Balance Sheet
The balance sheet is a financial statement that reports a company's assets, liab...
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Finance Interview Concepts & Definitions
290+ technical definitions with formulas, worked examples, and interview tips — written at IB-interview-grade accuracy.
Financial Statements(5)
Income Statement
The income statement (also called the profit and loss statement or P&L) reports ...
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Cash Flow Statement
The cash flow statement reconciles net income from the [income statement](https:...
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Accounts Receivable
Accounts receivable (AR) is the amount of money owed to a company by customers w...
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Accounts Payable
Accounts payable (AP) is the amount a company owes to its suppliers and vendors ...
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Accounting Concepts(28)
EBITDA
EBITDA (Earnings Before Interest, Taxes, [Depreciation and Amortization](https:/...
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Working Capital
Working capital is the difference between a company's current assets and current...
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Goodwill
Goodwill is an intangible asset that arises when a company acquires another comp...
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Depreciation & Amortization
Depreciation is the systematic allocation of a tangible asset's cost over its us...
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Deferred Revenue
Deferred revenue (also called unearned revenue) is a liability on the balance sh...
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Return on Equity (ROE)
Return on Equity (ROE) measures the profitability of a company relative to share...
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Diluted Shares Outstanding
Diluted shares outstanding represent the total number of shares that would be ou...
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Net Working Capital (NWC)
Net working capital (NWC) measures the difference between a company's operating ...
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Stock-Based Compensation (SBC)
Stock-based compensation (SBC) is a non-cash expense recognized when a company g...
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Adjusted EBITDA
Adjusted EBITDA is a modified version of [EBITDA](https://www.ibflash.com/concep...
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Inventory Turnover
Inventory turnover measures how many times a company sells and replaces its inve...
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Return on Assets (ROA)
Return on Assets (ROA) measures how efficiently a company generates profit from ...
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Current Ratio
The current ratio is a liquidity metric that compares a company's current assets...
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Quick Ratio (Acid Test)
The quick ratio, also called the acid-test ratio, is a conservative liquidity me...
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Gross Margin
Gross margin is the percentage of revenue remaining after subtracting cost of go...
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Operating Margin
Operating margin is the percentage of revenue remaining after deducting all oper...
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Net Profit Margin
Net profit margin (or net margin) is the percentage of revenue that remains as n...
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Earnings Per Share (EPS)
Earnings per share (EPS) divides a company's net income by its shares outstandin...
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Revenue Recognition (ASC 606)
Revenue recognition determines when a company records revenue on its income stat...
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Accrual vs. Cash Accounting
Accrual accounting records revenues when earned and expenses when incurred, rega...
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Capitalization vs. Expensing
Capitalization records a cost as an asset on the balance sheet and spreads its e...
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Operating Lease vs. Finance Lease
Under ASC 842, both operating and finance leases are recognized on the balance s...
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Weighted Average Shares Outstanding
Weighted Average Shares Outstanding is the time-weighted number of common shares...
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Asset Turnover Ratio
The Asset Turnover Ratio measures how efficiently a company uses its total asset...
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Days Sales Outstanding (DSO)
Days Sales Outstanding (DSO) measures the average number of days it takes a comp...
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Days Payable Outstanding (DPO)
Days Payable Outstanding (DPO) measures the average number of days a company tak...
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Minority Interest (Non-Controlling Interest)
Minority interest (also called non-controlling interest, or NCI) is the share of...
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Treasury Stock
Treasury stock consists of shares that were previously issued and outstanding bu...
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Valuation(21)
Enterprise Value
Enterprise Value (EV) represents the total value of a company's operating busine...
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Discounted Cash Flow (DCF)
A Discounted Cash Flow (DCF) analysis is an intrinsic valuation method that dete...
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Terminal Value
Terminal value represents the value of a business beyond the explicit projection...
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Net Present Value (NPV)
Net Present Value (NPV) is the difference between the present value of all expec...
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Internal Rate of Return (IRR)
The Internal Rate of Return (IRR) is the discount rate at which the [Net Present...
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EV/EBITDA Multiple
EV/EBITDA is a valuation multiple that compares a company's [enterprise value](h...
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Price-to-Earnings (P/E) Ratio
The Price-to-Earnings (P/E) ratio is the most widely recognized equity valuation...
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Sensitivity Analysis
Sensitivity analysis is a financial modeling technique that tests how changes in...
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Comparable Companies Analysis (Comps)
Comparable companies analysis (comps) is a relative valuation method that values...
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Precedent Transactions Analysis
Precedent transactions analysis is a relative valuation method that values a com...
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Football Field Valuation Chart
A football field chart is a horizontal bar chart that displays the implied valua...
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Mid-Year Convention
The mid-year convention is a DCF modeling assumption that cash flows are receive...
