Wednesday, September 26, 2007

Financial Terms In USA


JARL MOE ON USA TOUR

As I am touring USA right now speaking to the public about how to save more tax and use the international law to their benefit.....

Its time for you to learn some of the terms you must know but inside and outside USA in egards of finance and money.

Here we go:

3F’s
Family, friends and fools, the first source of money used by most entrepreneurs.


Acquisition
A purchase of a controlling interest (more than 50%) of a company’s ownership by another company or outside investor in exchange for cash or shares with the intent to acquire its assets and operations.

Adventure Capitalists
Individual or angel investors.

Anxious Money
Investors or gamblers that risk money they can’t afford to lose.

Bedbug Letter
A notification from the SEC instructing a company to withdraw its IPO because its registration statement is not in accordance with securities laws.

Blank Check Offering
Also known as SEC Rule 419, is an initial public offering of an early-stage company that has not finalized the exact type of business it will run (or acquire). In a blank check offering, investors are betting on the success of the (usually seasoned) management team, more so than on the company's proposed products or services. Because of their high risk, so-called "blank check companies" are required to put investors' funds into an escrow account.

Board
A Board of Directors or Operating Board of the company. Consists of individuals who oversee the company’s development on behalf of and for the benefit of the shareholders. The Board advises the senior management team and sets certain corporate policies.

Bridge Financing
A limited amount of equity capital or short term debt financing typically acquired within 6-18 months of an anticipated public offering or major round of equity investment.

Burn rate
The rate at which a company is spending its cash.
Broken IPO (sometimes called a "break issue")
A situation in which the stock price falls below the offering price after the underwriter has determined the initial price of the IPO.

Buyout
A purchase of a controlling interest (more than 50%) of a company’s ownership by an outside investor ("leveraged buyout" or "LBO") or management team ("management buyout" or "MBO") in exchange for cash and debt with the intent to acquire the company’s assets and operations.

Carry
The percentage of the return collected by VC’s on their limited partners investments.

Cash flow
The net amount of cash generated ("built") or expended ("burned") by a company.

Class A/B Stock
Issuing stock of different classes with different terms and rights. (e.g.: voting vs. non-voting)

Clawback
VC’s returning money to investors when the VC has earned more than the agreed carry.

Closing
A meeting or event when the investment capital is transferred to the company in exchange for equity or debt and, after the required legal documents are executed between the investor and the company.

Collar
A "collar," in terms of an IPO, is the lowest price that the issuer will accept for shares of a planned initial public offering.

Collateral
An asset (tangible or intangible) that could be pledged by a company to secure debt.
Company Stage
A state of an entrepreneurial company’s growth, from its initial formation to its liquidity event (e.g. public offering, acquisition, merger, etc.)

Comparable Public Company
A publicly traded company with characteristics (e.g. industry, revenues, company stage, etc.) similar to the company seeking capital.

Control
An ownership of more than 50% of the equity of a company or the ownership of the greatest amount of equity compared with the other shareholders (“plurality”.)

Convertible Security
A note, warrant, preferred share, or other specialized security that will be exchanged (i.e.: converted) into a predetermined number of common shares of the company at a predetermined, future time.

Cost of Goods Sold
The direct costs associated with the sales of the company. Would include such items as materials and labor directly used to manufacture the products.

Covenant
Legal condition imposed on a company which defines positive and negative trends of a financing or the operations.

Current ratio
The ratio of current assets to current liabilities, i.e.: current assets divided by current liabilities.

Debt Service
An amount of principal and interest payable on a regular basis to repay a loan.

Default
A failure of a company to comply with the covenants and/or terms and conditions of the financing.

DPO
Direct Public Offering ... the practice of selling shares of an IPO directly to the public without using an underwriter. The DPO strategy is often used by companies that have struggled to raise capital through conventional channels and/or companies conducting small offerings in which traditional underwriting fees would be prohibitive.

Due Diligence
The process of evaluating the merits, risks and potential of an investment opportunity.

EBIT
"Earnings Before Interest and Taxes". EBIT is equivalent to the Operating/Gross Profit.

