Resources

EBITDA

Earnings Before Interest, Tax, Depreciation and Amortisation — a proxy for operating cash generation before financing and tax decisions.

EBIT

Earnings Before Interest and Tax — operating profit after D&A but before financing costs; the basis for unlevered free cash flow.

WACC

Weighted Average Cost of Capital — the blended after-tax cost of a firm's debt and equity, used to discount cash flows.

LBO

Leveraged Buyout — acquiring a company using a large proportion of borrowed money, then using the company's cash flows to repay it.

IRR

Internal Rate of Return — the annualised discount rate that makes an investment's net present value zero.

MOIC

Multiple on Invested Capital — total value returned divided by capital invested, ignoring time.

P/E Ratio

Price-to-Earnings — share price divided by earnings per share; an equity-value multiple.

Gilts

UK government bonds, considered among the safest fixed-income instruments.

Alpha

Return in excess of what's explained by market risk exposure — the manager's 'edge'.

Beta

A stock's sensitivity to market moves; beta 1.2 means it tends to move 1.2× the market.

Accretive / Dilutive

Whether an acquisition increases (accretive) or decreases (dilutive) the acquirer's earnings per share.

Basis Point (bps)

One hundredth of one percentage point (0.01%); used for small rate changes and spreads.

Carried Interest

The share of investment profits (typically 20%) paid to PE/VC/hedge fund managers above a hurdle rate.

Enterprise Value (EV)

The value of the whole operating business to all capital providers — equity + debt − cash (plus minorities/preferred as applicable).

Equity Value

The value belonging to shareholders after debt is repaid — EV minus net debt and other senior claims, plus cash.

Free Cash Flow (FCF)

Cash a business generates after capex and working capital — the cash available to repay debt or distribute to investors.

Unlevered FCF

Free cash flow before interest; the cash the business produces regardless of how it's financed — used in DCF.

Discounted Cash Flow (DCF)

Valuing an asset by projecting its future cash flows and discounting them to today at a risk-appropriate rate.

Terminal Value

The value of all cash flows beyond the explicit forecast horizon, captured at the end of a DCF via Gordon Growth or an exit multiple.

Gordon Growth Model

Terminal value = next-period FCF × (1+g) ÷ (WACC − g); values a perpetually growing cash stream.

Net Debt

Total interest-bearing debt minus cash and equivalents; the bridge from enterprise value to equity value.

EV/EBITDA

Enterprise value divided by EBITDA; a capital-structure-neutral valuation multiple.

EV/Revenue

Enterprise value divided by revenue; used for early-stage or high-growth firms with no meaningful earnings.

EV/FCF

Enterprise value divided by free cash flow; a valuation multiple that accounts for capex and working capital.

P/B Ratio

Price-to-Book — share price over book value per share; used for banks and asset-heavy firms.

PEG Ratio

P/E divided by earnings growth rate; adjusts the P/E for how fast earnings are growing.

Dividend Yield

Annual dividend per share divided by share price — the income return on a stock.

Synergies

Value created by combining two businesses that neither could produce alone — cost (savings) or revenue (cross-sell).

Capital Expenditure (Capex)

Spending on long-lived assets like property, plant and equipment; a cash outflow that depreciates over time.

Depreciation & Amortisation (D&A)

The non-cash allocation of an asset's cost over its useful life; reduces profit but not cash.

Working Capital

Current assets minus current liabilities — the short-term cash tied up in operations (inventory and receivables less payables).

Accounts Receivable

Money customers owe for goods or services already delivered but not yet paid for.

Accounts Payable

Money a company owes its suppliers for goods or services received but not yet paid for.

Inventory

Goods held for sale, in production, or as raw materials; a working-capital asset.

Goodwill

The premium paid in an acquisition above the fair value of identifiable net assets; an intangible on the balance sheet.

Deferred Revenue

Cash received before the service is delivered; a liability until earned, then recognised as revenue.

Gross Margin

Revenue minus cost of goods sold, as a percentage of revenue — production efficiency.

Operating Margin

Operating profit as a percentage of revenue — profit after all operating costs but before financing.

Net Margin

Net profit as a percentage of revenue — the bottom line after everything.

EPS

Earnings Per Share — net income attributable to common shareholders divided by shares outstanding.

Diluted EPS

EPS assuming all options, convertibles and warrants are exercised — the conservative, fully-diluted earnings.

Share Buyback

A company repurchasing its own shares, reducing share count and lifting EPS.

Dividend

A cash distribution to shareholders from profits, usually paid periodically.

Return on Equity (ROE)

Net income divided by shareholder equity — how efficiently equity generates profit.

ROCE

Return on Capital Employed — EBIT ÷ (debt + equity); operating return on all long-term capital.

ROIC

Return on Invested Capital — NOPAT ÷ invested capital; the return the business earns on capital deployed.

