MGT 302 ch 6

Revolving credit

A credit agreement that allows the borrower to pay all or part of the balance at any time; as the loan balance is paid off, it becomes available to be borrowed again.

ESOP

Employee Stock Option Plan; a method for employees to purchase the business for which they work.

Franchise

A prepackaged business bought, rented, or leased from a company called a franchisor.

Buyout

The purchase of substantially all of an existing business.

Earnings multiple

The ratio of the value of a firm to its annual earnings.

Spin-off

A business that is created by separating part of an operating business into a separate entity.

Synergy

A combination in which the whole is greater than the sum of its component parts.

Heuristic

A commonsense rule, a rule-of-thumb.

Founder

Person who creates or starts new businesses.

Asset

Something the business owns that is expected to have economic value in the future.

Cash flows

The actual receipt and spending of cash by a business.

Start-up

A new business that is started from scratch.

Caveat emptor

Latin: Let the buyer beware

Due diligence

The process of investigating a business to determine its value. It has two primary goals: You are attempting to find any wrongdoing: and You are trying to find any inefficiencies, unnoticed opportunities, waste, and mismanagement

Discounted cash flows

Cash flows that have been reduced in value because they are to be received in the future.

Intangibles

Things of value that have no physical existence, for example, patents and trade secrets.

Point of indifference

The price at which a buyer is indifferent about buying or not buying thee business.