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Sum of the Parts Valuation (SOTP)
Sum of the Parts (SOTP) valuation values each distinct business segment of a com...
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Equity Value (Market Cap)
Equity Value, commonly called Market Capitalization (Market Cap), represents the...
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Tangible Book Value
Tangible Book Value (TBV) measures the net asset value of a company after removi...
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Price-to-Book Ratio (P/B)
The Price-to-Book Ratio (P/B) compares a company's market capitalization to the ...
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EV/Revenue Multiple
EV/Revenue (Enterprise Value to Revenue) is a valuation multiple that compares a...
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Free Cash Flow Yield
Free Cash Flow Yield is a valuation metric that expresses a company's free cash ...
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Enterprise Value Bridge
The Enterprise Value Bridge is the conceptual and mathematical framework that co...
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Unlevered Beta & Re-Levering
Unlevered beta (also called asset beta) measures a company's systematic risk str...
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Equity Value to Share Price
The Equity Value to Share Price bridge is the process of converting an [enterpri...
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Corporate Finance(17)
Weighted Average Cost of Capital (WACC)
The Weighted Average Cost of Capital (WACC) is the average rate of return a comp...
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Cost of Equity
The cost of equity is the rate of return that equity investors require to compen...
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Capital Structure
Capital structure refers to the specific mix of debt and equity a company uses t...
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Free Cash Flow
Free Cash Flow (FCF) is the cash a company generates from operations after deduc...
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Unlevered Free Cash Flow (UFCF)
Unlevered Free Cash Flow (UFCF or FCFF) is the cash generated by a company's ope...
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Beta (Finance)
Beta measures the systematic risk (market risk) of a stock relative to the overa...
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Cost of Debt
Cost of debt (Kd) is the effective rate a company pays on its total debt obligat...
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Equity Risk Premium (ERP)
The equity risk premium (ERP) is the incremental return investors expect from in...
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Debt-to-Equity Ratio
The debt-to-equity (D/E) ratio measures a company's financial leverage by compar...
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Debt / EBITDA (Leverage Ratio)
Debt / EBITDA (also called the leverage ratio) measures how many years of operat...
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Interest Coverage Ratio
The interest coverage ratio (ICR) measures how easily a company can pay interest...
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Convertible Debt
Convertible debt (convertible bonds) is a hybrid security that starts as a bond ...
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Debt Covenants
Debt covenants are contractual restrictions imposed by lenders in credit agreeme...
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Net Debt
Net Debt is a liquidity metric that shows how much debt a company would have lef...
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Stock Split
A stock split is a corporate action that increases (or decreases, in a reverse s...
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Share Buyback (Stock Repurchase)
A share buyback (stock repurchase) is when a company purchases its own outstandi...
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Dividend Policy
Dividend policy refers to a company's strategy for distributing profits to share...
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M&A & LBO(25)
Leveraged Buyout (LBO)
A Leveraged Buyout (LBO) is the acquisition of a company using a significant amo...
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Accretion / Dilution Analysis
Accretion/dilution analysis determines whether a proposed acquisition will incre...
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Synergies in M&A
Synergies are the incremental value created when two companies combine that neit...
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Sources & Uses Table
A Sources & Uses table is a summary that shows where the funding for an M&A or [...
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Merger Model
A merger model (also called an [accretion/dilution](https://www.ibflash.com/conc...
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Control Premium
A control premium is the excess amount an acquirer pays above a company's unaffe...
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Purchase Price Allocation (PPA)
Purchase price allocation (PPA) is the accounting process under ASC 805 that ass...
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Pro Forma Financial Statements
Pro forma financial statements are hypothetical financial statements that show w...
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Dividend Recapitalization
A dividend recapitalization (dividend recap) occurs when a company raises new de...
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PIK Interest (Payment in Kind)
Payment-in-Kind (PIK) interest is a form of interest where the borrower does not...
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Fairness Opinion
A fairness opinion is a formal written assessment by an independent financial ad...
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Break-Up Fee (Termination Fee)
A break-up fee (termination fee) is a penalty paid by one party to the other if ...
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Earn-Out
An earn-out is a contingent payment mechanism in M&A where a portion of the purc...
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Restructuring (Investment Banking)
Restructuring in investment banking refers to the advisory and financial process...
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Chapter 11 Bankruptcy
Chapter 11 of the U.S. Bankruptcy Code allows a financially distressed company (...
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Debtor-in-Possession (DIP) Financing
Debtor-in-Possession (DIP) financing is a special form of lending provided to co...
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Absolute Priority Rule
The Absolute Priority Rule (APR) is a foundational principle of U.S. bankruptcy ...
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Section 363 Sale
A Section 363 sale is a provision of the U.S. Bankruptcy Code that allows a debt...
