Must Know Finance Terms

Armhoo1's picture
Rank: Senior Gorilla | 884

Wanted to start a thread compiling a list of finance vocabulary, formal or informal. Words can be as "basic" as EBITDA or as "fancy" as capital extraction. The more pretentious the better. After all, capital expenditures aka capex essentially means to fix shit up or to buy new assets lol.

Point of this is to gauge how much I know and to potentially learn new terms. When I initially got into banking, I didn't know what dry powder was haha. Would be nice to keep the list going indefinitely. Hopefully this benefits the WSO community at large.

Comments (69)

Mar 18, 2019

EBITDA - Earnings before interest, taxes, depreciation, and amortization. Became popular in the 1980's during the LBO boom as a quick and dirty way to measure a company's cash flow. Some argue the accuracy of this metric, since taxes are mandatory and some businesses are capex intense.

Capital Extraction - Pulling money out of an investment (i.e. dividends) or stripping company assets.

Dry Powder - Liquid cash or committed capital from investors.

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Mar 18, 2019

pronounced: EBIT - Dee - Ayy

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Mar 18, 2019

Debatable. I've heard it pronounced EBITDAAH lol

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Mar 20, 2019

Some prefer pronouncing it "The EBIT and D and A...." in front of clients.

-1st year MBA associates...

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Mar 19, 2019

Incomplete definition of dry powder from an alt. manager perspective. It represents total fund commitments less deployed investor capital, hence dry.

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Mar 19, 2019

That's what I meant to articulate, thanks for clarifying.

Apr 4, 2019

But a business could be bought by one which has NOLs which could be offset against tax payable though.

NOL - net operating losses.

Apr 4, 2019

"Wanting to get some color on X" If I hear this phrase once more, I am jumping out the window.

Jul 12, 2019

Include "From 30,000 ft" & "At a high-level" and you have the holy trifecta of window jumpers.

Funny enough, I hope the office has windows at a high-level or 30,000 ft for when I hear all three of those in the first hour tomorrow.

Mar 18, 2019

E-Comm: Electronic Commerce; this is how Tai Lopez makes over six figures a day

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Mar 18, 2019

IRR - a metric used to estimate profitability of a given set of cash flows. Set NPV to 0 and solve for the discount rate; that's your IRR or internal rate of return.

Cash-on-cash return - another profitability metric used to gauge investment suitability. You want a high one. Measured by annual pre-tax cash flow divided by total cash invested.

WACC - weighted average cost of capital, or how much it's going to cost you to finance your various endeavors relative to the cost of each source of capital. Most commonly given by WACC = (E/D+E) x Cost of E + (D/D+E) x Cost of D x (1-tax rate).

Lever up - used colloquially to describe increasing the amount of debt on a company's balance sheet, commonly to finance expansion of operations

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Mar 18, 2019

Multi-Level Marketing (MLM) Business Model (see Pyramid Scheme) - The one weird trick to make MILLIONS while working <30 hours per week. Bill Ackman hates it!

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Mar 19, 2019

And Carl Icahn loves it...or hates Bill Ackman enough to love it lol.

Last I heard, Herbalife seems to be doing alright.

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Mar 19, 2019

It's not a sustainable model. Ackman was just arrogant in the way he approached the investment.

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Apr 11, 2019

He never understood their business. They weren't selling diet shakes. They were selling diet clubs (highly successfully). The provider earned a little bit maybe only around minimum wage and the clients overplayed $30-50 a month. About the price of a health club.

It's jsut indirect pricing like a lot of things in life.

Always wandered why he hated that business model as unethical but loved valeant - charging people $160k a year for 50 year old drugs off patent.

Array
Mar 19, 2019

Lets start with how to pronounce finance...

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Mar 19, 2019

Fye-nance

Mar 20, 2019
Armhoo1:

Fye-nance

Initially read this as Fiscal Year End - nance.... time for a break

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Mar 19, 2019

I thought I knew that until I watched a lecture by an MIT professor: "finens"

Edit: the "e" should be a Greek lowercase epsilon

Mar 19, 2019

What's up with that.

