Corporate Development terms

68
terms

Accounting16

Accounts receivable: Money customers owe the company for products or services already delivered and billed. It sits in current assets. When it rises, revenue was booked but the cash has not arrived yet, so operating cash flow falls by the increase.ExampleA company books $40m of December sales but collects only $30m by year end. Receivables rise $10m, so cash from operations comes in $10m below the profit those sales produced.See also Net working capital, Accrual accounting, Cash flow statement
Accrual accounting: Recording revenue when it is earned and expenses when they are incurred, not when cash changes hands. It is the reason net income and cash flow differ, and the reason the cash flow statement exists to reconcile them.ExampleA consultant finishes a $50k project in December and is paid in February. The $50k is December revenue; the cash arrives in February, when receivables fall by the same amount.See also Net income, Cash flow statement, Deferred revenue
Amortization: The charge that spreads the cost of an intangible asset, such as an acquired customer list or patent, over its useful life. Like depreciation, it lowers net income but uses no cash, so it is added back on the cash flow statement.ExampleAn acquirer books a $50m customer list with a 10-year life. Each year it records $5m of amortization: pre-tax income falls $5m, and the $5m is added back on the cash flow statement.See also Depreciation, Goodwill, EBITDA
Balance sheet: A snapshot of what a company owns (assets), what it owes (liabilities), and what is left for shareholders (equity) on one date. It always balances: assets = liabilities + shareholders' equity.ExampleA company with $500m of assets and $300m of liabilities has $200m of shareholders' equity. Borrow $50m of cash and assets go to $550m, liabilities to $350m, and equity stays at $200m.See also Income statement, Cash flow statement, Goodwill
Capital expenditures (capex, CapEx): Cash spent buying or upgrading long-lived assets like plants, equipment, or servers. It shows up in investing activities on the cash flow statement and as PP&E on the balance sheet, then reaches the income statement slowly through depreciation.ExampleA manufacturer spends $30m on a new production line with a 10-year life. Investing cash flow shows -$30m this year, PP&E rises $30m, and the income statement takes $3m of depreciation a year for ten years.See also Depreciation, Unlevered free cash flow, Cash flow statement
Cash flow statement: Shows how cash actually moved during a period, split into operating, investing, and financing activities. It starts from net income, adds back non-cash charges like depreciation, adjusts for working capital, and ends with the change in cash.ExampleNet income of $80m, plus $20m of D&A, minus a $15m increase in working capital, gives $85m of operating cash flow. Subtract $40m of capex and $10m of debt repaid, and cash rises $35m.See also Income statement, Balance sheet, Net working capital
Deferred revenue: Cash a customer paid before the company delivered, like an annual software subscription billed up front. It starts as a liability and becomes revenue month by month as the service is provided.ExampleA customer prepays $1,200 in January for a year of software. Deferred revenue starts at $1,200, and $100 moves to revenue each month, so $600 is left on the balance sheet after June.See also Accrual accounting, Net working capital
Deferred tax liability (DTL): Taxes a company will owe later because it reported more income on its financial statements than on its tax return, usually because it depreciates assets faster for tax. It also appears in acquisitions when assets are written up in a stock deal, since the extra book depreciation is not tax deductible.ExampleA $100m asset is depreciated over 5 years for tax and 10 years on the books. In year one, tax depreciation is $20m versus $10m on the books, so at a 25% rate a $2.5m deferred tax liability builds.See also Depreciation, Balance sheet
Depreciation: Spreading the cost of a physical asset over its useful life. A $1,000 machine with a five-year life and no salvage value creates $200 of straight-line depreciation a year, which reduces taxable income without using any cash.ExampleA $10m truck fleet with a four-year life and $2m of salvage value creates ($10m - $2m) / 4 = $2m of straight-line depreciation a year. At a 25% tax rate, that saves $0.5m of cash taxes each year.See also Capital expenditures, Amortization, EBITDA
EBITDA: Earnings before interest, taxes, depreciation, and amortization: operating income with D&A added back. It is a rough proxy for operating cash flow that ignores how the company is financed, and the denominator in most valuation and leverage multiples. It ignores capex and working capital, so it is not free cash flow.ExampleRevenue of $100m and operating costs of $60m, including $10m of D&A, give operating income of $40m. Add back the $10m of D&A and EBITDA is $50m.See also Operating income, EV/EBITDA multiple, Leverage ratio
Goodwill: What an acquirer pays above the fair value of the target's identifiable net assets. It sits on the balance sheet, is not amortized by US public companies, and is tested at least once a year for impairment.ExampleA buyer pays $500m for a company whose identifiable assets are worth $400m at fair value and whose liabilities are $150m. Net assets are $250m, so goodwill is $250m.See also Amortization, Balance sheet
Gross margin: Revenue minus the direct cost of making or delivering what was sold (cost of goods sold), as a share of revenue. It shows how much each sale leaves to pay for everything else: sales, research, overhead, interest, and tax.ExampleRevenue of $100m and cost of goods sold of $60m leave $40m of gross profit, a 40% gross margin. A software business might run 75%; a grocer nearer 25%.See also Income statement, Operating income, Unit economics
Income statement: Revenue minus expenses over a period. The usual order runs revenue, cost of goods sold, gross profit, operating expenses, operating income, interest, taxes, and finally net income.ExampleRevenue $200m, COGS $120m, gross profit $80m. Less $40m of operating expenses leaves $40m of operating income; less $10m of interest and 25% tax on the $30m left, net income is $22.5m.See also Net income, Operating income, Balance sheet
Net income: The bottom line: what is left for shareholders after every expense, interest payment, and tax. It flows into retained earnings on the balance sheet and is the first line of the cash flow statement.ExampleA company earns $30m of net income and pays $10m of dividends, so retained earnings rise $20m. Its cash flow statement still starts from the full $30m.See also Income statement, Price-to-earnings ratio, Cash flow statement
Net working capital (NWC): Operating current assets minus operating current liabilities, usually receivables plus inventory minus payables and accrued expenses, with cash and debt left out. When it grows, cash gets tied up in the business, so free cash flow falls by the increase.ExampleReceivables of $50m plus inventory of $30m minus payables of $35m gives NWC of $45m. If it grows to $55m next year, the $10m increase comes out of free cash flow.See also Accounts receivable, Unlevered free cash flow, Deferred revenue
Operating income (EBIT): Revenue minus all operating expenses, including depreciation and amortization, before interest and taxes. It measures what the core business earns regardless of how it is financed.ExampleTwo companies each earn $60m of operating income. One has no debt and the other pays $20m of interest, so their net income differs, but their businesses earned the same.See also EBITDA, Income statement, Unlevered free cash flow

