Finance & Economics Terms, Explained
Company accounts and deal documents are written in a private vocabulary, and almost none of it gets explained to the people who have to read it. This section covers the words that turn up in earnings reports, acquisitions, loan agreements and economic news, each at three depths plus a slang version. These are explanations of the vocabulary, not financial advice.
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What is Mezzanine Debt?
The loan between the banks and the owners, and why standing there costs 12 to 20%.
What are “synergies”?
Two merged companies earning more together than apart — the claim, the math, and the donut-shop version.
What is Working Capital?
The cushion between paying your costs and collecting your money, and the profitable-but-broke trap.
All 41 terms
CapEx vs. OpEx: What's the Real Difference?
Own it or rent it: how one classification changes profit, taxes, and EBITDA optics.
What is a Clawback Provision?
When bonuses get un-paid: restated numbers, returned money, boats included.
What is a Debt-to-EBITDA Multiple?
Total debt measured in years of earnings — the tripwire lenders write into loan contracts.
What is Deferred Revenue?
Cash collected for work not yet delivered — in the bank, but owed back in future work.
What is Double Gearing?
The same capital counted twice across a group — and why regulators subtract it.
What is Dry Powder?
The raised-but-unspent cash funds are sitting on, and why the pile pressures prices.
What is an Earn-Out?
Sale money paid only if the business hits its targets after closing, and who controls the levers.
What is an EBITDA Adjustment?
Add-backs that show “normal-year” profit — the fair ones, the sketchy ones, and how to tell them apart.
Enterprise Value vs. Market Cap: Simply Explained
The price of the shares vs. the cost of owning the business — debt added, cash subtracted.
What is a Goodwill Impairment?
The formal confession that an acquisition was overpaid, and why no cash moves when it hits.
What is a Hurdle Rate?
The minimum return an investment must clear — the screening bar for projects and the payout gate for fund managers.
What is Mezzanine Debt?
The loan between the banks and the owners, and why standing there costs 12 to 20%.
What is a PIK Toggle Note?
A loan where the borrower can pay interest in cash — or stack it onto the loan at a higher rate.
What are “synergies”?
Two merged companies earning more together than apart — the claim, the math, and the donut-shop version.
What is a Toxic Convertible Bond?
The loan that pays the lender more as your stock falls — and why it's called a death spiral.
What are Appraisal Rights?
Outvoted and cashed out of a merger? You can refuse the price and let a court set fair value. It can come back lower.
What are Tag-Along Rights?
The clause that lets you sell into a deal somebody else negotiated, on the same terms, rather than being left behind.
What is a basis point?
One hundredth of a percentage point, used because saying "one percent" is ambiguous.
What is a Preference Stack?
The running order for who gets repaid when a company sells, and the total owed before ordinary shares are worth anything.
What is a SAFE (Simple Agreement for Future Equity)?
Money in now, shares later, and nobody sets a price today. What the valuation cap really decides, and the catch founders miss.
What is Anti-Dilution Protection?
A cheaper round hands the early investor extra shares, and everyone else's slice shrinks. Which version gives all of it back.
What is Convertible Preferred Stock?
A fixed amount first, or a percentage of the sale? The breakeven, what converting gives up, and who can force the switch.
What is dilution?
Your percentage of the company falls. Whether that costs you depends on the price the new shares sold at.
What is free cash flow?
The cash a business has left after paying to keep itself running, and what nobody can fake about it.
What is Working Capital?
The cushion between paying your costs and collecting your money, and the profitable-but-broke trap.
What is EBITDA?
Profit counted before interest, tax and the charges for things bought years ago, so rival companies line up on one scale.
What is WACC?
The blended price of a company's money, counting both the lenders who charge interest and the shareholders who never send an invoice.
What is a DCF valuation?
Forecast the cash a business will produce, shrink the cash from future years to reflect the wait, and add it up. That total is what it is worth today.
What is accretion and dilution in a deal?
Whether a takeover raises or lowers the buyer's earnings per share, which depends more on how the deal was paid for than on the company bought.
What is a Net Working Capital Adjustment?
The post-closing price change that settles what the business was actually carrying on the day.
What is a Run-Rate?
One short period stretched into a year: useful when the year does not exist yet.
What are Debt Covenants?
The conditions attached to borrowed money, and the two ways they get broken.
What is a Locked Box?
Fixing the price of a company on a past balance sheet, with no adjustment after.
What is the Interest Coverage Ratio?
Earnings divided by the interest bill: how many times over a company covers it.
What is Amortization?
A starting amount worked down to zero on a schedule: loans, patents, and the A in EBITDA.
What is the Cost of Equity?
The return shareholders require for the risk of owning a company's shares.
What is Inflation?
Prices rising everywhere at once, and why the same money buys less every year.
What's the Difference Between a Letter of Intent and a Term Sheet?
Both outline a deal before the contract exists. One is the numbers. The other is the numbers plus the process, the pitch, and clauses that already count.
What are Drag-Along Rights?
The clause that lets the majority sell your shares along with theirs, on the same terms, whether or not you agree. Why you signed up to it.
What is a Liquidation Preference?
The term that pays investors out of a sale before anyone else, and why a company can sell for a real number and leave its founders with nothing.
What is a Squeeze-Out Merger?
The last step of a takeover, where a buyer that already owns most of a company takes the remaining shares without a vote. What the last holders can still do.
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