Always thought it was FY-nance

Mar 19, 2019

fuh-nahntz, like you have some goddamn class, obviously

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Apr 15, 2019

2:55 Steve says finance

Most Helpful
Mar 19, 2019

Here's a tip for the audience being targeted in this thread: Don't try and use "pretentious" finance terms with your superiors just for the hell of it. Throwing in jargon terms is an unsubtle way of hiding ignorance behind fancy nomenclature and will only make you seem like a dick. Talk about an easy way to smell blood in the water during an interview.

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Mar 19, 2019

Who said anything about using big words to impress interviewers? This post is about general knowledge and having a little fun.

You know what else makes you seem ignorant? Not knowing certain words/phrases when talking to experienced professionals. You can't know everything, but if you can't keep up, you automatically lose credibility (or make it obvious you're a rookie)...not a good strategy if you wanna move up in the world.

If finance is your industry, you should know about it as much as possible. Applies to any industry really.

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Apr 1, 2019

Interview with a potential analyst right before he graduated last May:

Interviewer at my bank: "Oh it says here you have experience with Discounted Cash Flow analysis... tell me more"

Interviewee: Uhhh

Mar 19, 2019

Still a good tip nonetheless.

Mar 19, 2019

There are no definitions in finance. The definitions are almost always negotiated in a deal.

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Mar 19, 2019

"Wank the weasel" - maximizing efficiency by stretching personnel to increasing operating leverage

"Spank the hog" - during a hostile takeover, refers to stripping management of annual bonuses until operating performance improves

"Raw dogging" - forced majority shareholder hostile takeover without cooperative discussion

"Bottom-feeding" - hanging around the hoop of dying companies like a vulture to be a lender/investor of last resort in order to siphon tangible assets out of the company through dilution/default

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Mar 20, 2019

Aren't these all drinking games? I remember Brett Kavanaugh's testimony... Hmmmmmmm

Mar 20, 2019

Are these for real? LMAO

Mar 19, 2019

OTPHJ - Over the pants handjob

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Mar 19, 2019

Carve-out - to sell a minority stake in a daughter/subsidiary company to outside investors while maintaining some equity stake yourself.

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Mar 19, 2019

Alpha: ABS(Fund Performance - Worst Performing Benchmark)

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Mar 19, 2019

Pitchbook/Deck - a PowerPoint presentation, usually one being presented to a client

Comments - notes, additions, edits, corrections; usually given from a superior to a subordinate about a presentation, spreadsheet, or other deliverable he or she has been working on

Turn (comments) - going through comments and making the requested changes; synonyms include ticking through/combing through

Alright I realized this takes longer than it seems.

"We must all suffer from one of two pains: the pain of discipline or the pain of regret. The difference is discipline weighs ounces while regret weighs tons."

Mar 19, 2019

Gold digger - Your MD's wife

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Mar 19, 2019

"tx" - someone who is so busy and (dare I say) utterly important that he/she literally does not have 2 seconds to spare out of the 86,400 seconds in a day to type out the full "Thanks"

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Mar 20, 2019

In other context, the greatest state in the union

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Mar 20, 2019

DOS - Dinged on sight: when you're so non-target you get dinged by the reception as you walk in for the R1 interview
TFIT - The fuck is this?: expression of confusion about your work as expressed by anyone above analyst level for your first 2 years of employment
MTN - Massage the numbers: one-way ticket to becoming cell mates with Ari Arjavalingam from The Galleon group
WJJ - Who just joined?: about 70% of the content of most conference calls
Don't spend all night on this, but I need it by 8am - the medical term for chronic finance-induced insomnia
RB&C - red bull and coke: your average breakfast

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Mar 20, 2019

My associate opened the line on a conference call without anyone on it yet and instinctively said "who just joined?"

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Mar 20, 2019

Reverse Morris Trust - Idk slept through training

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Mar 20, 2019

Work Out - has nothing to do with working out

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Mar 20, 2019

"Please advise" - super passive aggressive way to express frustration about a fuck up or tardiness of critical deliverable

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Mar 20, 2019

"pls fix"

Mar 20, 2019

BTFD

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Mar 25, 2019

Common jargon from a hedge fund perspective that refers to fee structure is "2/20", which corresponds to 2% of total asset value as management fee & an additional 20% for any profits earned.

