Bottom Line
General term that refers to net profit or loss after all costs of doing business, including cost of goods sold, taxes, depreciation and miscellaneous expenses, are deducted from income, e.g., the "bottom line" of an income statement.

Debt-to-Assets Ratio
A measurement generally used to assess a company's competitiveness versus others in its industry as well as its ability to make timely payments on its debt. Expressed as a ratio of a company's liabilities to its total assets.

Debt-to-Equity Ratio
An indicator of leverage. Generally used to determine a company's ability to pay creditors' claims in the event of liquidation, it is calculated by dividing total long-term debt by common shareholder equity.

Discounted Cash Flow Analysis (DCF)
A method used to determine the present value of an investment, calculated by estimating future cash flows multiplied by a discount factor (e.g., interest rate).

Earnings
A company's net income (gross income minus the costs of doing business, depreciation, interest and any other expenses) for a given period.

Earned Income
Income from a company's primary businesses before taxes. Income from the appreciation of assets or income-producing holdings is not included.

Earnings Per Share (EPS)
The portion of a company's profit allocated to each outstanding share of common stock. Determined by dividing the company's profits by the number of outstanding shares. Since the number of outstanding shares can fluctuate, companies often use a weighted average of shares outstanding over the course of a given period. EPS may also be calculated on a fully-diluted basis, taking into account all stock options, warrants, convertible bonds and preferred stock outstanding.

EBITDA (Earnings before Interest, Taxes, Depreciation and Amortization)
A company's operating income, before non-business related expenses.

Fiscal Year-End
The end of an accounting period covering 12 consecutive months at the end of which a company's books are closed and profit or loss is determined. A fiscal year end may or may not coincide with the calendar year-end. The fiscal year-end for the U.S. government, for example, is September 30.

Future Cash Flow
The amount of cash a company is expected to generate, calculated by adding non-cash charges (i.e., depreciation) to projected net income after taxes and other costs. Cash flow is an indicator of a company's financial strength, specifically, its ability to meet its obligations and pay dividends.

Gross Profit
A company's net sales (gross sales less any discounts, returns and allowances) minus the cost of goods sold. This measure is used as a broad indicator of a company's health. Net income, which takes into account interest costs, depreciation, taxes and other miscellaneous expenses, is considered a more precise indicator.

Incremental Revenues
The difference between a company's revenues with and without a particular contract, project, client or product.

Market Capitalization
The dollar value placed on a company by the market, calculated by multiplying the total number of shares outstanding by the current share price. A company's market cap reflects how investors value the company's future prospects, which can be different from its book, or accounting value.

Net Present Value
The value today, or present value, that is equivalent in value to a payment (or a stream of payments) to be received in the future, discounted for interest (or other present value factors reflecting the income that could be earned on that sum). For example, if the opportunity cost (interest rate) of funds is 10%, the present value of $100 to be received in one year is $100 x (1/1+.10) or $90.91.

Operating Margin
A measure of profitability calculated by dividing operating income (or loss) by total revenues. Higher margins indicate higher profitability.

Price-to-Earnings Ratio (P/E)
A traditional measure of a company's profitability calculated by dividing a company's current stock price by its earnings per share. The P/E indicates the "multiple" of earnings at which a stock sells, so a higher P/E means higher earnings, or profits. Generally, P/E ratios use reported earnings from the latest year and are "trailing P/E" ratios. A P/E ratio calculated using an analyst's forecast for the year is a "forward P/E" ratio. The P/E is a measure of how much investors are willing to pay for earnings growth.

Price-to-Sales Ratio (P/S)
A measure of the value of common stock determined by dividing the current stock price by revenue per share (adjusted for stock splits). Revenue per share is determined by dividing revenue for the past 12 months by the total number of shares outstanding. A higher P/S ratio indicates higher expectations for revenue growth. P/S is often used to analyze Internet companies with no earnings.

Return on Assets (ROA)
A measure of profitability, expressed as a percentage of assets. ROA is calculated by dividing net income for the past 12 months by the company's total average assets over the same period. A higher ROA suggests greater profitability.

