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A guide to investment terms


Accounts payable
Money owed to suppliers

Accounts receivable
Money owed to customers.

When one company takes over another and clearly establishes itself as the new owner. Acquisition also describes any deal where the bidder ends up with 50 per cent or more of the company taken over.

Acquisition finance
Companies often need to use external finance to fund an acquisition. This can be in the form of bank debt and/or equity, such as a share issue.

A procedure defined by the Insolvency Act 1986, providing a possible alternative to the liquidation or receivership of a company. Once an administration order is gained by a court, the claims of all creditors are frozen, giving the company protection against its creditors. The administrator then runs the company.

Administrative receivership
The term of receivership in the UK. If a company is no longer  financially viable, an administrative  receiver may be appointed to run the company, probably with a view to selling it as a going concern. The company is then said to be in administrative receivcership or more commonly, in receivership.

Advisory board
An advisory board is common among smaller companies. It is less formal than the board of directors. It usually consists of people, chosen by the company founders, whose experience, knowledge and influence can benefit the growth and direction of the business. The board will meet periodically but does not have any legal responsibilities in regard to the company.

Alternative investment Market, a stock market regulated by the London Stock Exchange and intended for smaller companies.

Annual percentage rate.

Angel investor
See business angels

Arrangement fees
A fee charged by a bank for arranging a customer's overdraft facility.

Anything owned by an individual, a business or financial institution that has a present or future value i.e. can be turned into cash. In accounting terms, an asset is something of future economic benefit obtained as a result of previous transactions. Tangible assets can be land and buildings, fixtures and fittings; examples of intangible assets are goodwill, patents and copyrights.

Asset allocation
The percentage breakdown of an investment portfolio. This shows how the investment is divided among different asset classes. These classes include shares, bonds, property, cash and overseas investments. Institutions structure their allocation to balance risk and ensure they have a diversified portfolio.

Assets and liabilities form
This provides a statement of a company's assets and liabilities.


Bad debt
Accounts receivable that is likely to remain uncollectible and will be written off.

Balanced fund
A fund that spreads its investments between various types of assets such as stocks and bonds. Investors can avoid excessive risk by balancing their investments in this manner, but should expect only moderate returns.

Balance Sheet
A statement of the assets, liabilities, and capital of a business or other organization at a particular point in time, detailing the balance of income and expenditure over the preceding period.

A person or organization declared in law as unable to pay their debts.

Bill of exchange
A bill of exchange is a written document instructing the person it is addressed to pay a specific amount to another person by a specified date.

This is a standard measure used to assess the performance of a company. Investors need to know whether or not a company is hitting certain benchmarks as this will determine the structure of the investment package. For example, a company that is slow to reach certain benchmarks may compensate investors by increasing their stock allocation.

Beneficial owner
A person who enjoys the benefits of ownership even though the title is in another name.

A type of IOU issued by companies or institutions. They generally have a fixed interest rate and maturity value.

Bottom line
The final figure on a profit and loss account that results from various calculations included on this statement.

Break-even analysis
The level of sales necessary for a company to cover all its fixed and variable costs for a given period of time, i.e. so that the business will not operate at a a loss. Above break-even sales, a company will be profitable.

Bridge loan
A kind of short-term financing that allows a company to continue running until it can arrange longer-term financing. Companies sometimes seek this because they run out of cash before they receive long-term funding; sometimes they do so to strengthen their balance sheet in the run up to flotation.

Burn rate
The rate at which a start-up uses its venture capital funding before it begins earning any revenue.

Business angels
Individuals who provide seed or start-up finance to entrepreneurs in return for equity. Angels usually contribute a lot more than pure cash – they often have industry knowledge and contacts that they can pass on to entrepreneurs. Angels sometimes have non-executive directorships in the companies they invest in.

Business angels network
An organisation that facilitates the bringing together of businesses and business angels e.g. www.xenos.co.uk

Business plan
Document prepared by management that summarises the operational and financial objectives of a business and the detailed plans and budgets showing how the objectives are to be realised. It is different from an investment proposal in that the business plan is considered an internal document. See Can I get any help with my business plan?

This is the purchase of a company or a controlling interest of a corporation’s shares. This often happens when a company’s existing managers wish to take control of the company. See management buy-out.

Buy-In Management Buy-Out (BIMBO)
A combination of an management buy-out and management buy-in, the team buying the business includes both existing and new management.


Capital allowance
A tax allowance which takes account of depreciation of certain types of business assets such as machinery, equipment, vehicles etc. You claim part of the cost of the item each year against your profits, before your tax is worked out.