Valuation13

Comparable companies analysis (trading comps, comps): Valuing a company by how the market prices similar public companies, using multiples like EV/EBITDA or P/E. You pick peers by industry, size, and growth, take a range of their multiples, and apply it to the target's numbers.ExampleFive software peers trade at 12x to 16x EV/EBITDA. Applied to a target with $40m of EBITDA, that range implies an enterprise value of $480m to $640m.See also Precedent transactions, EV/EBITDA multiple, Price-to-earnings ratio, Football field
Cost of equity: The annual return shareholders expect for owning a company's stock, usually estimated with CAPM. It is higher than the cost of debt because shareholders are paid last and dividends, unlike interest, are not tax deductible.ExampleA company borrows at 6%, or 4.5% after a 25% tax rate, while its cost of equity is 10%. Shareholders take more risk, get paid last, and give the company no tax deduction.See also Capital asset pricing model, Weighted average cost of capital, Beta
Discounted cash flow (DCF): Valuing a business as the present value of the cash it will generate. You project unlevered free cash flow for about five to ten years, estimate a terminal value, and discount both back at WACC to get enterprise value.ExampleFive years of free cash flow worth $200m today plus a terminal value worth $300m today give an enterprise value of $500m. Subtract $100m of net debt for an equity value of $400m.See also Unlevered free cash flow, Terminal value, Weighted average cost of capital, Enterprise value
Enterprise value (EV, TEV): The value of the whole operating business to every capital provider. Simplified: EV = equity value + debt + preferred stock + noncontrolling (minority) interest - cash. It pairs with metrics that belong to all investors, like revenue and EBITDA.ExampleEquity value of $800m, plus $300m of debt, plus $50m of preferred stock, minus $150m of cash gives an enterprise value of $1,000m.See also Equity value, EV/EBITDA multiple, Discounted cash flow
Equity value (market capitalization, market cap): The value of a company that belongs to common shareholders. For a public company it is the share price times diluted shares outstanding. It pairs with metrics measured after interest, like net income and earnings per share.ExampleA company with 50m diluted shares at $30 has an equity value of $1.5bn. With $40m of net income, it trades at 37.5x earnings.See also Enterprise value, Treasury stock method, Price-to-earnings ratio
EV/EBITDA multiple (EV/EBITDA): Enterprise value divided by EBITDA, the most common multiple in banking. A company with $500 million of EV and $50 million of EBITDA trades at 10.0x. Because both sides ignore capital structure, companies with different debt levels compare cleanly.ExampleTwo peers each have $100m of EBITDA. One has $900m of equity and no debt, the other $500m of equity and $400m of net debt. Both have an EV of $900m and trade at 9.0x.See also Enterprise value, EBITDA, Comparable companies analysis
Exit multiple method: Estimating a DCF's terminal value by applying a multiple to the last projected year, such as 10x final-year EBITDA. It is quick and grounded in market pricing, but it assumes today's multiples still hold years from now.ExampleFinal-year EBITDA of $80m at a 9x exit multiple gives a terminal value of $720m. Discounted five years at a 10% WACC, that is $720m / 1.61, about $447m today.See also Terminal value, Perpetuity growth method, Discounted cash flow
Football field: A horizontal bar chart showing the valuation range from each method, such as trading comps, precedents, DCF, and the 52-week share price range, side by side. It is usually the summary page of a valuation in a pitch book.ExampleA sell-side summary page shows trading comps at $18 to $24 a share, precedents at $22 to $28, a DCF at $20 to $27, and the 52-week range of $15 to $21, with a line at today's $19 price.See also Comparable companies analysis, Precedent transactions, Discounted cash flow, Pitch book
Perpetuity growth method (Gordon growth method): Estimating terminal value by assuming cash flow grows at a constant rate forever: TV = final-year FCF x (1 + g) / (WACC - g). The growth rate should be at or below long-run economic growth, often 2% to 3%.ExampleFinal-year FCF of $100m, 2% growth, and a 9% WACC: TV = $100m x 1.02 / (0.09 - 0.02) = $102m / 0.07, about $1,457m.See also Terminal value, Exit multiple method, Weighted average cost of capital
Precedent transactions (transaction comps, precedents): Valuing a company by the multiples buyers paid in past acquisitions of similar businesses. The values usually come out higher than trading comps because acquirers pay a control premium.ExamplePeers trade at 10x EBITDA, but past acquisitions in the sector were done at 12x. A target with $50m of EBITDA is worth about $500m on comps and $600m on precedents.See also Comparable companies analysis, Football field, Take-private
Terminal value: The value of all cash flows after the projection period in a DCF, calculated with the perpetuity growth or exit multiple method. It often makes up more than half of a DCF's total value, so its assumptions deserve the hardest look.ExampleA DCF with $400m of discounted projection-period cash flows and $600m of discounted terminal value gets 60% of its $1bn enterprise value from the terminal value.See also Discounted cash flow, Perpetuity growth method, Exit multiple method
Unlevered free cash flow (UFCF, free cash flow to firm, FCFF): Cash the business generates before paying lenders or shareholders: EBIT x (1 - tax rate) + D&A - capex - increase in net working capital. It is the cash flow a DCF discounts at WACC.ExampleEBIT of $100m at a 25% tax rate gives $75m, plus $20m of D&A, minus $30m of capex and a $5m increase in NWC: unlevered free cash flow is $60m.See also Discounted cash flow, Weighted average cost of capital, Capital expenditures, Net working capital
Weighted average cost of capital (WACC): The blended return required by all of a company's capital providers: WACC = E/(D+E) x cost of equity + D/(D+E) x cost of debt x (1 - tax rate). It is the discount rate for unlevered free cash flow in a DCF.Example70% equity at a 10% cost and 30% debt at 6% pre-tax with a 25% tax rate: WACC = 0.7 x 10% + 0.3 x 4.5% = 7.0% + 1.35% = 8.35%.See also Cost of equity, Capital asset pricing model, Discounted cash flow, Unlevered free cash flow

