Glossary

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Glossary
Depreciation

Depreciation

Depreciation is an accounting item that is supposed to represent the wear and tear of assets that a company owns. The value of the asset is written off over time by making a charge against profits. Some things don’t depreciate – things like cash, land and buildings. Some depreciate quite fast – things like computers. Companies set depreciation rates for different types of asset that are designed to write off the value of the asset over its useful life. The depreciation charge is only a notional accounting item though – no cash is moving around – and depreciation is added back onto profits when calculating tax.

Funds from operations – FFO

Funds from operations – FFO refers to the figure used by real estate investment trusts (REITs) to define the cash flow from their operations. FFO is calculated by adding depreciation and amortization to earnings and then subtracting any gains on sales. It is sometimes quoted on a per-share basis. The FFO-per-share ratio of a REIT is more often quoted, rather than earnings […]

Carried Value or Carrying Value

Carried Value or Carrying Value – the original cost of an asset, less the accumulated amount of any depreciation or amortization, less the accumulated amount of any asset impairments. This is similar to MOIC, which is gross multiple of invested capital. This expresses how much a private equity company has made on the realisation of a gain, relative […]

Gross multiple of invested capital (MOIC)

Gross multiple of invested capital (MOIC) expresses as a multiple how much a private equity company has made on the realisation of a gain, relative to how much they paid for it. E.g; if a private equity company reports a MOIC of 1.8x. the gain is 1.8 times greater than the original invested capital. This is similar to Carrying […]

EV/EBITDA

EV/EBITDA (or EBITDA Multiple) is a valuation tool that looks at how a company’s cash flow compares to the assets being used to generate the cash flow and is simply EV (or Enterprise Value) divided by EBITDA (earnings before interest, tax, depreciation and amortisation). Investors mainly use a company’s enterprise multiple to determine whether a company is undervalued […]

EBITDA

EBITDA is an abbreviation that stands for Earnings Before Interest, Tax, Depreciation and Amortisation. It is a close approximation for the cash generated by a company before it pays any interest and tax bills that it owes. It is useful as a profitability measure, although it doesn’t tell the whole story.