| Asset Sale | A form of acquisition whereby the seller of a corporation agrees to sell all or certain assets and liabilities of a company to a purchaser. The corporate entity is not transferred. |
| Base Year | The Company's current fiscal year. Since complete financial statements are not available for the current year, sales and income are projected based on the expectations of management. A double base year is used when the Company is within a few months of the end of its fiscal year, or has completed its fiscal year but does not yet have financial statements for that year. |
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| Book Value | The value at which an asset is carried on a company's balance sheet. See Recase Book Value. |
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| Cash Flow | The excess of sources of cash over uses of cash. |
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Cash Flow
Statement | An Analysis of all the changes that effect the cash account during an accounting period. These changes may be shown as either sources or uses of cash. |
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| Deal Structure | The form by which the purchase of a business is accomplished. It could include cash, notes, stock, consulting agreements, earnout provisions, and covenants not to compete. The sale could take the form of an Asset Sale or a Stock Sale. See those definitions. |
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| Earnings Multiple | Divide the returns on investment expectations of a buyer into 100. This multiple will change from business by classification to individual businesses. |
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| Earnout | The portion of the purchase price that is contingent on future performance. It is payable to the sellers only when certain predefined levels of sales or income are achieved in the years after acquisition. |
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| Fair Market Value | The price at which a business passes from a willing seller to a willing buyer. It is assumed that both buyer and seller are rational and have a reasonable knowledge of relevant facts. |
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| Fixed Interest Rate | An interest rate which does not fluctuate with general market conditions. |
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| Free Cash Flow | Cash available for distribution after taxes but before the effects of financing. Calculated as net income plus depreciation less expenditures required for working capital and capital items adjusted to remove effects of financing. |
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| Going Concern Value | The gross value of a company as an operating business. This value may exceed or be at a discount from the liquidating value. |
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| Goodwill | The amount by which the price paid for a company exceeds the company's estimated net worth at market value of the underlying assets and liabilities. |
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| Liquidating Value | The value of a company based on the market value of its assets, net of liabilities. |
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| Net Cash Flow | Cash available for distribution after taxes and after the effects of financing. Calculated as net income plus depreciation less expenditures required for working capital and capital items. |
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| Present Value | The value today of a future payment, or stream of payments, discounted at some appropriate compound interest (discount) rates. |
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| Pro Forma Statements | Are used to illustrate the likely expectation of a series of events in a set period of time, ie: if we have completed 10 months of a calendar year, and if we need to do the Evaluation based on the completed year. |
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Pro Forma
Balance Sheets | In privately held companies, there are often redundant assets under utilized assets that need to be removed from the company prior to the sale of the business. A ProForma Balance Sheet is used to illustrate the likely balance sheet of the company, at the time of sale. |
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| Projected Statements | Hypothetical statements. Financial statements as they would appear if some event, such as increased sales or production, were to occur. |
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| Recasting | Financial recasting eliminates from the historical financial presentation, items such as excessive and discretionary expenses and nonrecurrng revenues and expenses, since they reflect the financing decision of the current owner and may not represent financing preferences of a new owner. Recasting provides an economic view of the company, and allows meaningful comparisons with other investment opportunities. |
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| Recast Book Value | The value of a balance sheet item (asset, liability, or equity) after recasting adjustments have been made. |
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Return on Investment
(ROI) | The rate of return at which the sum of the discounted future cash flows for the five pro forma years plus the discounted residual value equals the initial cash outlay. |
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| Share Sale | A form of acquisition whereby all or a portion of the shares in a corporation is sold to the purchaser. |
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| Variable Interest Rate | An interest rate that moves at a pre-defined level above or below an index rate. A commonly used index is the bank prime rate. |
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| Working Capital | The excess of current assets over current liabilities. |