M&A and deals11

Accretion/dilution analysis (merger model, accretion dilution): A test of whether an acquisition raises (accretive) or lowers (dilutive) the buyer's earnings per share. Before synergies, an all-stock deal is accretive when the buyer's P/E is higher than the P/E it pays for the target.ExampleBuyer: $100m net income, 100m shares, $20 stock (20x). It buys a target earning $15m for $225m (15x) with 11.25m new shares. Pro forma EPS is $115m / 111.25m = $1.034, about 3% accretive before fees.See also Price-to-earnings ratio, Synergies
Confidential information memorandum (CIM): The detailed marketing book a sell-side banker writes about a company for sale, covering the business, its market, management, and financials. Buyers receive it after signing a nondisclosure agreement.ExampleOn the sale of a $300m packaging company, the analyst spends three weeks on a 60-page CIM: business overview, customer mix, five years of historical financials, and management's projections.See also Teaser, Sell-side process, Data room
Data room (virtual data room, VDR): A secure online folder where a seller posts contracts, financials, and other documents for buyers to diligence. Access is tracked, and it usually opens in the later rounds of a sale.ExampleIn round two of a sale, the buyer's lawyers and accountants get logins to a data room with 2,000 documents: customer contracts, leases, tax returns, monthly financials. The seller sees who opened what.See also Due diligence, Sell-side process
Due diligence: The buyer's investigation of a target before signing: financials, contracts, legal exposure, customers, and management. What turns up can change the price or end the deal.ExampleDiligence finds that one customer is 30% of revenue and its contract renews in six months. The buyer cuts its bid from $400m to $350m or asks for part of the price as an earnout.See also Data room, Commercial due diligence, Letter of intent
Fairness opinion: A letter from a bank to a company's board saying the price in a deal is fair, from a financial point of view, to shareholders. It rests on a valuation analysis and helps the board show it did its homework.ExampleA board agrees to sell at $45 a share. Its bank shows the board that $45 sits above the DCF range of $38 to $44 and inside the precedents range, then delivers a letter saying the price is fair.See also Football field, Sell-side process
Indication of interest (IOI): A non-binding first-round bid in an auction, usually a valuation range with the key assumptions behind it. The seller uses IOIs to decide which buyers move on to the second round.ExampleTen buyers send IOIs for a software company, ranging from $350m to $500m. The seller invites the five highest, all above $425m, to management meetings and the data room.See also Letter of intent, Sell-side process
Initial public offering (IPO): A private company's first sale of shares to the public on a stock exchange. The underwriting banks market the deal to investors, build the order book, set the price, and allocate the shares.ExampleA company sells 20m shares at $25, raising $500m. With a 6% underwriting spread, the banks keep $30m and the company receives $470m before legal and other fees.See also Underwriting, Follow-on offering
Letter of intent (LOI): A document in which a buyer states the price and main terms it intends to sign on, usually after the final round of diligence. Most of it is non-binding, though exclusivity and confidentiality clauses often bind.ExampleAfter diligence, a buyer signs an LOI at $420m with 45 days of exclusivity. The price is not binding, but the exclusivity is: the seller cannot talk to other buyers for those 45 days.See also Indication of interest, Sell-side process, Due diligence
Sell-side process (auction process): A bank running the sale of a company for its owner. A typical auction goes teaser and NDA, CIM, first-round IOIs, management meetings and data room access, final bids with LOIs, then a signed purchase agreement.ExampleWeek 1: teasers go to 60 buyers, 30 sign NDAs and get the CIM. Week 6: 12 IOIs arrive and 5 get the data room. Week 14: 3 final bids come in and the best one signs a purchase agreement.See also Teaser, Confidential information memorandum, Indication of interest, Letter of intent
Synergies: Extra value created by combining two companies. Cost synergies come from removing overlap, like duplicate offices; revenue synergies come from selling more together and are harder to deliver, so buyers discount them.ExampleTwo merging companies close a duplicate headquarters and save $30m a year. At a 10x multiple those cost synergies are worth about $300m, which is how a buyer justifies paying a premium.See also Accretion/dilution analysis, Due diligence
Teaser: A one or two-page anonymous summary of a company for sale, sent to a long list of potential buyers to test interest before anyone signs an NDA.ExampleA two-page teaser for Project Atlas describes a Midwest packaging business with $250m of revenue and 18% EBITDA margins, and goes to 80 buyers without naming the company.See also Confidential information memorandum, Sell-side process

Consulting11

Benchmarking: Comparing a client's costs, prices, or performance with peers or best in class to find where it is out of line. It turns a vague goal like cut costs into a specific gap to explain.ExampleA retailer spends $1.2m a year to run each store against a peer median of $0.9m. Across 400 stores, closing that gap is worth $120m a year.See also Profitability framework, Hypothesis-driven approach, Issue tree
Break-even analysis (break-even, breakeven): Finding the volume at which revenue covers all costs: fixed costs divided by contribution margin per unit. Cases use it to test whether a launch, a new plant, or a price cut can pay for itself.ExampleFixed costs of $2m and a $20 contribution per unit ($50 price, $30 variable cost) break even at 100,000 units.See also Contribution margin, Fixed and variable costs, Market sizing
Contribution margin: Price minus variable cost per unit: what each extra sale adds toward fixed costs and then profit. It answers whether growing volume helps, and by how much.ExampleA product sells for $50 with $30 of variable cost, so each unit contributes $20. Sell 10,000 more units and profit rises $200,000, with fixed costs unchanged.See also Fixed and variable costs, Break-even analysis, Unit economics
Fixed and variable costs (fixed costs, variable costs): Fixed costs stay the same whatever the volume (rent, salaried staff, software licences); variable costs rise with each unit made or served (materials, shipping, card fees). The split decides how fast profit grows or shrinks as volume changes.ExampleA bakery pays $8,000 a month in rent and wages whether it sells 1,000 loaves or 5,000, and $1.20 of flour and energy per loaf on top.See also Contribution margin, Break-even analysis, Profitability framework
Hypothesis-driven approach: Starting with a best guess at the answer, then gathering data to prove or kill it, instead of analyzing everything first. It is how consultants finish in weeks, and case interviewers look for it.ExampleA client's margins fell 4 points. The day-one hypothesis is rising freight costs; in week one the shipping data shows freight up 30%, so the team digs there instead of auditing every cost line.See also Issue tree, Case interview
Market sizing (guesstimate): Estimating the size of a market from logic and round numbers, such as how many coffees are sold in Chicago each day. Interviewers care about a clear structure and a sanity check, not the exact answer.ExampleCoffee shop cups sold in the US each day: 330m people, about half drink coffee, a third of those buy one out daily. 330m x 0.5 x 1/3 is about 55m cups.See also Case interview, Issue tree
Porter's five forces (five forces): A way to judge how profitable an industry can be: rivalry among existing players, the threat of new entrants, the threat of substitutes, the bargaining power of buyers, and the bargaining power of suppliers. Strong forces squeeze margins.ExampleAirlines face fierce rivalry, powerful suppliers (two big plane makers, unionized pilots), price-shopping buyers, and substitutes like trains on short routes, which helps explain thin margins.See also Value chain, Market sizing, Commercial due diligence
Price elasticity (elasticity of demand): How much the quantity sold changes when price changes: the percentage change in volume divided by the percentage change in price. Above 1 in absolute value, a price rise loses revenue; below 1, it gains revenue.ExampleWith elasticity of -2, a 10% price rise cuts volume 20%. Revenue becomes 1.10 x 0.80 = 0.88 of what it was, a 12% fall.See also Profitability framework, Contribution margin
Profitability framework: The standard structure for a profit decline case: profit = revenue - costs, revenue = price x volume, costs = fixed + variable. Strong candidates tailor it to the industry instead of reciting it.ExampleProfit fell from $20m to $12m with fixed costs flat at $30m. Revenue is flat at $100m, price up 5% and volume down about 5%, so the $8m came from variable costs rising from $50m to $58m.See also Case interview, Issue tree, MECE
Unit economics: Revenue and cost for one unit of the business (an order, a customer, a store) rather than the whole company. If one unit loses money, more volume makes losses bigger, whatever the growth rate.ExampleA meal kit sells for $60; food is $25, shipping $10, packaging $5, so each order contributes $20. With $80 to acquire a customer, that customer must order four times before paying back.See also Contribution margin, Customer acquisition cost, Lifetime value
Value chain: The steps a product passes through from raw input to the customer, with who does each step and what margin each one earns. Mapping it shows where profit pools sit and where a client could move up or down the chain.ExampleCoffee runs from farms to traders, roasters, distributors, and cafes. If roasters earn 20% margins and cafes 8%, a cafe chain weighing whether to roast its own beans starts there.See also Porter's five forces, Issue tree, Commercial due diligence

