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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
Rate of Return – An amount of income and / or change in value realized or anticipated on an investment that is expressed in terms of a percentage of that investment.
Redundant Assets - Assets not necessary to ongoing operations of the business enterprise. (Also called “Non-Operating Assets”)
Relative P/E - Analysis of the relationship between the current P/E, the company's industry group, the overall market, and the historical range of the company's P/E. For example, certain industry groups, such as the automobile industry, look inexpensive on a simple P/E basis. Historically, however, the low P/Es is due to the perception that the business is low growth and cyclical.
Report Date – The date conclusions are transmitted to the client.
Replacement Cost New – The current cost of an identical new property.
Required Rate of Return – The minimum rate of return acceptable by investors before they will commit money to an investment at a given level of risk.
Residual Value – The value a company expects to be able to sell a fixed asset for at the end of its useful life. (Also see “Terminal Value”)
Return on Assets (ROA) - The company's net income divided by average assets for the annual period under consideration. Net Income, for purposes of this calculation, is after adding back interest expense on an after tax basis.
Return on Equity (ROE) - A measure of how well a company used reinvested earnings to generate additional earnings, equal to a fiscal year’s after-tax income divided by book value, and expressed as a percentage.
Return on Investment – A measure of a corporation’s profitability, equal to a fiscal year’s income divided by common stock and preferred stock equity plus long-term debt. ROI measures how effectively the firm uses its capital to generate profit. So, the higher the ROI, the better.
Return on Invested Capital – The amount, expressed as a percentage, earned on a company’s total capital for a given period.
Rich Valuation - This is a concept suggesting a stock is fully valued or overvalued based on P/E, price to book value, price to cash flow, or price to sales measured against its industry peers or the market as a whole.
Risk-Free Rate – The rate of return available in the market on an investment free of default risk.
Risk Premium – A rate of return added to a risk-free rate to reflect risk.
Rule of Thumb – A mathematical formula developed from the relationship between price and industry-specific variables based on experience, observation, hearsay or some combination thereof.
Special Interest Purchasers – Acquirers who believe they can enjoy post-acquisition economies of scale, synergies, or strategic advantages by combining an acquired business interest with their own.
Standard of Value – The identification of the type of value being used in a specific engagement.
Sustaining Capital Reinvestment – The periodic capital outlay required to maintain operations; net of the capital gains tax shield available from such actions.
Systematic Risk – Risk which is common to an entire class of assets or liabilities. The value of investments may decline over a given period of time due to economic changes.
Tangible Assets – Assets having a physical existence, such as cash, equipment and real estate; accounts receivable are also usually considered tangible assets.
Terminal Value – The value of any item at the end of a specified time period. Examples include the maturity value of a bond and the value of a fully depreciated asset. (Also see “Residual Value”)
Transaction Method - A market approach method where pricing multiples are derived from transactions of significant interests in companies engaged in the same or similar lines of business. (Also called a “Merger and Acquisition Method”)
Turnaround - A situation where a troubled company with a troubled stock is or could pursue certain strategies to unlock value and move the stock price positively. These strategies could include closing money losing businesses, reengineering the business to cut expenses, developing new marketing or product strategies, or merging with a like business to create synergies or better economies of scale.
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