Business Valuation Glossary / Terms

An ABCP (Asset-Backed Commercial Paper) conduit is a special-purpose vehicle (SPV) or entity created by a financial institution to issue asset-backed commercial paper. The conduit purchases receivables or other financial assets from various originators (such as corporations or financial institutions) and finances these purchases by issuing ABCP to investors.

Acquired growth refers to the increase in a company's revenue, market share, or other key metrics resulting from mergers, acquisitions, or other external business combinations. Unlike organic growth, which is driven by the company's existing operations, acquired growth comes from integrating and consolidating external entities or assets into the company's portfolio.

The acquisition of subsidiaries refers to the process by which a parent company purchases a controlling interest in another company, which then becomes a subsidiary of the parent company. This process typically involves buying more than 50% of the target company's voting shares, thereby gaining control over its operations and decision-making.

Acquisition provisions are specific terms and conditions included in a contract or agreement that outline the details of acquiring one company by another.

The Adjusted Book Value Method is a way to determine the value of a company by adjusting its recorded book value to reflect the fair market value of its assets and liabilities. It involves making adjustments to account for factors that affect the value of the company's assets, such as changes in market conditions or the value of intangible assets. This method is used when the recorded book value does not accurately represent the true value of the company's assets.

The Adjusted Net Asset Method is a way to determine the value of a business by looking at its net assets (total assets minus liabilities), while taking into account adjustments for factors that affect its value. It is often used when a company's assets, like real estate or investments, play a significant role in its overall worth.

The amortized cost method is an accounting technique used to gradually write down the value of a financial asset or liability over time. This method involves spreading out the cost of an asset or liability over its useful life, considering both the initial cost and any interest or principal repayments.

Appraisal is the process of determining the value of something, such as a property or business. It involves analyzing factors like market conditions and financial performance to estimate its worth. Appraisals are conducted by experts who consider various factors to provide an informed valuation.

The appraisal approach is the method used to determine the value of something. It involves using specific techniques and considering different factors to estimate its worth. Appraisers select an approach that best suits the situation and use it to gather information, analyze data, and arrive at a reliable valuation.

The appraisal date is the specific date when an appraisal is done to determine the value of an asset. It takes into account the current conditions and circumstances that may affect its worth.

An appraisal method is a structured approach used to determine the value of something, such as a property or business. It involves using specific techniques to estimate its worth. Common methods include comparing it to similar items in the market, considering its income generation potential, assessing the cost to replace it, or evaluating its assets and liabilities. Appraisers choose the method that best suits the situation to determine the value accurately.

An appraisal procedure is a structured process used to determine the value of a property, asset, or business. It involves collecting information, analyzing it, and using valuation methods to estimate the value. The steps include defining the purpose, gathering data, applying valuation methods, making adjustments, and reporting the findings. Qualified appraisers use this procedure to determine the fair market value of assets.

Arbitrage Pricing Theory (APT) is a financial model that helps determine the expected return of an investment based on different factors that affect its risk. It takes into account multiple factors, like interest rates and inflation, instead of just the overall market risk. The theory assumes that investors will adjust prices to ensure fair value. Essentially, APT provides a way to analyze and price investments by considering various factors that can impact their returns.

The asset approach, also called the asset-based approach, is a method used to determine the value of a company by considering its assets and liabilities. It focuses on the value of tangible and intangible assets owned by the company, like buildings, equipment, inventory, and patents. The approach subtracts the company's liabilities from the value of its assets to calculate the net asset value. This method is useful when valuing companies with significant assets or when the company's earnings are unstable. There are two methods within the asset approach: the going concern method, which assumes the company will continue operating, and the liquidation method, which assumes the company will be sold off. The asset approach provides a conservative estimate of a company's value but may not fully capture the value of intangible assets.

An asset deal is a type of business transaction where a buyer purchases specific assets of a company rather than buying the company's stock or equity.

An Asset Purchase Agreement (APA) is a legal contract between a buyer and a seller outlining the terms and conditions under which specific assets of a company will be purchased.

Asset-Backed Commercial Paper (ABCP) is a short-term investment vehicle with a maturity typically between 90 and 270 days, backed by physical assets or other financial assets. These assets can include receivables, loans, or other cash-flow-generating assets.

Available-for-Sale (AFS) securities are financial assets that a company does not intend to hold until maturity nor trade in the short term.

Balance sheet reformulation is the process of reorganizing and adjusting a company's balance sheet to provide a clearer and more analytical presentation of its financial position.

Beta is a measure used in finance to understand how much a particular investment moves compared to the overall market. It helps investors assess the risk and volatility of an asset. A beta of 1 means the investment moves in line with the market. A beta higher than 1 means it tends to be more volatile, while a beta lower than 1 means it's less volatile. A negative beta means the investment moves in the opposite direction of the market. Beta is used to manage risk and make decisions about diversifying investments.

Blockage discount is a reduction in the value of a large number of shares or a significant ownership stake in a company when selling them all at once could disrupt the market. It accounts for the difficulty of finding buyers for such a big block of shares without causing a negative impact on the share price. The discount is applied to the value of the shares to reflect this potential market impact and provide a fair valuation. Blockage discounts are used when a large shareholder wants to sell a substantial number of shares, and they help establish a more realistic value for the shares considering the challenges of selling them in bulk.

Book basis refers to the value of an asset or liability as recorded in a company's financial statements.

Book value is the value of an asset or a company as shown on its financial statements. It is calculated by subtracting the liabilities from the assets. For individual assets, book value is the original cost minus depreciation. For a company, it is the assets minus the debts. Book value gives an idea of the net worth of an asset or a company. However, it may not represent the current market value. Book value is used in financial analysis and comparing the market value to assess valuation.

A business is an organization that operates to make money by providing goods or services to customers. Its main goal is to generate profits. Businesses can take different forms, like sole proprietorships, partnerships, or corporations. They serve customers and aim to meet their needs while facing risks and seeking financial rewards. Businesses have owners who control them and follow certain rules and structures. They contribute to the economy, create jobs, and play a role in society.

A business combination is a transaction or event in which one company acquires control over one or more businesses. This can involve the purchase of a controlling interest in another company, merging with another company, or acquiring its net assets.