Recruiting11

Case interview: A consulting interview where you work through a business problem with the interviewer, such as whether a client should enter a new market. It tests structure, math, and judgment. In candidate-led cases you drive; in interviewer-led cases you answer set questions in order.ExampleA regional airline's profits fell 20% last year: why, and what should it do? You lay out a structure, ask for revenue and cost data, do the math out loud, and finish with a recommendation.See also Market sizing, Profitability framework, MBB
Coffee chat (informational interview): A short call or meeting, usually 15 to 30 minutes, with someone at a firm to learn about their job. It is the core of networking, and a good one ends with a referral or another name to contact.ExampleA sophomore emails a second-year analyst from her school, gets 20 minutes on Thursday, asks three questions about the group, sends a thank-you that night, and is introduced to a VP the next week.See also Networking, Fit interview
Diversity program: An early insight program or internship track for students from underrepresented groups. Many open earlier than the main summer analyst program, some to freshmen and sophomores, and some lead straight to an internship offer.ExampleA bank's sophomore diversity program takes applications in the fall, runs a two-day event in spring, and gives strong participants an early interview for the junior summer analyst class.See also Sophomore program, Summer analyst
Fit interview (behavioral interview): The questions about you: walk me through your resume, why this firm, why this path, a time you led or failed. Every finance process has them, and weak answers sink otherwise strong technical candidates.ExampleWhy investment banking? A strong answer names something you did (a valuation for your investment club), what you liked about the work, and why this seat gives you more of it.See also Technical interview, Superday, HireVue
HireVue: A recorded video interview platform. You see a question, get a short time to prepare, often about 30 seconds, then answer on camera within a time limit. Many banks use it as the first screen after the application.ExampleTell me about a time your team disagreed. You get 30 seconds to think, two minutes to answer, and one take before the next question appears.See also Fit interview, Online assessment, Superday
Networking: Building relationships with people at firms through emails, coffee chats, and events, so someone knows your name when applications open. It matters more in finance than in most industries, especially from schools where banks do not recruit on campus.ExampleTwenty emails in September lead to eight calls, and two of those turn into referrals. When the program opens in January, two people at the firm can put your name forward.See also Coffee chat, On-campus recruiting
On-campus recruiting (OCR): The process where firms post jobs and interview through your school's career center. Schools where firms recruit heavily get the most slots; elsewhere, networking and direct applications carry more weight.ExampleAt a school with OCR, a bank posts its role on the career portal, collects resumes, and runs first rounds in campus interview rooms. At a school without it, you apply online and lean on referrals.See also Networking, Summer analyst
Return offer: A full-time job offer given to an intern at the end of the summer. At most banks it is the main path into a full-time analyst job, so the internship works like a ten-week interview.ExampleA class of 80 summer analysts is reviewed in August. 65 return offers is an 81% rate, and the 15 without one recruit again in the fall.See also Summer analyst, Exploding offer
Summer analyst: The standard 10-week internship at banks and many funds, held the summer between junior and senior year. Recruiting for it now starts during sophomore year.ExampleA student in the class of 2029 interns as a summer analyst in summer 2028, between junior and senior year, after applying during sophomore year.See also Return offer, Sophomore program, Superday
Superday: The final round: several back-to-back interviews in one day, in person or virtual, mixing fit and technical questions. Offers often come within a few days.ExampleFour 30-minute interviews back to back: an MD on fit, a VP on a DCF walk-through, an associate on accounting, and an analyst on why this group. The offer call comes two days later.See also Fit interview, Technical interview, HireVue
Technical interview: Questions that test finance knowledge: accounting, valuation, DCF, and LBO for banking and PE; markets for trading; probability and mental math for quant. Expect prompts like walk me through a DCF, or how does $10 of depreciation flow through the three statements.ExampleDepreciation rises $10 at a 25% tax rate. Net income falls $7.50; cash rises $2.50 after adding back the $10; PP&E falls $10; assets fall $7.50 and so does retained earnings.See also Fit interview, Discounted cash flow, Paper LBO

Venture and startups3

ARR (annual recurring revenue, MRR): Annual recurring revenue: the yearly value of subscription contracts in force today. Software companies and their investors use it instead of reported revenue because it shows the run rate at a point in time.ExampleA startup billing $50k a month in subscriptions (its MRR) has $600k of ARR.See also Net revenue retention, Burn rate, Series A
Dilution: The drop in an existing holder's ownership percentage when new shares are issued, in a funding round, an option grant, or a stock-funded acquisition. The holder keeps the same shares but owns a smaller slice.ExampleA founder owns 60% before a round that sells 20% of the company to new investors. Afterward the founder owns 60% x 0.80 = 48%.See also Cap table, Option pool, Accretion/dilution analysis
Vesting (cliff): Earning shares or options over time rather than all at once. A common startup schedule is four years with a one-year cliff: nothing until the first anniversary, then a quarter, then the rest monthly.ExampleAn employee granted 48,000 options on a four-year schedule with a one-year cliff owns nothing if they leave at month 10 and 18,000 if they leave at month 18.See also Option pool, Stock-based compensation

LBOs and private equity2

Add-on acquisition (bolt-on, tuck-in): A smaller company bought by a PE-owned platform to add products, customers, or regions. Add-ons are often bought at lower multiples than the platform, which can lift returns when the combined company is sold.ExampleA platform bought at 10x EBITDA acquires a competitor with $10m of EBITDA at 6x, for $60m. If the combined company sells at 10x, that $10m of EBITDA is worth $100m at exit.See also Portfolio company, Multiple expansion
Internal rate of return (IRR): The annualized return on an investment: the discount rate at which the present value of all its cash flows equals zero. Doubling your money in five years is about a 15% IRR; tripling it in five years is about 25%.ExampleInvest $100m and get $200m back in five years: the IRR is about 14.9%, since 1.149 to the fifth power is about 2.0. Get the same $200m in three years and the IRR is about 26%.See also Multiple of invested capital, Leveraged buyout, Paper LBO

Trading and products1

Hedging: Taking an offsetting position to reduce a risk you do not want. A trader who owns a corporate bond can sell Treasury futures so that a rate move hits both sides and roughly cancels, leaving mostly the credit risk.ExampleAn airline will buy 10m gallons of jet fuel in six months and fears a price rise. It buys fuel futures today; if prices climb $0.50 a gallon, the futures gain about $5m to offset the higher bill.See also Delta, DV01, Futures contract