Leverage Ratio (Debt/EBITDA)

Total debt divided by EBITDA — years of EBITDA needed to repay debt; a key credit metric.

Interest Coverage

EBIT (or EBITDA) divided by interest expense — how easily a firm can service its debt.

Current Ratio

Current assets ÷ current liabilities — short-term liquidity.

Quick Ratio

(Current assets − inventory) ÷ current liabilities — liquidity without relying on selling stock.

Cost of Equity

The return shareholders require — commonly estimated via CAPM (risk-free + beta × equity risk premium).

Cost of Debt

The effective interest rate on a firm's debt, after tax relief (interest is tax-deductible).

Capital Structure

The mix of debt and equity used to fund a business; affects WACC, risk and return.

PIK Interest

Payment-in-Kind — interest accrued and added to the loan balance rather than paid in cash.

Covenant

A loan condition the borrower must meet (e.g., a leverage ceiling); breach can trigger default.

Covenant-lite

A loan with few maintenance covenants — common in leveraged loans; more borrower-friendly, riskier for lenders.

Yield to Maturity (YTM)

The annual return earned if a bond is bought today and held to maturity, reinvesting coupons.

Yield Curve

A plot of yields against maturity; normally upward-sloping, it inverts before recessions.

Yield Curve Inversion

When long-dated yields fall below short-dated — historically a recession warning signal.

Credit Spread

The extra yield a bond pays over a risk-free government bond, compensating for credit risk.

Investment Grade

Bonds rated BBB-/Baa3 or above — lower credit risk, lower yields.

High Yield (Junk)

Bonds rated below investment grade — higher credit risk, higher yields and spreads.

Duration

A bond's price sensitivity to yield changes, in years; higher duration = more rate risk.

Convexity

The curvature of the bond price-yield relationship; positive convexity helps when yields move either way.

Commercial Paper

Short-term unsecured corporate debt, usually 1–270 days, used for working capital.

Repo

Repurchase agreement — selling an asset today and agreeing to buy it back later; effectively short-term secured financing.

Convertible Bond

A bond convertible into shares at a set price, blending debt and equity features.

Senior Debt

Debt repaid first in a bankruptcy — lower risk, lower cost.

Subordinated Debt

Debt ranking below senior debt in repayment — higher risk, higher yield.

Tranche

A slice of a debt/security structure with a defined risk, maturity and priority.

Market Capitalisation

Share price × shares outstanding — the equity value of a listed company.

Free Float

Shares available for public trading, excluding closely-held or strategic stakes.

Short Selling

Selling borrowed shares hoping to buy them back cheaper; profit if the price falls, uncapped loss if it rises.

Margin Call

A demand to add cash or securities when margin falls below requirements; failing forces liquidation.

Liquidity

How easily an asset can be bought or sold without moving the price.

Market Maker

A firm quoting both bid and ask prices, earning the spread for providing liquidity.

Bid-Ask Spread

Ask price minus bid price — the cost of an immediate round-trip trade and the market maker's compensation.

Clearing House

An intermediary that becomes the buyer to every seller and seller to every buyer, guaranteeing settlement and reducing counterparty risk.

Bulge Bracket

The largest global investment banks (e.g., Goldman, JPM, Morgan Stanley).

Boutique

A smaller, specialist investment bank, often advisory-only and without full balance-sheet lending.

Sell-side

Firms that sell research, execution and capital-raising services to clients (banks, brokers).

Buy-side

Firms that invest capital — asset managers, hedge funds, PE, pension funds.

Inflation

The rate at which general prices rise, eroding purchasing power over time.

Deflation

A sustained fall in general prices — opposite of inflation, can choke spending and debt servicing.

Stagflation

Weak growth combined with high inflation — the worst of both for policymakers.

GDP

Gross Domestic Product — the total monetary value of goods and services a country produces.

Recession

A broad economic contraction; a common rule of thumb is two consecutive quarters of falling GDP.

Quantitative Easing (QE)

A central bank buying bonds to push down long-term rates and inject liquidity when policy rates are already near zero.

SONIA

Sterling Overnight Index Average — the UK's risk-free benchmark replacement for LIBOR.

SOFR

Secured Overnight Financing Rate — the US risk-free rate that replaced LIBOR.

Call Option

The right (not obligation) to buy an asset at a strike price by a set date; profit if the price rises.

Put Option

The right (not obligation) to sell at a strike price by a set date; profit if the price falls.

Strike Price

The pre-agreed price at which an option can be exercised.

Premium

The price paid upfront to buy an option — the buyer's maximum loss.

Delta

An option's price sensitivity to a £1 move in the underlying; ATM calls ≈ 0.5.

Gamma

The rate of change of delta as the underlying moves; measures convexity.

Vega

An option's sensitivity to a 1% change in volatility; options gain as vol rises.

Theta

An option's daily decay in value as it approaches expiry — the cost of holding an option.

Put-Call Parity

C − P = S − K×e^(−rT); no-arbitrage link between call, put, stock and strike.

