Chapter 6

ESOP

Employee stock option plan: a method for employees to purchase the business for which they work

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 common-sense rule, a rule-of-thumb

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

franchise

a legal agreement that allows a business to be operated using the name and business procedures of another firm

start-up

a new business that is started from scratch

business format franchising

an agreement that provides a complete business format, including trade name, operational procedures, marketing, and products or services to sell

conversion franchising

an agreement that provides an organization through which independent businesses may combine resources

product distribution franchising

an agreement that provides specific brand name products which are resold by the franchisee in a specified territory

trade name franchising

an agreement that provides to the franchisee only the rights to use the franchisor's trade name and/or trademarks

intangibles

assets, such as patents or trademarks, and liabilities, such as accounts payable, that have no physical existence

discounted cash flows

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

caveat emptor

latin: let the buyer beware

founder

people who create or start a new business

takeover

seizing of control of a business by purchasing its stock to be able to select the board of directors

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

net realizable value

the amount for which an asset will sell, less the costs of selling

replacement value

the cost to acquire an essentially identical asset

book value

the difference between the original acquisition cost and the amount of accumulated description

point of indifference

the price at which a buyer is indifferent about buying or not buying the business

due diligence

the process of investigating a business to determine its value

buyout

the purchase of substantially all of an existing business

buy-in

the purchase of substantially es than 100 percent of a business

earnings multiple

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