Early Stage
A state of a company that typically has completed its seed stage financing and has a founding or core senior management team, proven its concept or completed its beta test, has minimal revenues, has no positive earnings or cash flow.

Earnings
Operating profit, less interest and taxes. Also know as the Net Profit.

Equity
The ownership of a company, represented in stock (common and/or preferred.)
ERP (Enterprise Resource Planning)
Very complicated, functionally integrated software that is designed to consider solving a problem for the entire Enterprise (e.g.: For a large company, their world-wide inventory problem.)

Executive Summary (ES)
A short summary of a complete business plan. Includes the pertinent information required for a potential capital provider to make a preliminary assessment of the investment opportunity.

Expansion Stage
A company that has completed its early stage and has a complete senior management team, significantly increasing revenues, positive earnings and cash flow.

Form 144
Must be filed by "insiders" prior to any "intention" to sell shares of their company's restricted stock - i.e. issued stock that is currently unregistered with the SEC. Form 144 is a notice of the insider's intention, (not obligation), to sell the shares. If the shares are not sold within three months time, then Form 144 must be amended.

Fully-Diluted Outstanding Shares
The number of shares representing the total company ownership, including the common shares and the current conversion or exercised value of the preferred shares, options, warrants, and other convertible securities.

Gross Profit
Gross Margin, less direct operating costs.

Gross Margin
Sales, less Cost of Sales.

Hockey Stick Sales
Most new ventures have sales projections that have a curve that looks like a hockey stick. The sharper the growth rate, the fewer people really believe your projections.

Hurdle Rate
A target ROI, determined by an investor to compensate for the risks related to the particular investment.

IPO (Initial Public Offering)
A company’s first offering of SEC-registered, common stock to the public.

Investment Criteria
Categories used by professional VC’s to initially evaluate venture capital seekers. Might include investment region, company stage, industry, required capital amount, and other factors.

Junior Debt
A debt financing with repayment rights that are to be paid after any senior security in a liquidation scenario.

Lead Investor
An investor that: makes an significant equity capital investment; and, is designated to monitor the investment on behalf of the other investors.

Leverage
Using debt to add to the available cash to grow the company. Or, to acquire cash without selling more equity.

Liquidity Event
The sale or exchange of a significant amount of company ownership for cash, debts, or the equity of another company.

Lock-Up Period
A pre-specified period of time - typically the first 180 days after an IPO - when a company's executives, officers and other insiders are restricted from selling their shares. Underwriters impose lock-ups because they are concerned that if
insiders sell shares soon after an IPO, the company's stock price will fall, undermining the initial public offering price and the post-IPO trading market.

Market Capitalization
The number of outstanding shares times the current price/per share. This is used to value publicly traded companies. Also known as the Market Valuation.

Merger
An integration of two independent companies, through a pooling of interests, a purchase, or a consolidation, where a new company is formed to acquire the net assets of the initial companies.

Mezzanine Stage
Short term financing (equity and/or debt ) for a company that is within 6-18 months of an anticipated public offering.

MLM
Multi-level Marketing. A sales strategy that recruits numbers and layers of outside people to actually sell the products.

Net Profit
Operating profit less interest and taxes, also know as Earnings.

Net Margin
The ratio of net profit to the revenues (sales.)

Offering Memorandum
A legal investment document that provides investors with the company’s business plan, investment information, and key investment risks. Often also known as the Private Placement
Memorandum, or PPM.

OPM
Other People’s Money.

Option
A right to purchase a specific amount of company equity at a defined price.

Overhang Affect
The overhang is a large block of stock (often shares of a recent IPO) that puts downward pressure on prices after it is released on the market. In the IPO market, the overhang effect often comes into play when the lock-up period expires on insider-owned shares of a company that has recently gone public.

Overhang
For VC's, this is the difference between the amount of money raised in a fund and the amount invested.

Outstanding Shares
The total number of common shares held and shown on the corporate balance sheets. The amount does not include convertible equity such as preferred shares, warrants and options.

