# 70 Corporate Finance Key Terms

**Welcome to our comprehensive guide on 70 key terms in corporate finance!**

Whether you’re a seasoned professional or just starting out in the world of business, understanding these terms is crucial for making informed financial decisions.

## What is Corporate Finance?

Before we dive into the terminology, let’s first define what corporate finance actually means. In simple terms, corporate finance is the financial management and decision-making process within a company. It involves analyzing, planning, and managing the use of funds to achieve the organization’s goals.

– The way in which a company finances its operations and growth through a mix of equity, debt, and other securities.**Capital Structure**

– The use of borrowed funds to increase the potential return on an investment.**Leverage**

– Obtaining capital by borrowing money from individuals or institutions.**Debt Financing**

– Obtaining capital by issuing shares of stock in a company.**Equity Financing**

– The process by which a privately owned company offers shares of its stock to the public for the first time.**Initial Public Offering (IPO)**

– The consolidation of companies through various financial transactions, such as mergers, acquisitions, or takeovers.**Mergers and Acquisitions (M&A)**

– The process of determining the worth of a company or its assets.**Valuation**

– A method used to estimate the value of an investment based on its expected future cash flows.**Discounted Cash Flow (DCF)**

– The expected rate of return on an investment over its lifetime.**Internal Rate of Return (IRR)**

– The rate of return that must be earned on an investment to satisfy investors’ expectations.**Cost of Capital**

– A calculation of the cost of capital for a company based on its mix of equity and debt financing.**Weighted Average Cost of Capital (WACC)**

– The net amount of cash and cash-equivalents being transferred into and out of a business.**Cash Flow**

– The difference between current assets and current liabilities, used to measure a company’s short-term financial health.**Working Capital**

– The process of examining a company’s financial statements to evaluate its performance, profitability, liquidity, and solvency.**Financial Statement Analysis**

– A method of analyzing a company’s financial statements by comparing different financial figures to uncover trends and insights.**Ratio Analysis**

– The portion of a company’s profit that is allocated to each outstanding share of common stock.**Earnings Per Share (EPS)**

– A measure of profitability that indicates the percentage return an investor receives based on the amount invested.**Return on Investment (ROI)**

– A measure of a company’s profitability that shows how much profit it generates with each dollar of shareholders’ equity.**Return on Equity (ROE)**

– A measure of a company’s profitability that shows how efficient it is at using its assets to generate earnings.**Return on Assets (ROA)**

– A distribution of a company’s earnings to its shareholders.**Dividend**

– The annual dividend per share divided by the stock price, expressed as a percentage.**Dividend Yield**

– A program in which a company buys back its own shares from existing shareholders.**Share Buyback**

– The ability of a company to meet its short-term obligations with its current assets.**Liquidity**

– The ability of a company to meet its long-term financial obligations.**Solvency**

– A measure of how efficiently a company generates profits from its operations.**Profitability**

– A company’s earnings from its primary business activities, excluding interest and taxes.**Operating Income**

– The total profit or loss of a company after deducting all expenses, including taxes.**Net Income**

– Earnings Before Interest, Taxes, Depreciation, and Amortization. A measure of a company’s operating performance.**EBITDA**

– A method used to evaluate an investment by calculating the present value of its expected future cash flows.**Net Present Value (NPV)**

– The amount of time it takes for an investment to generate enough cash flow to recover its initial cost.**Payback Period**

– The process of spreading the cost of an intangible asset over its estimated useful life.**Amortization**

– The process of allocating the cost of a tangible asset over its estimated useful life.**Depreciation**

– The cost of borrowing money, usually expressed as an annual percentage rate.**Interest**

– The process by which governments collect money from individuals and companies to fund public services and programs.**Taxation**

– An intangible asset that represents the value of a company’s reputation, customer base, and other intangible factors.**Goodwill**

– Non-physical assets that have value but cannot be touched or seen, such as patents, trademarks, and copyrights.**Intangible Assets**

