FBLA Entrepreneurship

Focus group

a controlled group interview of a target audience demographic, often led by a facilitator. A set series of questions or topics are covered and the results are used to guide marketing efforts

Down payment

A good faith deposit made by a buyer to underline his or her commitment to complete the deal.

Buying on margin

Purchasing an asset by making a down payment (called the margin) and financing the balance amount through a loan by using the asset as the collateral.

downsizing

intentional reduction in the size of a workforce at all staffing levels, to survive a downturn, improve efficiencies.

marginal cost

Cost to produce an extra unit.

Marginal Benefit

Benefit to produce an extra unit

Rationalization

Selling off or closing down some plants or units to reorganize a firm's operations to be more in line with its core competencies, in the interest of efficiency or as a cost cutting measure. Often used as a euphemism for firing employees.

footprint rationalization

removal of redundant and inefficient operation

asset rationalization

matching a firm's investment in various types of assets to its projected requirements, for achieving optimum returns on the sums invested.

core product

Dominant intangible benefit or satisfaction a customer expects from a good or service he or she buys.

absorption

integration of an account (called absorption account) into related accounts in preparation of a financial statement. INtegration of change and innovation into an organization's culture and operations.

general ledger

Central repository of the accounting information of an organization in which the summaries of all financial transactions (culled from subsidiary ledgers) during an accounting period are recorded. Also called the book of final entry, it provides the entire data for preparing financial statements for the organization.

Financial statement

summary report that shows how a firm has used the funds entrusted to it by its stockholders and lenders and what is its current financial position. (Balance sheet, income statement, and cash flow statement)

Augmented product

core product to which additional products and services may be added to generate multiple revenue streams.

Platform product

Appliance or equipment whose basic design and some components are used in several products of a product family.

Balance Sheet

Condensed statement that shows the financial position of an entity on a specified date. (It states what assets the entity owns, how it paid for them, what it owes, and what is the amount left after satisfying the liabilities.

Asset

Something valuable that an entity owns, benefits from, or has use of, in generating income.

Intangible assets

They derive their value from intellectual or legal rights, and from the value they add to the other assets. (Limited-life intangible assets, such as patents, copyrights, and goodwill. /Unlimited-life intangible assets, such as trademarks.)

Tangible assets

Cash, equipment, machinery, plant, property-- anything that has long-term physical existence or is acquired for use in the operations of the business and not for sale to customers.

corporeal ownership

ownership of tangible assets such as land, buildings, and money

Cashout

paying-off an existing loan on a property by taking another (usually larger) loan against it.

Amortization

Gradual repayment of a loan in equal (or nearly equal) installments which include portions of interest and principal amounts.

Drag on return

Reduction in returns from an investment (such as in a mutual fund) due to management expenses, charges or fees, and capital gains tax.

Cash flow statement

Summary of the actual or anticipated incomings and outgoings of cash in a firm over an accounting period. It answers the questions Where the money came from? Where it went (will go)?

Indirect cash flow statement

Begins with the net income figure taken from the income statement and then makes several adjustments which fall under three main headings (expenses not involving cash outflows, cash outflows not recorded as expenses, revenues not involving cash inflows.)

Direct cash flow statement

Begins with cash provided by the sales from which cash paid for operating expenses is deducted to arrive at the net cash flow from operating activities.

S corporation

Type of the US corporate structure in which the firm's income is passed through its stockholders (shareholders) in proportion of their investment, and taxed at personal income tax rates. S corporations (s stands for small) can have only one type of stock and only a limited number of stockholders. Also called subchapter S corporation.

C corporation

US business organization structure that provides several non-tax benefits (such as limited liability for the owners) and is popular as a staging base for raising large amount of investment capital by going public. Unlike in a S corporation, however, the entity's income is taxed twice-- first as a corporate income, then as a shareholder income.

Memorandum

Document used generally in syndicate financing of projects to define the work and to detail its financing arrangements.

Proprietorship

Type of business organization where one person or a family owns the firm.

Sole proprietorship

Simplest, oldest and most common form of business ownership in which only one individual acquires all the benefits and risks of running an enterprise. Most popular, least record keeping, minimal regulatory controls, and avoidance of double taxation.

Limited liability

Relatively recent type of US business structure that combines the limited personal liability feature of a corporation with the single taxation feature of a partnership or sole-proprietor firm. Its profits and tax benefits are split any way the stockholders/shareholders choose.

"A" round

a financing event whereby venture capitalists become involved in a fast-growth company that was previously financed by founders and/or angels.

Accredited investor

A person or legal entity such as a company or trust fund, that meets certain net worth and income qualifications and is considered to be sufficiently sophisticated to make investment decisions in complex situations. Regulation D of the Securities Act of 1933 exempts accredited investors from protection under the Securities Act.