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Contribution Analysis
Contribution analysis is a valuation technique used in mergers — particularly me...
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Waterfall Analysis
A waterfall analysis (or proceeds waterfall) models the distribution of transact...
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IRR vs. MOIC
[IRR (Internal Rate of Return)](https://www.ibflash.com/concepts/internal-rate-o...
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Management Rollover
Management rollover is a deal structure in leveraged buyouts where the target co...
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Recapitalization
A recapitalization (recap) is a fundamental restructuring of a company's capital...
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Spin-Off
A spin-off is a corporate transaction where a parent company distributes shares ...
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Equity Carve-Out (IPO of Subsidiary)
An equity carve-out is a transaction where a parent company sells a minority equ...
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Investment Banking(2)
Financial Modeling(2)
Venture Capital(7)
Pre-Money Valuation
Pre-money valuation is the estimated value of a startup immediately before it re...
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Post-Money Valuation
Post-money valuation is the estimated value of a company immediately after a fin...
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SAFE (Simple Agreement for Future Equity)
A SAFE (Simple Agreement for Future Equity) is a financing instrument created by...
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Capitalization Table
A capitalization table (cap table) is a comprehensive record of all equity owner...
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Liquidation Preference
Liquidation preference is a term in a venture capital term sheet that determines...
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Anti-Dilution Protection
Anti-dilution protection is a term sheet provision that protects preferred share...
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Burn Rate & Runway
Burn rate is the rate at which a startup consumes its cash reserves, typically e...
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Hedge Fund Strategies(6)
Long/Short Equity
Long/short equity is a hedge fund investment strategy that involves buying (goin...
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Sharpe Ratio
The Sharpe Ratio is a measure of risk-adjusted return that calculates how much e...
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Short Selling
Short selling is the practice of selling a security that the seller does not own...
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Gross & Net Exposure
Gross exposure and net exposure are the two most fundamental risk metrics for he...
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Merger Arbitrage
Merger arbitrage (also called risk arbitrage) is an event-driven hedge fund stra...
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Activist Investing
Activist investing is a hedge fund strategy in which an investor acquires a sign...
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Consulting Frameworks(3)
MECE Framework
MECE (pronounced 'me-see') stands for Mutually Exclusive, Collectively Exhaustiv...
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Market Sizing
Market sizing is the process of estimating the total revenue opportunity or dema...
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Profitability Framework
The profitability framework is a structured approach to diagnosing why a company...
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Advanced Valuation(10)
WACC Deep Dive
The Weighted Average Cost of Capital ([WACC](https://www.ibflash.com/concepts/wa...
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Gordon Growth Model
The Gordon Growth Model (GGM), also known as the [Dividend Discount Model](https...
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Treasury Stock Method
The Treasury Stock Method (TSM) is the standard accounting technique for calcula...
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Levered Free Cash Flow
Levered Free Cash Flow (LFCF), also called Free Cash Flow to Equity (FCFE), is t...
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Net Asset Value (NAV)
Net Asset Value (NAV) is a valuation methodology that determines a company's or ...
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Residual Value
Residual value, commonly referred to as [terminal value](https://www.ibflash.com...
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Dividend Discount Model (DDM)
The Dividend Discount Model (DDM) is an intrinsic valuation method that prices a...
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Enterprise Value Multiples
Enterprise value multiples are valuation ratios that compare a company's [enterp...
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Equity Multiples
Equity multiples are valuation ratios that compare a company's [equity value](ht...
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Interest Tax Shield
The interest tax shield is the reduction in income taxes that results from the t...
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Advanced M&A(6)
Transaction Premiums
A transaction premium (or acquisition premium) is the percentage by which the of...
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Pro Forma Adjustments
Pro forma adjustments are modifications made to historical or projected financia...
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Exchange Ratio
The exchange ratio in a stock-for-stock [merger](https://www.ibflash.com/concept...
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M&A Deal Structure
M&A deal structure refers to the form of consideration and legal framework used ...
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Bolt-On Acquisition
A bolt-on acquisition (also called an add-on or tuck-in acquisition) is a smalle...
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Quality of Earnings Report
A Quality of Earnings (QoE) report is a detailed financial analysis performed du...
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Financial Ratios(2)
PE & Growth Equity(2)
Additional Topics(4)
EBIT (Operating Income)
EBIT, or Earnings Before Interest and Taxes, measures a company's profitability ...
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Capital Expenditures (CapEx)
Capital expenditures (CapEx) represent funds spent by a company to acquire, upgr...
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Private Placement (PIPE)
A Private Investment in Public Equity (PIPE) is a transaction in which a publicl...
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Rights Offering
A rights offering is a method of raising equity capital in which a company offer...
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