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The vocabulary of Corporate Finance

The vocabulary of Corporate Finance


Finance is a very specific field which uses separate terms and vocabulary, which it is imperative to know and master to flourish in this world. So, if you want to pass an interview for an internship or a work-study program in finance, we offer you a quick recap of vocabulary words the most common to know to introduce yourself and stand out at this interview!

Indicators and tools used by financial analysts

Cash flow:

Cash flow in French. Cash flows represent the difference between the money generated and spent during a given period by the activity of the company. A positive cash flow over a period T means that the company has generated money over this period and can use it to invest, pay its debts or pay dividends to its shareholders. Conversely, a negative cash flow over a period T means that the company has spent more money than it has created over this period. It is important to note thatnegative cash flow is not necessarily bad for a business : this can represent large investments that will pay off a lot later.

ROI (Return On Investment):

Return on investment in French. The ROI represents the expected or actual profitability of an investment. ROI is a decision-making tool which allows you to make a choice between several projects, in order to choose the one that will be the most profitable for the company.

Its formula is: (earnings – investment costs) / investment costs.

Neutral:

The breakeven point represents the minimum level that a company must reach to pay its fixed charges. It is therefore the level of cash that the activity must generate in order not to be loss-making. It is only once this level has been reached that the business begins to make money.

IRR (Internal Rate of Return):

Internal rate of return in French. The IRR (TRI in French) is the rate that shareholders, bankers and all other financing organizations of a project expect to know whether an investment is profitable. If potential investors expect a higher IRR than that of the project, then it will not be attractive for them to invest.

Income statement:

The income statement is an accounting tool that makes it possible to identify, over a given period, all of a company’s income and expenses. In particular, it can be used for estimate the profitability of the company over the periodfind out what cost him dearly, what is his margin, etc.

The different types of investment and finance

Venture Capital:

Venture capital in French. the venture capital corresponds to all the funds and companies that invest in companies considered risky. These are companies that are not listed on the stock exchange and whose future profitability is not guaranteed. Companies specializing in venture capital experience many failures but this remains proportional to the gains recovered when one of their investments is successful. Indeed, this type of fund research THE future nugget (especially among start-ups) and, if no results are present within 5 years, they withdraw from the companies.

Crowdfunding:

Crowdfunding in French. This type of investment was first launched during donation and fundraising campaigns. This then expanded to allow all types of investors (including individuals) to be able to invest or take part in a capital or project.

LBO (Leveraged Buy-Out):

Leveraged buying in French. An LBO is a financial transaction that consists of buy a business using debt. Concretely, the acquirer buys the target by heavily indebting the purchased company. He then hopes to quickly repay this debt thanks to the cash flows generated by the company’s activity. In most LBO cases, the acquirer has identified levers not exploited by management in place of the company and therefore decides to replace the top-managers in order to exploit these levers and thus produce cash flows quickly and in large quantities.

Equity:

Equity in French. Equity corresponds to the money invested by shareholders or collected during fundraising. This represents the amount, at time t, which would be given back to the shareholders if all the company’s assets were to be liquidated (after payment of the debt). In accounting, equity represents the company’s book value and is one of the most used items on the income statement to assess the financial health of the company.

Read more : What is Private Equity?

broker:

Broker in French. This is a person whose job it is toexecute and record buy and sell orders for individuals. They are intermediaries between clients and large investment banks. They have both an investment advisory role (on the advice and recommendations of the banks to which they are attached), an administrative role (to record and execute buy and sell orders) and a technical role (to analyze client portfolios) .

Obligations :

Bonds are financial securities that are issued by companies for the purpose ofborrow money in the form of debt. A company issues a bond, which is bought by a creditor (often banks) and must then repay it with interest, which is distributed in the form of coupons once or twice a year.

M&A (Mergers and Acquisitions):

Mergers and Acquisitions in French. M&A is a part of corporate finance which represents the merger of two companies, or the acquisition of one company by another. Working in M&A means taking part in these operations by analyzing how much one company should be willing to pay to buy the other, in what form this purchase should be made (debt, cash, shares, etc.), by defining the conditions and forms of operation.

Read more : M&A, what is it exactly?

Asset management:

Asset management in French. It is a branch of finance that involves manage and grow personal funds who entrust their money to an asset management company.

Private Banking:

the private banking broadly follows the same objective as theasset management but for wealthiest clients. Advisors in private banking must advise the owners of large fortunes in order to enable them to diversify and maximize their assets.

Risk management

Credit risk:

Credit risk corresponds to the risk, in particular for a bank, thata customer does not repay his loan on time. In order to reduce this risk, the banks call on analysts who must determine the necessary conditions to be fulfilled in order to avoid any risk of non-reimbursement.

Market risk:

Market risk, as its name suggests, is the risks faced by financial market stakeholders. These include, among other things, the risk of substantial losses for investors.

Operational risk:

Operational risk is the risk faced by banks in response to the various vagaries of the market and risks of non-repayment of loans.

Read more : Finance: Instructions for entering the world of Private Equity



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