After-tax operating income

see Net operating income after taxes

airball

a loan whose value exceeds the value of the collateral

Alpha

a term derived from statistics and finance theory that is used to describe the return.

Alternative asset class

A class investments that includes private equity, real estate, and oil and gas, but excludes publicly traded securities. Pension plans, college endowments, and other relatively large institutional investors typically allocate a certain percentage of their investments to alternative assets with an objective to diversify their portfolios.

Angel

A wealthy individual invests in companies in relatively early stages of development. Usually angels invest less than $1 million per startup. The typical angel-financed startup is in concept or product development phase.

Anti-dilution

A contract clause that protects an investor from a substantial reduction in percentage ownership is a company due to the issuance by the company of additional shares to other entities. The mechanism for making adjustments is called a Ratchet.

"B" round

A financing event whereby professional investors such as venture capitalists are sufficiently interested in a company to provide additional funds after the "A" round of financing. subsequent rounds are called "C", "D", and so on.

Balloon payment

a relatively large principal payment due at a specific time as required by a lender.

Basis point

one one-hundredth of a percentage unit. For example, 50 basis points equals one half of one percent. Banks quote variable loan rates in terms of an index plus a margin and the margin is often described in basis points, such as LIBOR plus 400 basis points.

Best efforts offering

a commitment by a syndicate of investment banks to use best efforts to ensurethe sale to investors of a company's offering of cecurities. In a best efforts offering, the syndicate avoids any firm commitment for a specific number of shares or bonds.

Beta

A measure of volatility of a public stock relative to an index or a composite of all stocks in a market geographical region. A beta of more than one indicates the stock has higher volatility than the index and a beta of one indicates volatility equivalent to the index (or composite). For example, the price of a stock with a beta of 1.5 will change by 1.5% if the index value changes by 1%. Typically, the S&P500 index is used in calculating the beta of a stock.

Beta Product

A product that is being tested by potential customers prior to being formally launched into the marketplace.

Blow-out round/Cram-down round

a financing event upon which new investors with substantial capital are able to demand and receive contractual terms that effectively cause the issuance of sufficient new shares by the startup company to significantly reduce ("dilute") the ownership percentage of previous investors.

Blue sky

regulations in individual states regarding the sale of securities and mutual funds. These laws are intended to protect investors from purposely fraudulent transactions.

Board of directors

A group of individuals, typically composed of managers, investors, and experts, which have a fiduciary responsibility for the well being and proper guidance of a corporation. The board is elected by the shareholders.

Boat anchor

A person, project or activity that hinders the growth of company.

Book/private placement memorandum

they are the same thing

Book runner

The lead bank that manages the transaction process for an eqity or debt financing, including documentation, syndication, pricing, allocation, and closing.

Book value

The book value of a company is the value of the common stock. The book value of an asset of a company is typically based on its original cost minus accumulated depreciation.

Bootstrapping

The actions of a startup to minimize expenses and build cash flow, thereby reducing or eliminating the need for outside investors.

Bp

see Basis point.

Bridge financing

temporary funding that will eventually be replaced by permanent capital from equity investors or debt lenders.

Broad-based weighted average ratchet

A type of anti-dilution mechanism. A weighted average ratchet adjusts downward the price per share of the preferred stock of investor A due to the issuance of new preferred shares to new investor B at a price lower than the price investor A originally received.

Bullet payment

a payment of all principal due at a time specified by a bank or a bond issuer.

burn rate

the rate at which a startup with little or no revenue uses cash savings to cover expenses. Usually expressed on a monthly or weekly basis.

business development company

a publicly traded company that invests in private companies and is required by law to provide meaningful support and assistance to its portfolio companies.

business plan

a document that describes a new concept for a business opportunity. A business plan typically includes the following sections: executive summary, market need, solution, technology, competition, marketing, management, operations and financials.

buyout

a sector of the private equity industry. Also, the purchase of a controlling interest of a company by an outside investor or a management team.

Buy-sell agreement

A contract that sets forth the conditions under which a shareholder must first offer his or her shares for sale to the other shareholders before being allowed to sell to entities outside the company.

C corporation

An ownership structure that allows any number of individuals or companies to own shares. A C corporation is a stand-alone legal entity, so it offers some protection to its owners, managers and investors from liability resulting from its actions.

Call date

when a bond issuer has the right to retire part or all of a bond issuance at a specific price.

Call premium

The premium above par value that an issuer is willing to pay as part o the redemption of a bond issue prior to maturity.

Call price

The price an issuer agrees to pay to bondholders to redeem all or part of a bond issuance.

Call protection

A provision in the terms of a bond specifying the period of time during which the bond cannot be called by the issuer.