Accounting16

Accounts receivable

Money customers owe the company for products or services already delivered and billed. It sits in current assets. When it rises, revenue was booked but the cash has not arrived yet, so operating cash flow falls by the increase.ExampleA company books $40m of December sales but collects only $30m by year end. Receivables rise $10m, so cash from operations comes in $10m below the profit those sales produced.See also Net working capital, Accrual accounting, Cash flow statement

Accrual accounting

Recording revenue when it is earned and expenses when they are incurred, not when cash changes hands. It is the reason net income and cash flow differ, and the reason the cash flow statement exists to reconcile them.ExampleA consultant finishes a $50k project in December and is paid in February. The $50k is December revenue; the cash arrives in February, when receivables fall by the same amount.See also Net income, Cash flow statement, Deferred revenue

Amortization

The charge that spreads the cost of an intangible asset, such as an acquired customer list or patent, over its useful life. Like depreciation, it lowers net income but uses no cash, so it is added back on the cash flow statement.ExampleAn acquirer books a $50m customer list with a 10-year life. Each year it records $5m of amortization: pre-tax income falls $5m, and the $5m is added back on the cash flow statement.See also Depreciation, Goodwill, EBITDA

Balance sheet

A snapshot of what a company owns (assets), what it owes (liabilities), and what is left for shareholders (equity) on one date. It always balances: assets = liabilities + shareholders' equity.ExampleA company with $500m of assets and $300m of liabilities has $200m of shareholders' equity. Borrow $50m of cash and assets go to $550m, liabilities to $350m, and equity stays at $200m.See also Income statement, Cash flow statement, Goodwill

Capital expenditures (capex, CapEx)

Cash spent buying or upgrading long-lived assets like plants, equipment, or servers. It shows up in investing activities on the cash flow statement and as PP&E on the balance sheet, then reaches the income statement slowly through depreciation.ExampleA manufacturer spends $30m on a new production line with a 10-year life. Investing cash flow shows -$30m this year, PP&E rises $30m, and the income statement takes $3m of depreciation a year for ten years.See also Depreciation, Unlevered free cash flow, Cash flow statement

Cash flow statement

Shows how cash actually moved during a period, split into operating, investing, and financing activities. It starts from net income, adds back non-cash charges like depreciation, adjusts for working capital, and ends with the change in cash.ExampleNet income of $80m, plus $20m of D&A, minus a $15m increase in working capital, gives $85m of operating cash flow. Subtract $40m of capex and $10m of debt repaid, and cash rises $35m.See also Income statement, Balance sheet, Net working capital

Deferred revenue

Cash a customer paid before the company delivered, like an annual software subscription billed up front. It starts as a liability and becomes revenue month by month as the service is provided.ExampleA customer prepays $1,200 in January for a year of software. Deferred revenue starts at $1,200, and $100 moves to revenue each month, so $600 is left on the balance sheet after June.See also Accrual accounting, Net working capital

Deferred tax liability (DTL)

Taxes a company will owe later because it reported more income on its financial statements than on its tax return, usually because it depreciates assets faster for tax. It also appears in acquisitions when assets are written up in a stock deal, since the extra book depreciation is not tax deductible.ExampleA $100m asset is depreciated over 5 years for tax and 10 years on the books. In year one, tax depreciation is $20m versus $10m on the books, so at a 25% rate a $2.5m deferred tax liability builds.See also Depreciation, Balance sheet

Depreciation

Spreading the cost of a physical asset over its useful life. A $1,000 machine with a five-year life and no salvage value creates $200 of straight-line depreciation a year, which reduces taxable income without using any cash.ExampleA $10m truck fleet with a four-year life and $2m of salvage value creates ($10m - $2m) / 4 = $2m of straight-line depreciation a year. At a 25% tax rate, that saves $0.5m of cash taxes each year.See also Capital expenditures, Amortization, EBITDA

EBITDA

Earnings before interest, taxes, depreciation, and amortization: operating income with D&A added back. It is a rough proxy for operating cash flow that ignores how the company is financed, and the denominator in most valuation and leverage multiples. It ignores capex and working capital, so it is not free cash flow.ExampleRevenue of $100m and operating costs of $60m, including $10m of D&A, give operating income of $40m. Add back the $10m of D&A and EBITDA is $50m.See also Operating income, EV/EBITDA multiple, Leverage ratio

Goodwill

What an acquirer pays above the fair value of the target's identifiable net assets. It sits on the balance sheet, is not amortized by US public companies, and is tested at least once a year for impairment.ExampleA buyer pays $500m for a company whose identifiable assets are worth $400m at fair value and whose liabilities are $150m. Net assets are $250m, so goodwill is $250m.See also Amortization, Balance sheet

Gross margin

Revenue minus the direct cost of making or delivering what was sold (cost of goods sold), as a share of revenue. It shows how much each sale leaves to pay for everything else: sales, research, overhead, interest, and tax.ExampleRevenue of $100m and cost of goods sold of $60m leave $40m of gross profit, a 40% gross margin. A software business might run 75%; a grocer nearer 25%.See also Income statement, Operating income, Unit economics

Income statement

Revenue minus expenses over a period. The usual order runs revenue, cost of goods sold, gross profit, operating expenses, operating income, interest, taxes, and finally net income.ExampleRevenue $200m, COGS $120m, gross profit $80m. Less $40m of operating expenses leaves $40m of operating income; less $10m of interest and 25% tax on the $30m left, net income is $22.5m.See also Net income, Operating income, Balance sheet

Net income

The bottom line: what is left for shareholders after every expense, interest payment, and tax. It flows into retained earnings on the balance sheet and is the first line of the cash flow statement.ExampleA company earns $30m of net income and pays $10m of dividends, so retained earnings rise $20m. Its cash flow statement still starts from the full $30m.See also Income statement, Price-to-earnings ratio, Cash flow statement

Net working capital (NWC)

Operating current assets minus operating current liabilities, usually receivables plus inventory minus payables and accrued expenses, with cash and debt left out. When it grows, cash gets tied up in the business, so free cash flow falls by the increase.ExampleReceivables of $50m plus inventory of $30m minus payables of $35m gives NWC of $45m. If it grows to $55m next year, the $10m increase comes out of free cash flow.See also Accounts receivable, Unlevered free cash flow, Deferred revenue

Operating income (EBIT)

Revenue minus all operating expenses, including depreciation and amortization, before interest and taxes. It measures what the core business earns regardless of how it is financed.ExampleTwo companies each earn $60m of operating income. One has no debt and the other pays $20m of interest, so their net income differs, but their businesses earned the same.See also EBITDA, Income statement, Unlevered free cash flow

Valuation13

Comparable companies analysis (trading comps, comps)

Valuing a company by how the market prices similar public companies, using multiples like EV/EBITDA or P/E. You pick peers by industry, size, and growth, take a range of their multiples, and apply it to the target's numbers.ExampleFive software peers trade at 12x to 16x EV/EBITDA. Applied to a target with $40m of EBITDA, that range implies an enterprise value of $480m to $640m.See also Precedent transactions, EV/EBITDA multiple, Price-to-earnings ratio, Football field