Black-Scholes

The classic option-pricing model; produces price from spot, strike, time, vol, rates.

Forward

A binding OTC agreement to buy/sell an asset at a set price on a future date.

Future

An exchange-traded, standardised, daily-marked forward contract.

Swap

An agreement to exchange cash flows — e.g., fixed for floating interest, or one currency for another.

Notional

The reference amount a derivative is written on; cash flows are a fraction of this.

Contango

Futures prices above spot — the usual state when storage costs are positive.

Backwardation

Futures prices below spot — often signals scarcity or a positive roll yield for longs.

Volatility

The standard deviation of returns — how much an asset's price bounces around; a core risk metric.

Value at Risk (VaR)

The maximum loss over a set period at a given confidence level — e.g., a 1-day 95% VaR of £1M.

Expected Shortfall

The average loss beyond the VaR threshold; also called CVaR — captures tail severity that VaR hides.

Sharpe Ratio

(Return − risk-free) ÷ volatility — risk-adjusted return per unit of total risk.

Sortino Ratio

Like Sharpe but only penalises downside volatility — rewards smoothing of upside volatility.

Maximum Drawdown

The largest peak-to-trough decline in value — a direct measure of worst-case loss.

Correlation

How two assets move together −1 to +1; low correlation enables diversification.

Hedge

A position that offsets risk in another — e.g., shorting a stock to protect a long exposure.

Factor Investing

Targeting systematic return drivers — value, momentum, quality, size and low volatility.

Momentum

The tendency for assets that have outperformed to keep outperforming in the short term.

Index Fund

A fund that replicates a benchmark at low cost rather than trying to beat it.

ETF

Exchange-Traded Fund — an index-tracking fund that trades on an exchange like a share.

Limited Partner (LP)

The investor in a fund who contributes capital but isn't involved in day-to-day decisions.

General Partner (GP)

The fund manager who invests the LPs' capital and earns management fees plus carry.

Pre-money Valuation

A company's agreed value before a new investment round is added.

Post-money Valuation

Pre-money plus the new investment — the basis for the investor's ownership stake.

Dilution

The reduction in existing shareholders' ownership when new shares are issued.

Cap Table

A schedule of who owns what — shareholders, share classes and percentages.

Term Sheet

A non-binding summary of a deal's key terms, agreed before full contracts.

Liquidation Preference

Investors' right to be repaid before common holders in an exit; 1× non-participating is standard.

Anti-Dilution

Protection that adjusts an investor's price per share downward in a down round.

TAM / SAM / SOM

Total / Serviceable / Serviceable-Obtainable market — from the whole opportunity down to realistic reach.

Burn Rate

How fast a startup spends cash each month before it needs more funding.

Runway

Months a startup can keep operating on current cash before raising again.

IPO

Initial Public Offering — a company's first sale of shares to public investors.

Follow-on Offering

An already-listed company issuing more shares after its IPO.

Underwriting

A bank guaranteeing to sell a securities issue, often buying unsold stock — for a fee.

ECM

Equity Capital Markets — the investment-banking team handling equity issuance (IPOs, follow-ons, convertibles).

DCM

Debt Capital Markets — the team handling bond and loan issuance.

Spring Week

A first-year investment-banking insight programme (Year 1) that can fast-track a summer internship offer.

Graduate Scheme

A structured entry programme for new graduates at a bank, insurer or consultancy.

Buyout

Acquiring a controlling stake — often taking a listed company private (take-private buyout).

Spin-off

A company separating a business into a new, independently-listed entity to shareholders.

Due Diligence

The investigation of a target before a deal — financial, legal, commercial and operational checks.

Letter of Intent (LOI)

A non-binding statement of intent to proceed with a deal, usually before full due diligence.

Management Buyout (MBO)

A company's management team buying the business, usually with backing from a PE firm.

Mezzanine Financing

Hybrid debt-equity between senior debt and equity — often with PIK and/or warrants.

Distressed Debt

Debt of companies in or near default, traded at a discount; a specialist investing niche.

CLO

Collateralised Loan Obligation — a securitisation parceling leveraged loans into risk tranches.

Securitisation

Pooling assets (loans, mortgages) and selling their cash flows as tradable securities.

Basel III

International banking capital and liquidity standards — higher and better-quality capital than Basel II.

Solvency II

EU/UK insurance capital regime — hold enough to survive a 1-in-200-year loss (99.5% VaR).

FCA

Financial Conduct Authority — the UK regulator of conduct and consumer protection in finance.

Ring-fencing

UK requirement separating retail banking from investment banking to protect depositors.

MECE

Mutually Exclusive, Collectively Exhaustive — a structure with no overlaps and no gaps.

STAR

Situation, Task, Action, Result — the framework for structured behavioural answers.

Operating Leverage

The amplification of profit from fixed costs — a small revenue gain above break-even produces an outsized profit increase.