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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
Adjusted Book Value Method – A process where all assets and liabilities are adjusted to their fair-market values. (Also called “Adjusted Net Asset Method”.)
Adjusted Net Asset Method – A process where all assets and liabilities are adjusted to their fair-market values. (Also called “Adjusted Book Value Method.”)
Appraisal – Also called a “Valuation”. The act or process of determining the value of a business, business ownership interest, security or intangible asset.
Appraisal Approach – Also called a “Valuation Approach”. A general way of determining a value of a business, business ownership interest, security or intangible asset using one or more valuation methods.
Appraisal Date – The exact point in time at which the appraiser’s opinion of value applies. (Also referred to as the “Valuation Date” or “Effective Date”.)
Amortization – The act of expensing capitalized assets over a period of time consistent with their economic life. Economic life is calculated as the time for which a capitalized asset can be expected to produce income, measured against its capitalized value.
Annualizing - The evaluation of the performance a company for a quarterly period and multiplying the result by four to determine an annual result.
Arbitrage Pricing Theory - A multivariate estimation model for equity capital. The Arbitrage Pricing Theory incorporates several systematic risk analyses.
Asset Approach – Determination of a value indication of a business, business ownership interest or security using one of more methods based on the value of a business.
Beta – A measure of systematic risk of a stock; the tendency of a stock’s price to correlate with changes in a specific index.
Blockage Discount – An amount or percentage deducted from the current market price of a publicly traded stock to reflect the decrease in the per share value of a sizable block of stock.
Book Value Per Share - Shareholder's Equity divided by the number of common shares outstanding.
Business Enterprise – Also called “Business.” A commercial, industrial, service or investment entity conducting economic pursuits.
Business Risk – Also: The possibility that a bond issuer will default by failing to repay principal plus interest in a timely manner. (Also referred to as “Financial Risk” “Default Risk” and “Credit Risk”)
Business Valuation – The process of determining the value of a business enterprise or ownership interest therein.
Capital Asset Pricing Model (CAPM) – A model in which the cost of capital for any stock or portfolio of stocks equals a risk-free rate plus a risk premium in proportion to the systematic risk of the stock or portfolio.
Capitalization – A conversion of a single period of economic benefits into value.
Capitalization Factor – Any multiple or divisor used to convert anticipated economic benefits of a single period into a value.
Capitalization of Earnings Method – A method within the income approach where the economic benefits of a single representative period are converted to value through division by a capitalization rate.
Capitalization of Expenses - When an expenditure occurs where the asset acquired will be useful and generate or participate in the generation of income over a period exceeding one year. The related asset would then be expensed (depreciated or amortized) over its expected life.
Capitalization Rate – Any divisor used to convert the anticipated economic benefits of a single period into a value.
Capital Structure – The composition of debt and equity financing into the invested capital of a business enterprise.
Cash Flow – A general term that defines cash generated over specific amount of time by an asset, group of assets or business enterprise. In professional context, the term is best utilized with a more specific qualification such as “operating” or “discretionary”.
Cheap Stock – Existing largely as shareholder perception, the term “cheap” implies that based on common ratios P/E, Price to Cash Flow, etc., a company’s stock may be priced less than that of industry peers, the market in general, or the company's own historical valuation range.
Common Size Statements – Financial statements in which each line is expressed as a percentage of the total.
Control – The power to direct the management and policies of a business enterprise.
Control Premium – An amount or a percentage by which the value of a controlling interest exceeds non-controlling interests in a business enterprise.
Cost Approach – A general way of determining a value indication of an individual asset by quantifying the amount of money required to replace the future service capability of that asset.
Cost of Capital – The expected rate of return required by the market to attract funds for a specific investment.
Debt Free – The sum of equity and debt in a business enterprise where the equity is greater than the debt. Debt typically includes all long and short-term interest-bearing debt.
Depreciation - Fixed assets like property, plant and equipment require an immediate expenditure. But since these assets are productive and will generate income over a period of their useful economic life, the expenditures are capitalized (recorded as an asset) and expensed (depreciated) over a period consistent with their life.
Discount for Lack of Control – An amount or percentage discounted from the pro rata share of value of 100% of an equity interest in a business that reflects the absence of some or all of the powers of control.
Discount for Lack of Marketability – An amount or percentage deducted from the per share value of an ownership interest that reflects the absence of marketability.
Discount for Lack of Voting Rights – An amount or percentage deducted from the per share value of a minority interest voting share that reflects the absence of voting rights.
Discount Rate – A rate of return used to convert a future monetary sum into present value.
Discounted Cash Flow Method – In the income approach, the present value of future expected net cash flows is calculated using a discount rate.
Discounted Future Earnings Method – In the income approach, the present value of future expected economic benefits is calculated using a discount rate.
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