Adjusted Net Book Value: Amount that the fair market value of tangible business assets exceeds the fair market value of liabilities of the business.

Anonymous Executive Summary (AES): An anonymous summary of the business prepared to be used as a teaser in the early stages of Buyer communications. Also known as a Feature Sheet or Teaser.

Amortization: The assignment of the cost of intangible assets to expense.

Appraisal: Act or process of determining the value of something.

Asset Sale: The acquisition of a business following the direct purchase of its tangible assets and intangible operating assets.

Business Valuation: Act of determining the value (or estimated value) of a business enterprise.

Capital Asset Pricing Model (CAPM): A comparative risk model that relates risk and return.

Capital Cost Allowance (CCA): Income tax term defined as the amount of depreciation deducted by a business for income tax purposes.

Capital Gain (Loss): Amount by which the net proceeds received on disposing of an asset or investment exceeds (or is less than) its cost for income tax purposes.

Capitalization Rate: The rate of return (expressed as a percentage) used to convert a point estimate of cash flow into value. The inverse of the capitalization rate is known as the Multiple.

Capitalized Cash Flow: Present value of a perpetuity determined by dividing a point estimate of cash flow by a Capitalization Rate, or multiplying cash flow by a Multiple.

Confidential Information Memorandum (CIM): A detailed document that provides a comprehensive overview of the business with financial and operational details. The CIM allows potential Buyers to make an informed decision about a business acquisition.

Covenant: A promise in an indenture, or any other formal debt agreement, that certain activities will or will not be carried out or that certain thresholds will be met.

Dataroom: A secure place that is used to store privileged data, usually for legal proceedings or mergers and acquisitions.

Depreciation: The assignment of the cost of tangible assets to expense.

Discount Rate: A rate of return used to convert a monetary sum, payable or receivable in the future, into present value.

Discretionary Cash Flow: Cash flow from operations less income taxes, Net Trade Working Capital requirements and capital expenditures net of the related income Tax Shield.

Discounted Cash Flow (Valuation Method): A valuation method used to estimate the value of an investment based on its expected future cash flows. A DCF analysis attempts to determine the value of an investment today, based on projections of how much money it will generate in the future.

Due Diligence: An investigation, audit, or review performed to confirm facts or details of a matter under consideration.

Earnout: A way of structuring a purchase and sale transaction where a portion of the purchase price is established in part by the future performance of the business being acquired and a portion of the purchase price is conveyed or paid at a specified date(s) following the closing of the transaction.

EBIT: Earnings before interest and taxes.

EBITDA: Earnings before interest, taxes, Depreciation and Amortization. It is a measure of the operating cash flows of a business before changes in net Working Capital.

Enterprise Value: Total value of a business, including both its interest-bearing debt and equity components.

Equity Value: Value of a business to all shareholders.

Fair Market Value: Highest price available in an open and unrestricted market between informed and prudent parties, acting at arm’s length and under no compulsion to act, expressed in terms of cash.

Forced Liquidation: The sale of assets (where a business is deemed to be distressed) on an ‘as is/where is’ basis.

GAAP: Generally Accepted Accounting Principles.

Going Concern: A business enterprise that has the resources required to continue operating indefinitely until it provides evidence of the contrary.

Goodwill: An intangible asset, associated with the purchase of one company by another. The value of a company’s brand name, solid customer base, good employee/customer relations, and proprietary technology represent a few reasons why goodwill exists.

Holding Company: A company with (usually) no active business operations, owning passive investments in assets such as real estate, or shares in one or more Public Company, or Privately Held (operating) Company.

IFRSs: International Financial Reporting Standards.

Insolvency: The inability of an individual or corporation to pay debt obligations as they become due.

Internal Rate of Return (IRR): The Discount Rate that equates the present value of expected cash outflows to the present value of expected cash inflows.

Letter of Intent (LOI): A non-binding document that provides the general terms and conditions for a business purchase, which typically addresses conditions precedent, restrictive covenants, representations and warranties, timelines and indemnities.

Lifetime Capital Gains Exemption: A tax benefit available to individual Canadians who own shares of a qualifying Small Business Corporation, where the first $750000 of capital gains are not subject to taxation upon the sale of those shares.

Liquidation: Process of converting assets into cash.

Liquidation Value: The net amount of money, if any, available to equity owners following a liquidation event.

Liquidity: Ability to readily convert non-cash assets into cash for reasonably certain proceeds.

Most Probable Selling Price: The price at which a business would most probably sell if exposed to the market for a reasonable time, under market conditions prevailing as of the date of the appraisal.

Multiple: The reciprocal of the Capitalization Rate. In open market transactions, the multiple is usually expressed a multiple of EBITDA.

Net Book Value: With respect to individual assets or liabilities, the capitalized cost, or otherwise determined book value, of an asset or liability less accumulated Depreciation or Amortization.

Net Income (loss): The amount remaining when all expenses (including income tax), incurred and accrued during an accounting period, are deducted from all revenue received and accrued during that same period.

Net Realizable Value: The net proceeds obtainable upon the sale of an asset, after providing for all costs of disposition, including income taxes.

Nominal Rate of Return: A Discount Rate that includes both an inflation component and a Real Rate of Return.

Non-Competition Agreement: An agreement between two parties in which one of the parties agrees not to compete with the other party for a specified period of time, usually within a specified geographic area and within identified parameters of product or service.

Non-Disclosure Agreement: A contract that protects someone’s private and proprietary information from being shared with anyone who should not have access to it.

Non-Solicitation Agreement: An agreement to not solicit either employees or customers of a business, or both.

Open Market Transaction: The purchase and sale of an asset, business, or interest therein, as negotiated between arm’s length parties.

Orderly Liquidation: The sale of assets under the assumption that a reasonable period of time will be used to maximize proceeds.

Price: The consideration paid in an Open Market Transaction involving the purchase and sale of an asset, business or interest therein.

Rate of Return: An amount of income realized or expected on an investment, expressed as a percentage of that investment.

Real Rate of Return: A Discount Rate, or Capitalization Rate, that excludes consideration of inflation.

Redundant Asset: Any asset not required in the operation of the business and therefore not included in the Going Concern Value of the operating assets of the business.

Sellers Discretionary Earnings (SDE): A calculation of the total financial benefit that an owner would derive from a business on an annual basis.

Shareholders Equity : The result obtained when the net book value of all liabilities of a company are subtracted from the net book value of all that company’s assets.

Share Sale: The sale of a business interest through the purchase and sale of the share capital of the corporation overlying it.