Mar 26, 2019

"Sorry, we regret to inform you" is a common introduction that is used because I decided to attend a small, unknown university.

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Mar 30, 2019

Mosaic Theory is my favorite

Mar 31, 2019

Had to look this one up, and I agree its a a fascinating approach. My only reservation is that the market doesn't necessarily reflect a company's intrinsic value.

Mar 30, 2019

Circulate: Writing an e-mail with an attachment (usually a pitchbook) with two or more finance professionals as recipients
Provide color: Communicate further information on a specific topic

Array

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Mar 31, 2019

Asset stewardship: The most British way I have heard somebody say maintenance capex (Capital Expenditure) - which basically means money spent on replacing broken parts and doing service rounds on your current machines.

Apr 2, 2019

"Community Adjusted EBITDA"

A metric used by a particularly eccentric, sketchy company to justify they are shit at making profits. Common in the Start-ups scene.

Apr 2, 2019

So far, I've only heard WeWork use this term. Still a huge stretch nevertheless.

Apr 2, 2019

Chapter 22: Slang for the second time a company files for chapter 11 bankruptcy.

I'll add some more credit/legal terms if I find the time, but I fell for this one the first time I heard it.

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Apr 4, 2019

Some of the most basic trading jargon:

Bid - the price in the market where participants are immediately willing to buy

Offer - also known as the "ask," the price in the market where participants are immediately willing to sell

Bid/offer spread - the difference between the offer and the bid

Hit the bid - the act of crossing the bid/offer spread to sell an instrument at the price where the market is willing to buy

Lift the offer - the act of crossing the bid/offer spread to buy an instrument at the price where the market is willing to sell

Crossing the bid/offer spread - hitting the bid / lifting the offer, thereby willing to immediately sell / buy at a lower / higher price than other market participants

Apr 4, 2019

Good stuff. Do you know any jargon for options?

Apr 4, 2019

Option - generally speaking, the right (but not the obligation) to buy / sell a given quantity of an instrument at an agreed time in the future for an agreed price

Call option - an option where the buyer (of the option) has the right to buy the underlying instrument

Put option - an option where the buyer (of the option) has the right to sell the underlying instrument

European option - option may only be exercised at the expiration date

American option - option can be exercised at any time before the expiration date

Bermudan option - option can be exercised on a set number of occasions (midway between a European option and an American option)

Strike price - also known as the "exercise price," is the price at which the underlying instrument will be bought / sold when exercised

Expiration date - or expiry, date on which the option can be exercised

At the money - strike price is the same as the underlying spot price

In the money - strike price is lower than the underlying spot price

Out of the money - strike price is higher than the underlying spot price

Black-Scholes model - most well known equation for determining the price evolution of an option

Volatility smile - graphical representation of volatility versus strike prices for a set expiry (looks like a smiley face)

Apr 4, 2019

other words for coke: blow, booger sugar, Bolivian marching powder, boots, California corn flakes, charlie, coke, girl, nose candy, powder, rock, slim, snow, snuff, white lady, yay, yayo, or yeyo, yola

Apr 4, 2019

This list would've been helpful...in the 80's

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Apr 14, 2019

CAGR - Compound Annual Growth Rate
TTM - Trailing Twelve Months
Run Rate - A financial forecast built off a particularly strong month / quarter
Pro Forma - Why you should value our company for more than it's actually worth
Adjustment - Justification for the change in value
TAM - Total Addressable Market
ARR - Annual Recussing Revenue
Upsell - Selling a client a more lucrative (expensive) product / service
Downsell - Clients switching from your a lucrative product to a less lucrative product
Churn - Rate of client leaving your product
Cross-Sell - Selling your Product B to a client that only uses your Product A
APA - Asset Purchase Agreement
SPA - Stock Purchase Agreeement

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Apr 25, 2019
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Jul 12, 2019
Jul 11, 2019