Cost of equity

The annual return shareholders expect for owning a company's stock, usually estimated with CAPM. It is higher than the cost of debt because shareholders are paid last and dividends, unlike interest, are not tax deductible.ExampleA company borrows at 6%, or 4.5% after a 25% tax rate, while its cost of equity is 10%. Shareholders take more risk, get paid last, and give the company no tax deduction.See also Capital asset pricing model, Weighted average cost of capital, Beta

Discounted cash flow (DCF)

Valuing a business as the present value of the cash it will generate. You project unlevered free cash flow for about five to ten years, estimate a terminal value, and discount both back at WACC to get enterprise value.ExampleFive years of free cash flow worth $200m today plus a terminal value worth $300m today give an enterprise value of $500m. Subtract $100m of net debt for an equity value of $400m.See also Unlevered free cash flow, Terminal value, Weighted average cost of capital, Enterprise value

Enterprise value (EV, TEV)

The value of the whole operating business to every capital provider. Simplified: EV = equity value + debt + preferred stock + noncontrolling (minority) interest - cash. It pairs with metrics that belong to all investors, like revenue and EBITDA.ExampleEquity value of $800m, plus $300m of debt, plus $50m of preferred stock, minus $150m of cash gives an enterprise value of $1,000m.See also Equity value, EV/EBITDA multiple, Discounted cash flow

Equity value (market capitalization, market cap)

The value of a company that belongs to common shareholders. For a public company it is the share price times diluted shares outstanding. It pairs with metrics measured after interest, like net income and earnings per share.ExampleA company with 50m diluted shares at $30 has an equity value of $1.5bn. With $40m of net income, it trades at 37.5x earnings.See also Enterprise value, Treasury stock method, Price-to-earnings ratio

EV/EBITDA multiple (EV/EBITDA)

Enterprise value divided by EBITDA, the most common multiple in banking. A company with $500 million of EV and $50 million of EBITDA trades at 10.0x. Because both sides ignore capital structure, companies with different debt levels compare cleanly.ExampleTwo peers each have $100m of EBITDA. One has $900m of equity and no debt, the other $500m of equity and $400m of net debt. Both have an EV of $900m and trade at 9.0x.See also Enterprise value, EBITDA, Comparable companies analysis

Exit multiple method

Estimating a DCF's terminal value by applying a multiple to the last projected year, such as 10x final-year EBITDA. It is quick and grounded in market pricing, but it assumes today's multiples still hold years from now.ExampleFinal-year EBITDA of $80m at a 9x exit multiple gives a terminal value of $720m. Discounted five years at a 10% WACC, that is $720m / 1.61, about $447m today.See also Terminal value, Perpetuity growth method, Discounted cash flow

Football field

A horizontal bar chart showing the valuation range from each method, such as trading comps, precedents, DCF, and the 52-week share price range, side by side. It is usually the summary page of a valuation in a pitch book.ExampleA sell-side summary page shows trading comps at $18 to $24 a share, precedents at $22 to $28, a DCF at $20 to $27, and the 52-week range of $15 to $21, with a line at today's $19 price.See also Comparable companies analysis, Precedent transactions, Discounted cash flow, Pitch book

Perpetuity growth method (Gordon growth method)

Estimating terminal value by assuming cash flow grows at a constant rate forever: TV = final-year FCF x (1 + g) / (WACC - g). The growth rate should be at or below long-run economic growth, often 2% to 3%.ExampleFinal-year FCF of $100m, 2% growth, and a 9% WACC: TV = $100m x 1.02 / (0.09 - 0.02) = $102m / 0.07, about $1,457m.See also Terminal value, Exit multiple method, Weighted average cost of capital

Precedent transactions (transaction comps, precedents)

Valuing a company by the multiples buyers paid in past acquisitions of similar businesses. The values usually come out higher than trading comps because acquirers pay a control premium.ExamplePeers trade at 10x EBITDA, but past acquisitions in the sector were done at 12x. A target with $50m of EBITDA is worth about $500m on comps and $600m on precedents.See also Comparable companies analysis, Football field, Take-private

Terminal value

The value of all cash flows after the projection period in a DCF, calculated with the perpetuity growth or exit multiple method. It often makes up more than half of a DCF's total value, so its assumptions deserve the hardest look.ExampleA DCF with $400m of discounted projection-period cash flows and $600m of discounted terminal value gets 60% of its $1bn enterprise value from the terminal value.See also Discounted cash flow, Perpetuity growth method, Exit multiple method

Unlevered free cash flow (UFCF, free cash flow to firm, FCFF)

Cash the business generates before paying lenders or shareholders: EBIT x (1 - tax rate) + D&A - capex - increase in net working capital. It is the cash flow a DCF discounts at WACC.ExampleEBIT of $100m at a 25% tax rate gives $75m, plus $20m of D&A, minus $30m of capex and a $5m increase in NWC: unlevered free cash flow is $60m.See also Discounted cash flow, Weighted average cost of capital, Capital expenditures, Net working capital

Weighted average cost of capital (WACC)

The blended return required by all of a company's capital providers: WACC = E/(D+E) x cost of equity + D/(D+E) x cost of debt x (1 - tax rate). It is the discount rate for unlevered free cash flow in a DCF.Example70% equity at a 10% cost and 30% debt at 6% pre-tax with a 25% tax rate: WACC = 0.7 x 10% + 0.3 x 4.5% = 7.0% + 1.35% = 8.35%.See also Cost of equity, Capital asset pricing model, Discounted cash flow, Unlevered free cash flow

M&A and deals11

Accretion/dilution analysis (merger model, accretion dilution)

A test of whether an acquisition raises (accretive) or lowers (dilutive) the buyer's earnings per share. Before synergies, an all-stock deal is accretive when the buyer's P/E is higher than the P/E it pays for the target.ExampleBuyer: $100m net income, 100m shares, $20 stock (20x). It buys a target earning $15m for $225m (15x) with 11.25m new shares. Pro forma EPS is $115m / 111.25m = $1.034, about 3% accretive before fees.See also Price-to-earnings ratio, Synergies

Confidential information memorandum (CIM)

The detailed marketing book a sell-side banker writes about a company for sale, covering the business, its market, management, and financials. Buyers receive it after signing a nondisclosure agreement.ExampleOn the sale of a $300m packaging company, the analyst spends three weeks on a 60-page CIM: business overview, customer mix, five years of historical financials, and management's projections.See also Teaser, Sell-side process, Data room

Data room (virtual data room, VDR)

A secure online folder where a seller posts contracts, financials, and other documents for buyers to diligence. Access is tracked, and it usually opens in the later rounds of a sale.ExampleIn round two of a sale, the buyer's lawyers and accountants get logins to a data room with 2,000 documents: customer contracts, leases, tax returns, monthly financials. The seller sees who opened what.See also Due diligence, Sell-side process