– Physical assets with a measurable value, such as property, equipment, and inventory.**Tangible Assets**

– A measure of a company’s financial leverage, calculated by dividing its total debt by shareholders’ equity.**Gearing Ratio**

– A measure of a company’s ability to meet its interest payments on its debt.**Interest Coverage Ratio**

– A measure of a company’s financial leverage, calculated by dividing its total liabilities by shareholders’ equity.**Debt-to-Equity Ratio**

– A measure of a company’s liquidity, calculated by dividing its current assets by its current liabilities.**Working Capital Ratio**

– An indicator of a company’s short-term financial health, calculated by dividing its liquid assets (such as cash and accounts receivable) by its short-term liabilities.**Quick Ratio**

– The percentage of sales that a company retains as profit after all expenses are paid.**Profit Margin**

– The difference between revenue and the cost of goods sold, expressed as a percentage.**Gross Profit Margin**

– A measure of a company’s efficiency in generating profits from its operations, calculated by dividing operating income by revenue.**Operating Profit Margin**

– The percentage of sales that a company retains as profit after all expenses are paid, including taxes.**Net Profit Margin**

– A measure of a company’s efficiency in using its assets to generate revenue, calculated by dividing revenue by total assets.**Asset Turnover Ratio**

– A measure of how quickly a company sells and replaces its inventory, calculated by dividing cost of goods sold by average inventory.**Inventory Turnover Ratio**

– A measure of how quickly a company pays off its trade creditors, calculated by dividing purchases by average accounts payable.**Creditors’ Turnover Ratio**

– The amount of time it takes for a company to collect payment from its customers, usually expressed in days or months.**Debt Collection Period**

– The movement of cash in and out of a company, consisting of operating, investing, and financing activities.**Cash Flow**

– The amount of cash generated by a company’s primary business activities.**Operating Cash Flow**

– The amount of cash used for investments in assets such as property, equipment, and securities.**Investing Cash Flow**

– The amount of cash raised through borrowing or equity financing activities.**Financing Cash Flow**

– The amount of cash a company generates after accounting for capital expenditures and working capital requirements.**Free Cash Flow**

– A measure of how long it takes for a company to convert its investments in inventory and accounts receivable into cash through sales.**Cash Conversion Cycle (CCC)**

– The percentage of a company’s earnings that is paid out to shareholders as dividends.**Dividend Payout Ratio**

– A valuation ratio that compares a company’s stock price to its earnings per share.**Price-to-Earnings (P/E) Ratio**

– A valuation ratio that compares a company’s stock price to its book value per share.**Price-to-Book (P/B) Ratio**

– A valuation ratio that compares a company’s stock price to its revenue per share.**Price-to-Sales (P/S) Ratio**

– A valuation ratio that compares a company’s stock price to its cash flow per share.**Price-to-Cash Flow (P/CF) Ratio**

– A company’s profit divided by the number of outstanding shares, used to measure profitability on a per-share basis.**Earnings Per Share (EPS)**

– A measure of how efficiently a company generates profits from shareholders’ investments, calculated by dividing net income by shareholders’ equity.**Return on Equity (ROE)**

– A measure of how efficiently a company uses its assets to generate profits, calculated by dividing net income by total assets.**Return on Assets (ROA)**

– A measure of the return generated from an investment, expressed as a percentage.**Return on Investment (ROI)**

– The percentage of a stock’s price that is paid out as dividends annually.**Dividend Yield**

– A measure of a stock’s volatility compared to the overall market, used to evaluate risk.**Beta**

– A measure of how much an investment has outperformed or underperformed its benchmark index.**Alpha**

– A statistical measure of the dispersion of data points from the mean, used to measure risk.**Standard Deviation**

– A measure of how much the price of a security fluctuates over time.**Volatility**

Congratulations on completing this guide to 70 key terms in corporate finance! We hope that you found it informative and helpful in understanding the often complex world of corporate finance. By now, you should have a thorough understanding of terms such as capital structure, leverage, return on investment, and many others.