Return on Equity (ROE):
Used as an indicator of profitability and growth, this percentage is calculated by dividing a company's net income by its common stock equity (adjusted for any splits) over a given period.

Recurring Revenues
Recurring revenues are dollar amounts of regularly occurring sales, net of any allowances or returned merchandise. Examples of recurring revenues include payments for ongoing services, such as the monthly subscription fees collected by Internet Service Providers, or rental or lease income from real estate or equipment.

Risk-Adjusted Discount Rate
A discount rate is used in discounted cash flow analysis to calculate the present value of an income stream or future cash flows. A risk-adjusted discount rate incorporates a risk premium appropriate to the level of risk associated with a particular income stream. In general, the higher the risk, the higher the discount rate, and the higher the potential return.

Top Line (Revenue) Growth
Another term for revenue that is the dollar amount of annual sales, net of any allowances (discounts, returned merchandise or allowances). Net income is determined by subtracting these costs from the "top line" number on an income statement.

IPO's and Other Offerings & Investment Banking

Allocation
A method by which shares in a securities offering are distributed.

Combination Offering
Stock offerings that have both a follow-on and a secondary component. A follow-on offering is one involving the public sale by an issuer of newly issued securities which already has publicly traded securities. A secondary offering is the public sale by shareholders of previously issued securities that are already trading publicly.

Conditional Offer
An order to purchase securities that is conditioned on the effectiveness of a registration statement and pricing of an IPO.

Direct Public Offerings
Offering of new securities to the public directly by an issuer without the assistance of an investment banking firm.

Flipping
Term for the practice of subscribing to a new security offering and quickly selling it in the aftermarket.

Follow On or Secondary Offering
The public sale by an issuer of newly issued securities which already has publicly traded securities.

Initial Public Offering or IPO
When a company issues shares to the public for the first time, it is called an Initial Public Offering. The process is also known as "going public."

Investment Banking Firm
A financial entity that, acting as an underwriter or agent, serves as an intermediary between an issuer of securities and the investing public. Investment bankers perform a variety of other services, including obtaining financing, facilitating mergers and other corporate restructurings, acting as brokers and trading for their own accounts.

Issuer
An entity, such as a corporation, municipality or government, that has the power to issue and distribute securities.

Preliminary Prospectus (or "Red Herring")
The marketing document that is disseminated to potential investors after the filing of the registration statement with the Securities & Exchange Commission, but before the offering is declared effective. Also known as a "red herring" due to the caveat, printed in red along the left border of the cover, that warns the reader that the document does not contain all of the information about the issue and that some of the information may be changed before the final prospectus is issued. Generally, in lieu of a specific price per share, a price range is specified (see also Prospectus).

Private Placement
A type of offering exempt from registration that allows the issuing company to avoid registration requirements and save underwriting fees by offering company shares directly to institutional and accredited investors.

Prospectus
The official offering document included in the registration statement filed with the SEC in conjunction with a public offering of securities. The prospectus, which contains material information about the offering of securities, must be given to the original purchasers of the security no later than the written confirmation of their purchase (see also Preliminary Prospectus).

Registration Statement
A document that must be filed with the SEC before securities can be sold to the public. It describes the business of the issuer of the securities, how the proceeds of the offering will be used and includes some background on the principal executives, audited financial statements, and other pertinent data.

Road Show
The process by which underwriters acquaint potential institutional investors with the products, people and finances of a company planning to go public. Generally, this presentation is a face-to-face meeting, but online and video presentations may become commonplace in the future.

Secondary Offering
The public sale by shareholders of previously issued securities that are already trading publicly.

Stock Option
The right to buy a stock at a specified price during a specific time.

Syndicate
Term used for a group of investment bankers that, operating under an agreement among underwriters, agrees to purchase a new issue of securities from an issuer for resale to the investment public.

Underwriter
Typically an investment banking firm that contracts with the issuer of new securities to distribute the securities to the investing public.

Venture Capital
An important source of financing used to fund startup and emerging growth companies that usually do not have access to the capital markets. VC typically entails significant investment risk but offers the potential for above-average future returns.