Due diligence

The buyer's investigation of a target before signing: financials, contracts, legal exposure, customers, and management. What turns up can change the price or end the deal.ExampleDiligence finds that one customer is 30% of revenue and its contract renews in six months. The buyer cuts its bid from $400m to $350m or asks for part of the price as an earnout.See also Data room, Commercial due diligence, Letter of intent

Fairness opinion

A letter from a bank to a company's board saying the price in a deal is fair, from a financial point of view, to shareholders. It rests on a valuation analysis and helps the board show it did its homework.ExampleA board agrees to sell at $45 a share. Its bank shows the board that $45 sits above the DCF range of $38 to $44 and inside the precedents range, then delivers a letter saying the price is fair.See also Football field, Sell-side process

Indication of interest (IOI)

A non-binding first-round bid in an auction, usually a valuation range with the key assumptions behind it. The seller uses IOIs to decide which buyers move on to the second round.ExampleTen buyers send IOIs for a software company, ranging from $350m to $500m. The seller invites the five highest, all above $425m, to management meetings and the data room.See also Letter of intent, Sell-side process

Initial public offering (IPO)

A private company's first sale of shares to the public on a stock exchange. The underwriting banks market the deal to investors, build the order book, set the price, and allocate the shares.ExampleA company sells 20m shares at $25, raising $500m. With a 6% underwriting spread, the banks keep $30m and the company receives $470m before legal and other fees.See also Underwriting, Follow-on offering

Letter of intent (LOI)

A document in which a buyer states the price and main terms it intends to sign on, usually after the final round of diligence. Most of it is non-binding, though exclusivity and confidentiality clauses often bind.ExampleAfter diligence, a buyer signs an LOI at $420m with 45 days of exclusivity. The price is not binding, but the exclusivity is: the seller cannot talk to other buyers for those 45 days.See also Indication of interest, Sell-side process, Due diligence

Sell-side process (auction process)

A bank running the sale of a company for its owner. A typical auction goes teaser and NDA, CIM, first-round IOIs, management meetings and data room access, final bids with LOIs, then a signed purchase agreement.ExampleWeek 1: teasers go to 60 buyers, 30 sign NDAs and get the CIM. Week 6: 12 IOIs arrive and 5 get the data room. Week 14: 3 final bids come in and the best one signs a purchase agreement.See also Teaser, Confidential information memorandum, Indication of interest, Letter of intent

Synergies

Extra value created by combining two companies. Cost synergies come from removing overlap, like duplicate offices; revenue synergies come from selling more together and are harder to deliver, so buyers discount them.ExampleTwo merging companies close a duplicate headquarters and save $30m a year. At a 10x multiple those cost synergies are worth about $300m, which is how a buyer justifies paying a premium.See also Accretion/dilution analysis, Due diligence

Teaser

A one or two-page anonymous summary of a company for sale, sent to a long list of potential buyers to test interest before anyone signs an NDA.ExampleA two-page teaser for Project Atlas describes a Midwest packaging business with $250m of revenue and 18% EBITDA margins, and goes to 80 buyers without naming the company.See also Confidential information memorandum, Sell-side process

Consulting11

Benchmarking

Comparing a client's costs, prices, or performance with peers or best in class to find where it is out of line. It turns a vague goal like cut costs into a specific gap to explain.ExampleA retailer spends $1.2m a year to run each store against a peer median of $0.9m. Across 400 stores, closing that gap is worth $120m a year.See also Profitability framework, Hypothesis-driven approach, Issue tree

Break-even analysis (break-even, breakeven)

Finding the volume at which revenue covers all costs: fixed costs divided by contribution margin per unit. Cases use it to test whether a launch, a new plant, or a price cut can pay for itself.ExampleFixed costs of $2m and a $20 contribution per unit ($50 price, $30 variable cost) break even at 100,000 units.See also Contribution margin, Fixed and variable costs, Market sizing

Contribution margin

Price minus variable cost per unit: what each extra sale adds toward fixed costs and then profit. It answers whether growing volume helps, and by how much.ExampleA product sells for $50 with $30 of variable cost, so each unit contributes $20. Sell 10,000 more units and profit rises $200,000, with fixed costs unchanged.See also Fixed and variable costs, Break-even analysis, Unit economics

Fixed and variable costs (fixed costs, variable costs)

Fixed costs stay the same whatever the volume (rent, salaried staff, software licences); variable costs rise with each unit made or served (materials, shipping, card fees). The split decides how fast profit grows or shrinks as volume changes.ExampleA bakery pays $8,000 a month in rent and wages whether it sells 1,000 loaves or 5,000, and $1.20 of flour and energy per loaf on top.See also Contribution margin, Break-even analysis, Profitability framework

Hypothesis-driven approach

Starting with a best guess at the answer, then gathering data to prove or kill it, instead of analyzing everything first. It is how consultants finish in weeks, and case interviewers look for it.ExampleA client's margins fell 4 points. The day-one hypothesis is rising freight costs; in week one the shipping data shows freight up 30%, so the team digs there instead of auditing every cost line.See also Issue tree, Case interview

Market sizing (guesstimate)

Estimating the size of a market from logic and round numbers, such as how many coffees are sold in Chicago each day. Interviewers care about a clear structure and a sanity check, not the exact answer.ExampleCoffee shop cups sold in the US each day: 330m people, about half drink coffee, a third of those buy one out daily. 330m x 0.5 x 1/3 is about 55m cups.See also Case interview, Issue tree

Porter's five forces (five forces)

A way to judge how profitable an industry can be: rivalry among existing players, the threat of new entrants, the threat of substitutes, the bargaining power of buyers, and the bargaining power of suppliers. Strong forces squeeze margins.ExampleAirlines face fierce rivalry, powerful suppliers (two big plane makers, unionized pilots), price-shopping buyers, and substitutes like trains on short routes, which helps explain thin margins.See also Value chain, Market sizing, Commercial due diligence

Price elasticity (elasticity of demand)

How much the quantity sold changes when price changes: the percentage change in volume divided by the percentage change in price. Above 1 in absolute value, a price rise loses revenue; below 1, it gains revenue.ExampleWith elasticity of -2, a 10% price rise cuts volume 20%. Revenue becomes 1.10 x 0.80 = 0.88 of what it was, a 12% fall.See also Profitability framework, Contribution margin

Profitability framework

The standard structure for a profit decline case: profit = revenue - costs, revenue = price x volume, costs = fixed + variable. Strong candidates tailor it to the industry instead of reciting it.ExampleProfit fell from $20m to $12m with fixed costs flat at $30m. Revenue is flat at $100m, price up 5% and volume down about 5%, so the $8m came from variable costs rising from $50m to $58m.See also Case interview, Issue tree, MECE

Unit economics

Revenue and cost for one unit of the business (an order, a customer, a store) rather than the whole company. If one unit loses money, more volume makes losses bigger, whatever the growth rate.ExampleA meal kit sells for $60; food is $25, shipping $10, packaging $5, so each order contributes $20. With $80 to acquire a customer, that customer must order four times before paying back.See also Contribution margin, Customer acquisition cost, Lifetime value

