E
- Earnings Multiple
- The value of peer companies expressed as a multiple of earnings as in (Earnings Multiple = $ Value/$ Earnings); usually expressed in terms of a number and the letter "x", e.g. a 5x earnings multiple, means 5 times earnings. For purposes of measuring an earnings multiple, EBITDA usually used as the earnings measure rather than Net Income.
Example: If a company is sold for $1 million and its EBITDA was $200k, then the company's earnings multiple was $1 million/$200k = 5x.
- Earnout
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An earnout (sometimes written earn-out) is a contractual agreement by a buyer of a business to pay the seller of a business additional value or compensation in the future depending upon how the business performs. There are innumerable ways of calculating and paying the compensation, but think of it as a bonus that is paid based upon future performance. The measure used to calculate an earnout is typically based upon a percentage of either revenue or earnings. An earnout is usually used to close the value gap between the asking price of the seller and the purchase price the buyer is willing to pay. See our Buying a Company topic for more information.
- EBITDA
- Earnings Before Interest, Taxes, Depreciation and Amortization
- Economies of Scale
- The situation where an increase in the number of units produced (either products or service engagements), results in a decrease in the average cost of each unit.
The more scalable the company, the better the opportunity and the more it will be able to grow its earnings. - EDLP
- A promotional term used by retailers and retail sales analysts that means "Every Day Low Price"
- EIN
- Employer Identification Number; assigned to a business by the IRS for tax paying purposes; also called a Tax ID Number or Federal ID Number
- Elastic Demand
- Elasticity is a measure of responsiveness and demonstrates how much the quantity demanded changes when the price changes.
Elastic demand is when customers demand less quantity as price increases - they are said to be "price sensitive" or "price elastic". - Equity
- The ownership an individual investor holds in a company in the form of stock
Alternatively, the amount of capitalization a company has in capital stock as opposed to debt (a company is capitalized with equity or debt or both) - Exempt Employee
- A salaried employee (typically a supervisor or manager) that is exempt from labor laws that require the payment of overtime
F
- FDM
- An acronym used by retailers and retail analysts that describes the total "Food, Drug and Mass" market which includes the traditional grocery segment, drug store segment and mass merchandiser segments of the market
F (continued)
- Financial Leverage
- The ability to use money to produce an income with minimal effort
- Financial Model
- A detailed model (usually in a spreadsheet such as Excel or Lotus) that calculates excepted revenues, expenses, balance sheet and cash flows using different business assumptions; the model is typically fully integrated, so any change in revenue will flow through to impact net income, cash flow, etc. (See Startup Financial Model as an example financial model for startup business planning).
- Financial Statements
- The accounting statements that report on a business' financial performance; typically includes four statements:
- Balance Sheet
- Income Statement
- Cash Flow Statement
- Statement of Retained Earnings - Fixed Asset Investment
- The total size of the investment required to assemble the fixed assets needed to operate the business
- Fixed Assets
- Long-term tangible assets that are used to produce revenue and are not intended for sale, such as office furniture, vehicles, real property, building improvements, and factory equipment; also called long-term assets
- Fixed Costs
- The costs that stay constant and do not vary based on the quantity of products produced, services delivered or the level of sales; fixed costs typically include rent, debt payments, lease payments, insurance, salaries of supervisory personnel, etc.; often called G&A or SG&A
- Flow Chart
- A graphical representation of a business process using commonly accepted symbols with accepted meanings; often associated with business process re-engineer or redesign projects
- Franchise
- The form of business when on company (the franchiser) licenses its business plans, know-how, products, brand, etc. to an entrepreneur (the franchisee) in exchange for consideration in the form of cash down and a revenue royalty
- Fume Date
- The date at which a company will run out of cash given their Burn Rate
- Fungible
- When a product, service or input is of a "commodity" nature in that it is freely exchangeable or replaceable, in whole or in part, for another product, service or input of like nature or kind
A gallon of gasoline is pretty much the same from one gas station to another and is therefore "fungible"