CAPM

Capital Asset Pricing Model- a method of estimating the cost of equity capital of a company.The cost of equity capital is equal to the return of a risk-free investment plus a premium that reflects the risk of the company's equity.

Capital call

When a private equity fund manager requests than an investor in the fund provide additional capital. Usually a limited partner will agree to a maximum investment amount and the general partner will make a series of capital calls over time to the limited partner as opportunities arise to finance startups and buyouts

Capitalization table

A table showing the owners of a company's shares and their ownership percentages as well as the debt holders. It also lists the forms of ownership, such as common stock, preferred stock, warrants, options, senior debt, and subordinated debt.

Capital gains

A tax classification of investment earnings resulting from the purchase and sale of assets. Typically, an investor prefers that investment earnings be classified as long term capital gains (held for a year or longer), which are taxed at a lower rate than ordinary income

Capital stock

a description of stock that applies when there is only one class of shares. This class is known as common stock.

Capped participating preferred stock

Preferred stock whose participating feature is limited so that an investor cannot receive more than a specified amount.

Carried interest

A share in the profits of a private equity fund. Typically, a fund must return the capital given to it by limited partners plus any preferential rate of return before the gneral partner can share in the profits of the fund.

Catch-up

A clause in the agreement between the general partner and the limited partners of a private equity fund.

Change of control bonus

A bonus of cash or stock given by private equity investors to members of a management group if they successfully negotiate a sale of the company for a price greater than a specified amount.

Clawback

A clause in the agreement between the general partner and the limited partners of a private equity fund.The clawback gives limited partners the right to reclaim a portion of disbursements to a general partner for profitable investments based on significant losses from later investments in a portfolio.

Co-investment/Club deal

Either a.)the right of a limited partner to invest with a general partner in portfolio companies b.)the act of investing by two or more entities in the same target company

Collateral

hard assets of the borrower, such as real estate or equipment, for which a lender has a legal interest until a loan obligation is fully paid off.

Commitment

An obligation, typically the maximum amount that a limited partner agrees to invest in a fund.

Common stock

A type security representing ownership rights in a company. Usually, company founders, management and employees own common stock while investors own preferred stock. In the event of a liquidation of the company, the claims of secured and unsecured creditors, bondholders, and preferred stockholders take precedence over common stockholders.

Comparable

a publicly traded company with similar characteristics to a private company that is being valued. E.g. a telecommunications equipment manufacturuer whose market value is 2 times revenues can be used to estimate the value of a similar and relatively new company with a new product in the same industry.

Control

The authority of an individual or entity that owns more than half of equity in a company or owns the largest block of shares compared to other shareholders.

consolidation

see rollup

conversion

the right of an investor or lender to force a company to replace the investor's preferred shares or the lender's debt with common shares at a preset conversion ratio.

Convertible debt

A loan which allows the lender to exchange the security for common shares in a a company at a preset conversion ratio.

co-sale right

A contractual right of an investor to sell some of the investor's stock along with the founder's or majority shareholder's stock if either the founder or majority shareholder elects to sell stock to a third-party.

co-sale right

A contractual right of an investor to sell some of the investor's stock along with the founder's or majority shareholder's stock if either the founder or majority shareholder elects to sell stock to a third-party.

co-sale right

A contractual right of an investor to sell some of the investor's stock along with the founder's or majority shareholder's stock if either the founder or majority shareholder elects to sell stock to a third-party.

co-sale right

A contractual right of an investor to sell some of the investor's stock along with the founder's or majority shareholder's stock if either the founder or majority shareholder elects to sell stock to a third-party.

cost of revenue

the expenses generated by the core operations of the company.

co-sale right

A contractual right of an investor to sell some of the investor's stock along with the founder's or majority shareholder's stock if either the founder or majority shareholder elects to sell stock to a third-party.

co-sale right

A contractual right of an investor to sell some of the investor's stock along with the founder's or majority shareholder's stock if either the founder or majority shareholder elects to sell stock to a third-party.

covenant

A legal promise to do or not do a certain thing.

Coverage ratio

describes a company's ability to pay debt from cash flow or profits.

Cram down round

A financing event upon which new investors with substantial capital are able to demand and receive contractual terms that effectively cause the issuance of sufficient new shares by the startup company to significantly reduce the ownership percentage of previous investors.

cumulative dividends

the owners of preferred stock with cumulative dividends has the right to receive accrued (previously unpaid) dividends are paid to any other classes of stock.

current ratio

The ratio of current assets to current liabilities.

data room

a specific location where potential buyers/investors can review confidential information about a target company. This information may include detailed financial statements, client contracts, intellectual property, property leases, and compensation agreements.