalization, or market value, to its book value
price-to-cash-flow (P/CF) ratio
a stock valuation indicator or multiple that measures the value of a stock’s price relative to its operating cash flow per share
price-to-earnings (P/E) ratio
a ratio that indicates the dollar amount an investor can expect to invest in a company in order to receive one dollar of that company’s earnings
price-to-sales (P/S) ratio
a ratio that indicates how much investors are willing to pay for a company’s stock per dollar of that company’s sales
required return
the minimum return an investor expects to achieve by investing in a project
secondary markets
markets where investors buy and sell securities they already own
stock value
also called intrinsic value; the fundamental, objective value of a share of stock

 

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This chapter is from “Principles of Finance”  https://openstax.org/books/principles-finance/pages/1-why-it-matters by Dahlquist and Knight. This book is licensed under the CC-BY 4.0 license. 2022 OpenStax.

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PPSC FIN 2010 Principles of Finance by Cristal Brietbeil and Eric Schroeder is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License, except where otherwise noted.

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