Value chain

The steps a product passes through from raw input to the customer, with who does each step and what margin each one earns. Mapping it shows where profit pools sit and where a client could move up or down the chain.ExampleCoffee runs from farms to traders, roasters, distributors, and cafes. If roasters earn 20% margins and cafes 8%, a cafe chain weighing whether to roast its own beans starts there.See also Porter's five forces, Issue tree, Commercial due diligence

Recruiting11

Case interview

A consulting interview where you work through a business problem with the interviewer, such as whether a client should enter a new market. It tests structure, math, and judgment. In candidate-led cases you drive; in interviewer-led cases you answer set questions in order.ExampleA regional airline's profits fell 20% last year: why, and what should it do? You lay out a structure, ask for revenue and cost data, do the math out loud, and finish with a recommendation.See also Market sizing, Profitability framework, MBB

Coffee chat (informational interview)

A short call or meeting, usually 15 to 30 minutes, with someone at a firm to learn about their job. It is the core of networking, and a good one ends with a referral or another name to contact.ExampleA sophomore emails a second-year analyst from her school, gets 20 minutes on Thursday, asks three questions about the group, sends a thank-you that night, and is introduced to a VP the next week.See also Networking, Fit interview

Diversity program

An early insight program or internship track for students from underrepresented groups. Many open earlier than the main summer analyst program, some to freshmen and sophomores, and some lead straight to an internship offer.ExampleA bank's sophomore diversity program takes applications in the fall, runs a two-day event in spring, and gives strong participants an early interview for the junior summer analyst class.See also Sophomore program, Summer analyst

Fit interview (behavioral interview)

The questions about you: walk me through your resume, why this firm, why this path, a time you led or failed. Every finance process has them, and weak answers sink otherwise strong technical candidates.ExampleWhy investment banking? A strong answer names something you did (a valuation for your investment club), what you liked about the work, and why this seat gives you more of it.See also Technical interview, Superday, HireVue

HireVue

A recorded video interview platform. You see a question, get a short time to prepare, often about 30 seconds, then answer on camera within a time limit. Many banks use it as the first screen after the application.ExampleTell me about a time your team disagreed. You get 30 seconds to think, two minutes to answer, and one take before the next question appears.See also Fit interview, Online assessment, Superday

Networking

Building relationships with people at firms through emails, coffee chats, and events, so someone knows your name when applications open. It matters more in finance than in most industries, especially from schools where banks do not recruit on campus.ExampleTwenty emails in September lead to eight calls, and two of those turn into referrals. When the program opens in January, two people at the firm can put your name forward.See also Coffee chat, On-campus recruiting

On-campus recruiting (OCR)

The process where firms post jobs and interview through your school's career center. Schools where firms recruit heavily get the most slots; elsewhere, networking and direct applications carry more weight.ExampleAt a school with OCR, a bank posts its role on the career portal, collects resumes, and runs first rounds in campus interview rooms. At a school without it, you apply online and lean on referrals.See also Networking, Summer analyst

Return offer

A full-time job offer given to an intern at the end of the summer. At most banks it is the main path into a full-time analyst job, so the internship works like a ten-week interview.ExampleA class of 80 summer analysts is reviewed in August. 65 return offers is an 81% rate, and the 15 without one recruit again in the fall.See also Summer analyst, Exploding offer

Summer analyst

The standard 10-week internship at banks and many funds, held the summer between junior and senior year. Recruiting for it now starts during sophomore year.ExampleA student in the class of 2029 interns as a summer analyst in summer 2028, between junior and senior year, after applying during sophomore year.See also Return offer, Sophomore program, Superday

Superday

The final round: several back-to-back interviews in one day, in person or virtual, mixing fit and technical questions. Offers often come within a few days.ExampleFour 30-minute interviews back to back: an MD on fit, a VP on a DCF walk-through, an associate on accounting, and an analyst on why this group. The offer call comes two days later.See also Fit interview, Technical interview, HireVue

Technical interview

Questions that test finance knowledge: accounting, valuation, DCF, and LBO for banking and PE; markets for trading; probability and mental math for quant. Expect prompts like walk me through a DCF, or how does $10 of depreciation flow through the three statements.ExampleDepreciation rises $10 at a 25% tax rate. Net income falls $7.50; cash rises $2.50 after adding back the $10; PP&E falls $10; assets fall $7.50 and so does retained earnings.See also Fit interview, Discounted cash flow, Paper LBO

Venture and startups3

ARR (annual recurring revenue, MRR)

Annual recurring revenue: the yearly value of subscription contracts in force today. Software companies and their investors use it instead of reported revenue because it shows the run rate at a point in time.ExampleA startup billing $50k a month in subscriptions (its MRR) has $600k of ARR.See also Net revenue retention, Burn rate, Series A

Dilution

The drop in an existing holder's ownership percentage when new shares are issued, in a funding round, an option grant, or a stock-funded acquisition. The holder keeps the same shares but owns a smaller slice.ExampleA founder owns 60% before a round that sells 20% of the company to new investors. Afterward the founder owns 60% x 0.80 = 48%.See also Cap table, Option pool, Accretion/dilution analysis

Vesting (cliff)

Earning shares or options over time rather than all at once. A common startup schedule is four years with a one-year cliff: nothing until the first anniversary, then a quarter, then the rest monthly.ExampleAn employee granted 48,000 options on a four-year schedule with a one-year cliff owns nothing if they leave at month 10 and 18,000 if they leave at month 18.See also Option pool, Stock-based compensation

LBOs and private equity2

Add-on acquisition (bolt-on, tuck-in)

A smaller company bought by a PE-owned platform to add products, customers, or regions. Add-ons are often bought at lower multiples than the platform, which can lift returns when the combined company is sold.ExampleA platform bought at 10x EBITDA acquires a competitor with $10m of EBITDA at 6x, for $60m. If the combined company sells at 10x, that $10m of EBITDA is worth $100m at exit.See also Portfolio company, Multiple expansion

Internal rate of return (IRR)

The annualized return on an investment: the discount rate at which the present value of all its cash flows equals zero. Doubling your money in five years is about a 15% IRR; tripling it in five years is about 25%.ExampleInvest $100m and get $200m back in five years: the IRR is about 14.9%, since 1.149 to the fifth power is about 2.0. Get the same $200m in three years and the IRR is about 26%.See also Multiple of invested capital, Leveraged buyout, Paper LBO

Trading and products1

Hedging

Taking an offsetting position to reduce a risk you do not want. A trader who owns a corporate bond can sell Treasury futures so that a rate move hits both sides and roughly cancels, leaving mostly the credit risk.ExampleAn airline will buy 10m gallons of jet fuel in six months and fears a price rise. It buys fuel futures today; if prices climb $0.50 a gallon, the futures gain about $5m to offset the higher bill.See also Delta, DV01, Futures contract