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CRS is committed to providing its clients with the information they need, when they need it. To deliver on that promise, we've compiled an easy-to-use glossary for commonly-used industry terms and phrases.
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Glossary: A-D / E-H / I-L / M-P / Q-T / U-Z
EBITDA - Earnings before interest expense, taxes, depreciation, and amortization.
Economic Benefits – Inflows of revenue, net income, net cash, etc.
Economic Life – The period of time that property generates economic benefits.
Effective Date – The exact point in time at which the appraiser’s opinion of value applies. (Also referred to as the “Valuation Date” or “Appraisal Date”.)
Enterprise - A commercial, industrial, service or investment entity conducting economic pursuits. (Also called “Business” or “Business Enterprise”)
Equity – The owner’s interest in property after deduction of all liabilities.
Equity Net Cash Flow – Dividends paid out to equity holders after funding operations of the business enterprise, making necessary capital investments and increasing or decreasing debt financing.
Equity Risk Premium – The extra return that must be provided to compensate for market risk.
Excess Earnings – The amount of anticipated economic benefits that exceeds an appropriate rate of return on the value of a selected asset base being used to generate anticipated economic benefits.
Excess Earnings Method – A specific way of determining a value indication of a business, interest or security. The sum of the value of assets as defined by capitalizing excess earnings and the value of the selected asset base. The Excess Earnings Method is often used to calculate the value of intangible assets.
Fair Market Value – The price that an interested but not desperate buyer would be willing to pay and an interested but not desperate seller would be willing to accept on the open market assuming a reasonable duration for an agreement.
Fairness Opinion – The professional opinion of an investment bank, provided for a fee, regarding the fairness of a price offered on a merger or a takeover from a solely financial point of view.
Financial Risk – The degree of uncertainty of realizing expected future returns of the business resulting from financial leverage. Also: The possibility that a bond issuer will default by failing to repay principal plus interest in a timely manner. (Also referred to as “Business Risk” “Default Risk” “Credit Risk”)
Forced Liquidation Value – The amount at which assets are sold as quickly as possible, as in an auction.
Free Cash Flow- Operating cash flow (net income plus amortization and depreciation) minus capital expenditures and dividends. Free cash flow is the amount of cash that a company has left after paying all of its expenses; mature businesses generate free cash flow, while rapidly growing businesses often must reinvest to add assets to meet rapid demand growth. Frequently, the absence of free cash flow in a supposedly profitable business indicates the company's products are in need of constant upgrade to stay competitive. This may indicate profits are not what they seem.
GARP- Growth at a reasonable price. GARP is the price-to-earnings ratio of the company in relation to the growth of the business. This is represented by the analyst's mean estimate of sustainable growth for the business forecasting 3 to 5 years in the future. A ratio of less than one is viewed as low while ratios well over 1 are viewed as expensive. If a company has a forecast growth of 15% over the next 3 to 5 years, but is selling at a P/E over 35, this might be viewed as a non-GARP. However, a growth rate of 30% with a P/E of 20 times, would, subject to further analysis, represent a possible GARP stock.
Going Concern – The idea that a company will continue to operate indefinitely, and will not go out of business and liquidate its assets.
Going Concern Value – The value of a business enterprise that is expected to continue to operate, including the intangible elements such as having a trained workforce, patents and licenses, systems, processes and operational skills to effectively conduct business.
Goodwill – An intangible asset that provides a competitive advantage; often relates to perception such as brand, reputation or morale.
Goodwill Value – In an acquisition, goodwill appears on the balance sheet of the acquirer in the amount by which the purchase price exceeds the net tangible assets of the acquired company.
Guideline Public Company Method – A method in the market approach where the market multiples are taken from the market prices of similar stocks in similar or same industries and actively traded on a free and open market.
High Margin Business- The relationship between a dollar of expense and a dollar of income. In other words, a high margin business might only spend $.60 to generate $1.00 of income.
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