Post-Money Valuation
The pre-money valuation of a company plus the total capital raised from the investment round. An arbitrary valuation of a company using various calculation methods.

P/E Ratio ("Price-Earnings Ratio")
The ratio of the price of a share of stock versus the earnings represented by that share. Or, the ratio of the market capitalization to the earnings of a company. The ratio is used to compare the company’s valuation with similar public and private companies.

PPM
Private Placement Memorandum. A legal investment document that provides potential investors with the company’s business plan, investment information and key investment risks. Also known as Offering Memorandum or Private Placement Offering. Usually filed with the state or federal government agencies.

Professional Venture Capital Providers
Accredited investors that raise investment funds targeted at taking ownership positions in selected private companies in exchange for capital.

Pro Forma
From the Latin, “for form.” Financial projections/budgets of a business or venture.

Public Offering
The registration and selling of common shares to the public under the rules and supervision of the Securities and Exchange Commission (SEC).

Quiet Period
After a company files its S-1 registration statement and does not come out of its quiet period until 25 days after its stock has started trading. The quiet period is designed to prevent companies from overtly publicizing their initial public offerings.

ROI
"Return on Investment”, the profit to be returned to investors relative to their initial investment.

Regulation FD
Also known as "Regulation Fair Disclosure" or "Reg. FD" is a newer (October 2000) SEC rule that requires companies to make all "material" information available to all investors at precisely the same time. This landmark ruling challenges public companies' long-standing practice of giving the news earlier to analysts, institutional investors and selected news wires such as Dow Jones, Reuters and Bloomberg.

Restricted Shares
Common shares acquired from the company in a private sale that are not pursuant to a registration statement.

Rule 144
An SEC rule that governs the sale of restricted shares once the public trading of the securities commences.

S-11
SEC Form S-11, covered under the Securities Act of 1933, is used to register securities of certain publicly traded real estate companies, including real estate investment trusts (REITs).

SEC
Securities and Exchange Commission, US Federal Government.
Secondary Offering
An additional sale of the common shares of a company to the public.

Secondary Purchase
The purchase of company ownership from a shareholder instead of the company.

Seed Stage
An initial state of a company’s growth that is characterized by a founding management team, business plan development, prototype development, beta testing.

Senior Debt
A debt financing with repayment rights that are senior (ahead of) all other debt financing in a liquidation scenario or are secured by certain assets.

SB-1
An SEC registration form that larger companies file when registering to go public. Form SB-1,
limits a small business's public offering to $10 million.

SB-2
An SEC form that’s a "plain language" filing that small business issuers can use when registering to go public. Unlike Form SB-1, it allows small business issuers to raise unlimited capital. Unlike the better-known Form SB-1 this requires only two years of audited financials, rather than three, and permits financials to be prepared under generally accepted accounting principles (GAAP) without rather the SEC's requirements for extensive narrative disclosure. (NOTE: The SEC defines a "small business issuer" as a US or Canadian company with less than $25 million in revenues in its last fiscal year, and whose outstanding publicly-held stock is worth no more than $25 million.)

SBIC
Small Business Investment Corporations. Aided financially by the US Government’s Small Business Administration. SBIC’s function as smaller, local venture capital companies.

Shelf Registration
Formally adopted by the SEC in 1983 (as Rule 415) when interest rates were in double digits and could change significantly in the six or so weeks it took a giant corporation like GE to register an underwritten bond deal. Rule 415 instead allows companies to register securities that can be sold at will within two years, as long as it keeps meeting quarterly financial reporting requirements.

SIC Code:
Standard Industrial Classification. Unique four digit codes assigned to industry by the US Department of Commerce. The codes classify different kinds of businesses.

Subordinated Debt
A debt financing with repayment rights that are subordinated (lower than) any senior security in a liquidation scenario.

Syndicate
Also known as an underwriting group. A team of underwriters from different investment banking firms who work together to purchase a new issue of securities for resale to the investment public. The firm that heads the syndicate is referred to as the lead manager.

Warrant
An option given to a party (typically an investor) that entitles them to purchase stock in the future in the company at a pre-determined price.
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