Key Concepts in Corporate Finance

These flashcards cover essential vocabulary terms and definitions related to corporate finance concepts, particularly focusing on private equity, venture capital, public equity, IPO processes, and related calculations.

Private Equity

Investments in private companies through angel investors, crowdfunding, and venture capital.

Venture Capital

Funding provided to startups through means like convertible preferred shares and liquidation preferences.

Public Equity

Equity offered in the public market through processes like IPOs and SEOs.

IPO Process

The stages involved in an Initial Public Offering, including preparatory, draft, blackout, pathfinder, and listing.

Underpricing

The practice of pricing IPO shares lower than their market value to ensure successful sales.

SPACs

Special Purpose Acquisition Companies that provide a structure for taking companies public without a traditional IPO.

Cost of Capital

The return required by equity investors given the risk of investing in a company.

WACC

Weighted Average Cost of Capital, the average rate of return a company is expected to pay its security holders.

CAPM

Capital Asset Pricing Model used to determine a theoretically appropriate required rate of return.

IRR

Internal Rate of Return, the discount rate that makes the net present value of all cash flows from a particular project equal to zero.

Ex-Rights Price

The theoretical price at which a stock would trade after the rights offering.

Beta

A measure of the volatility, or systematic risk, of a security or portfolio compared to the market as a whole.

YTM

Yield to Maturity, the total return anticipated on a bond if the bond is held until it matures.

Transaction Cost

The cost incurred in making an economic exchange.

Adverse Selection

A situation where sellers have information that buyers do not have, leading to market inefficiencies.

Liquidation Preference

The order of payout to investors in the event of liquidation.

Anti-dilution Rights

Provisions that protect existing investors from dilution of their ownership percentage.

Book-Building

The process by which an underwriter attempts to determine the price at which an IPO will be offered.