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Plain articles on the words of finance, each with its sources.
These articles explain the terms a reader meets in corporate finance and financial modelling: what each one means, how it is calculated, where it is used and where it misleads. They are written for someone meeting the words for the first time, and they say only what the textbooks they cite say, with the page numbers. None of it is investment advice. Articles are added a few at a time and revised when the reading changes.
| # | Term | Summary | Group | Revised | Words | Sources |
|---|---|---|---|---|---|---|
| 3 | Terms and methods9 | |||||
| 4 | Accretion and dilution | An acquisition is accretive if the buyer’s earnings per share rise once the target is folded in, dilutive if they fall. How the test works and what it misses. | Terms and methods | 1,348 | 4 | |
| 5 | Comparable companies analysis | Comparable companies analysis values a business from the multiples similar public companies trade at: choosing peers, spreading the numbers, picking a range. | Terms and methods | 1,109 | 3 | |
| 6 | Discounted cash flow analysis | A discounted cash flow analysis values a business as the present value of the cash it should produce: the five steps, the discount rate and the terminal value. | Terms and methods | 1,128 | 4 | |
| 7 | EBITDA | EBITDA is earnings before interest, taxes, depreciation and amortization: how it is calculated, why bankers compare firms with it, and why it is not cash flow. | Terms and methods | 1,060 | 4 | |
| 8 | Enterprise value and equity value | Equity value is what the shares are worth; enterprise value is what the whole business is worth to all who fund it. How they link, and why cash is subtracted. | Terms and methods | 921 | 4 | |
| 9 | Leveraged buyout | A leveraged buyout buys a company mostly with borrowed money that the company then repays. How the debt, the sponsor’s equity and the exit fit together. | Terms and methods | 1,242 | 4 | |
| 10 | Margins | A margin is a line of the income statement as a percentage of sales. Gross, operating, EBITDA and net margin each stop at a different line of that statement. | Terms and methods | 549 | 4 | |
| 11 | Revenue | Revenue is what a company earns from delivering goods and services. It is recorded when it is earned, which can be before or after the cash arrives. | Terms and methods | 497 | 3 | |
| 12 | The three financial statements | The income statement, the balance sheet and the cash flow statement: what each one shows, what period it covers, and the two links that tie them into one model. | Terms and methods | 1,071 | 4 | |
| 13 | Jobs and ranks6 | |||||
| 14 | What does a director in investment banking do? | A director or senior vice president in investment banking sits between VP and managing director, runs deals at a high level and starts to win business. | Jobs and ranks | 614 | 4 | |
| 15 | What does a managing director in investment banking do? | A managing director in investment banking owns the client relationships, wins the deals and is measured on the revenue they bring in each year. | Jobs and ranks | 671 | 4 | |
| 16 | What does a vice president in investment banking do? | A vice president in investment banking runs deals day to day, manages the associates and analysts on them, and is the client’s main line to the team. | Jobs and ranks | 651 | 4 | |
| 17 | What does an investment banking analyst do? | An investment banking analyst builds the models and presentation pages behind every deal, works long weeks, and usually moves on after two or three years. | Jobs and ranks | 835 | 5 | |
| 18 | What does an investment banking associate do? | An investment banking associate runs the day-to-day of a deal: checking the analysts’ models, owning the presentations and making the numbers tell a story. | Jobs and ranks | 682 | 4 | |
| 19 | What is the investment banking hierarchy? | The investment banking hierarchy runs from analyst to associate, vice president, director and managing director: what each rank does and how long it lasts. | Jobs and ranks | 887 | 4 | |
| 20 | One field against another7 | |||||
| 21 | Investment banking vs consulting: what is the difference? | Bankers are paid when a deal closes; consultants are paid for their time. What each does for a company, how the firms are shaped, and what the jobs are like. | One field against another | 904 | 7 | |
| 22 | Investment banking vs corporate finance: what is the difference? | Corporate finance is the finance job inside a company, under the CFO; investment banking is the outside adviser hired for a deal. Who does what. | One field against another | 820 | 8 | |
| 23 | Investment banking vs equity research: what is the difference? | Equity research analysts study listed companies and publish ratings for fund clients; bankers do deals for companies. Why a wall keeps the two apart. | One field against another | 852 | 11 | |
| 24 | Investment banking vs hedge funds: what is the difference? | A hedge fund is a private pool of money that trades securities for a fee and a share of the gains; investment banking advises companies and makes markets. | One field against another | 828 | 11 | |
| 25 | Investment banking vs private equity: what is the difference? | Investment banking advises on deals for a fee; private equity buys companies with a fund and keeps a share of the gain. How the jobs, firms and paths differ. | One field against another | 868 | 9 | |
| 26 | Investment banking vs sales and trading: what is the difference? | The investment banking division advises companies on deals; the sales and trading division buys and sells securities for big funds. Two floors, two jobs. | One field against another | 806 | 7 | |
| 27 | Investment banking vs venture capital: what is the difference? | Venture capital funds take minority stakes in young companies in stages and expect many to fail; investment banking advises established companies for fees. | One field against another | 792 | 7 | |
| 28 | Words of the trade5 | |||||
| 29 | What do bulge bracket, boutique and middle market mean? | Bulge bracket means the largest full-service firms, boutique a small specialist, middle market the deal sizes in between. What the labels mean. | Words of the trade | 783 | 6 | |
| 30 | What does “the Street” mean in finance? | “The Street” is short for Wall Street, meaning the securities industry rather than the address. Where the phrase comes from, and the sell side and buy side. | Words of the trade | 790 | 9 | |
| 31 | What is a deal team in investment banking? | A deal team is the group of bankers assigned to one transaction, analyst to managing director, plus the lawyers, accountants and client staff around them. | Words of the trade | 725 | 8 | |
| 32 | What is a pitch book? | A pitch book is the presentation an investment bank prepares to win a mandate: its ideas for the client, a valuation, the team and its record. Who builds it. | Words of the trade | 843 | 9 | |
| 33 | Why do investment bankers work such long hours? | Junior bankers work 80 to 100 hours a week because deals run on deadlines, several at once, and senior comments arrive late. The mechanics, from the sources. | Words of the trade | 900 | 9 | |