News and Tools

Terms

A daily selection of business terms and their definitions / application.

A market bubble (or economic/speculative bubble) is an economic cycle characterized by a rapid and unsustainable escalation of asset prices to levels that are significantly above their true, intrinsic value. - Term: Market Bubble -

Term: Market Bubble

Arbitrage Pricing Theory (APT) explains asset returns through multiple systematic market factors (e.g., inflation, interest rates, GDP growth), not just market risk like CAPM. It assumes no arbitrage opportunities exist—mispriced assets are quickly corrected by investors—creating a stable risk-return relationship. This flexibility makes APT adaptable to complex, real-world market dynamics.

Term: Arbitrage Pricing Theory: A Comprehensive Framework for Multi-Factor Asset Pricing

Modern Portfolio Theory (MPT), introduced by Harry Markowitz in1952, is a mathematical framework for constructing portfolios that optimise the trade-off between risk and return. It posits that portfolio risk is not just the sum of individual asset risks but depends on their correlations and covariances. By using mean-variance analysis, MPT identifies the efficient frontier—a set of optimal portfolios offering the highest expected return for a given risk level or the lowest risk for a target return. Diversification, driven by low-correlation assets, is central to reducing unsystematic risk. MPT revolutionised finance by providing a systematic, quantitative approach to portfolio construction, earning Markowitz the1990 Nobel Prize and forming the foundation for modern asset allocation and risk management practices.

Term: Modern Portfolio Theory – Mean-Variance Analysis and the Efficient Frontier

The Capital Asset Pricing Model (CAPM) quantifies the link between an asset’s systematic risk and its expected return, proposing that investors require higher returns for taking on increased market risk.

Term: The Capital Asset Pricing Model (CAPM)

The weighted average cost of capital (WACC) is the average rate a company must pay to all its capital providers—including both equity investors and lenders—weighted by the proportion each source represents in the firm's capital structure, and is commonly used as the discount rate in valuing investments and determining a business’s required rate of return.

Term: Weighted Average Cost of Capital (WACC)

The Internal Rate of Return (IRR) is a cornerstone metric in financial analysis, widely adopted in capital budgeting, private equity, real estate investment, and corporate strategy. IRR represents the annualised effective compounded return rate that will make the net present value (NPV) of all projected cash flows (both inflows and outflows) from an investment equal to zero. In essence, it is the discount rate at which the present value of projected cash inflows exactly balances the initial cash outlay and subsequent outflows.

Term: Internal Rate of Return (IRR)

Risk-Adjusted Return on Capital (RAROC) measures the risk?adjusted return earned per unit of economic capital, enabling like?for?like performance assessment, pricing, and capital allocation across activities with different risk profiles.

Term: Risk-Adjusted Return on Capital (RAROC)

Return on Risk-Adjusted Capital (RORAC) evaluates the profitability of a project, business unit, or company by relating net income to the amount of capital at risk, where that capital has been specifically adjusted to account for the risks inherent in the activity under review.

Term: Return on Risk-Adjusted Capital (RORAC)

Cash Flow Return on Investment (CFROI) assesses how efficiently a company generates cash returns from its invested capital, providing a clear measure of real profitability that goes beyond traditional accounting-based ratios like Return on Equity (ROE) or Return on Assets (ROA).

Term: Cash Flow Return on Investment (CFROI)

Free cash flow (FCF) is the cash a company generates from its operations after it has paid the operating expenses and made the investments required to maintain and grow its asset base. It represents cash available to the providers of capital — equity and debt.

Term: Free Cash Flow (FCF)

Economic value added (EVA) is a measure of financial performance that captures the surplus generated above the required return on the capital invested in the business: the profit left after charging the business for the full economic cost of the capital employed.

Term: Economic profit / Economic value added (EVA)

Compound annual growth rate (CAGR) represents the annualised rate at which an investment, business metric, or portfolio grows over a specified period, assuming that gains are reinvested each year and growth occurs at a steady, compounded pace.

Term: Compound annual growth rate (CAGR)

Return on Net Assets (RONA), also commonly referred to as Return on Invested Capital (ROIC), is a profitability ratio that measures how efficiently a company generates net operating profit after tax (NOPAT) from its invested capital.

Term: Return on Net Assets (RONA), also commonly referred to as Return on Invested Capital (ROIC)

The EBITDA multiple, also known as the enterprise multiple, is a widely used financial metric for valuing businesses, particularly in mergers and acquisitions and investment analysis. It is calculated by dividing a company’s Enterprise Value (EV) by its EBITDA.

Term: EBITDA multiple

In finance and strategy, “growth” signifies the increase in a business’s economic output, profitability, value, or market position over time. It is a central concern for executives, investors, and analysts, as sustainable growth underpins both valuation and a company’s long-term competitive advantage.

Term: Growth

Enterprise value (EV) is a comprehensive measure of a company’s total value, representing the aggregate worth of its core operating business to all stakeholders — not just shareholders, but also debt holders and other capital providers.

Term: Enterprise value (EV)

Valuation is the systematic process of estimating the worth of a business, investment, or asset, typically with the objective of informing decisions such as investment, merger and acquisition, financial reporting, or dispute resolution.

Term: Valuation

A hedge fund is a private investment vehicle that pools capital from accredited or institutional investors and uses a diverse array of sophisticated investment strategies to generate high returns, often targeting “absolute returns”—profit whether markets rise or fall.

Term: Hedge Fund

Timeboxing is a structured time management technique designed to enhance productivity, effectiveness, and efficiency by allocating a fixed period—known as a “time box”—to a specific task or activity. The core principle is to pre-set both the start and end times for an activity.

Term: Timeboxing

Scrum is a widely used agile framework designed for managing and completing complex projects through iterative, incremental progress to drive effective, cross-functional teamwork, accelerate delivery, and foster constant learning and adaptation.

Term: Scrum

« Older Entries

Next Entries »

Download brochure

Our latest podcasts on Spotify

Sign up for our newsletters - free