Capital investment
Money used to purchase fixed assets for a business, such as land, buildings or machinery. It also refers to money invested in a business on the understanding that it will be used to purchase permanent assets rather than to cover day-to-day operating expenses.

Capital gain
When an asset is sold for more than the initial purchase cost, the profit is known as the capital gain. This is the opposite to capital loss, which occurs when an asset is sold for less than the initial purchase price.

Capital under management
This is the amount of capital that the fund has at its disposal, and is managing, for investment purposes.

The total amount of money being transferred into and out of a business, especially as affecting liquidity.

Cashflow forecast
Estimate of the timing and amounts of cash inflows and outflows over a specific period (usually one year).

Any two parties that invest alongside each other in the same company.

Common shares
Shares representing ownership and voting rights in a business.

Company buy-back
The process by which a company buys back the stake held by a financial investor, such as a private equity firm. This is one exit route for private equity funds.

The process whereby an organisation provides goods or services to a customer and then allows certain amount of time for them to pay for them to pay for it.

Credit period
The time allowed to customers to pay for goods or services received.

A person or company to whom money is owing.

Cross company guarantee
A guarantee given to a bank by several companies that are part of the same group of companies, when the bank lends money to one of the companies in the group.

Current assets
Items that are either cash now or are expected to be turned into cash within one year's time. These include that are either turned into cash within one year's time. These include cash, debtors, stock and marketable securities.

Current liabilities
Financial obligations to another organisation that will have to be paid within one year. These include accounts payable, bank loans and short-term notes.

Current ratio
Ratio of total current assets to current liabilities.

Current return
Income that is received during the period of the investment (e.g. dividends) as opposed to the capital gain portion received on an investment at the end of the investment period.


A debenture is a medium- to long-term debt instrument used by large companies to borrow money, at a fixed rate of interest.

In terms of financing a business there is a distinction between debt and equity. Debt is money borrowed from a bank or other institution which is subject to interest paid at a specified rate. The total borrowed must be repaid either on a specified date or on demand.

Debt to equity
A comparison of debt to equity in a business’ capital structure.

Organisations or people who owe money.

Debtors days
Also known as the 'average collection period' this is the financial ratio which (on average) shows how efficient the organisation is at collecting what it is owed.

If the terms of an investment agreement/loan are broken, then the business is in default.

A notional figure charged to the organisation's overheads to allow for the reduction in the value of fixed assets due to wear and tear over the lifetime of the asset. These fixed assets are shown on the balance sheet after the relevant change for depreciation has been deducted.

Development capital
Capital for established companies that are breaking even or trading profitably. The company uses the capital to finance strategic moves, such as expansion and growth.

A dividend is the amount of a company’s profits paid to shareholders each year.

This is the actual act of transferring the agreed money from the investor to the investment target.

Due Diligence
Investing successfully in private equity at a fund or company level, involves thorough investigation. As a long-term investment, it is essential to review and analyse all aspects of the deal before signing. Capabilities of the management team, performance record, deal flow, investment strategy and legals, are examples of areas that are fully examined during the due diligence process.


This is when a company is in an early stage of development. This means that the company has only recently been established, or is still in the process of being established – it needs capital to develop and to become profitable. Finance Wales is able to offer finance to early-stage business.

Employee Buy-Out (EBO)
The purchase of a business by its employees either directly or via a trust.

In a functioning venture, equity is the total of the invested capital and the retained profits during the operating life of the business. In the case of a business’ demise or dissolution, equity refers to the residual value of a business or investment after all debts and other claims are settled, i.e. the amount to which the owners are entitled.

Equity financing
Capital invested in a business for the medium to long term in return for a share of the ownership and sometimes an element of control of the business.

Evergreen fund
A fund in which the returns generated by its investments are automatically channelled back into the fund rather than being distributed back to investors. The aim is to keep a continuous supply of capital available for further investments.

An exit is the means by which a fund is able to realise its investment in a company – by an initial public offering, a trade sale, selling to another private equity firm or a company buy-back. See Finance Wales' exits.

Exit route
Method by which an investor intends to or has realised an investment. This could range from a trade sale, through to a management buyout by the directors, to flotation on the stock exchange.

Expected return
The total amount of money (return) an investor anticipates receiving from an investment.

Costs incurred by a project or business and therefore money that is leaving it.


Failed business
A company ceasing operations following its inability to make a profit or to bring in enough revenue to cover its expenses.

The purchase by a factor of invoices at a discount to provide immediate cash.

Fixed assets
Land, buildings, plant, equipment and other assets (with a life exceeding one year) that cannot be easily moved or sold quickly and that are acquired for carrying on the business of a company (cf. current assets).

Fixed expenses/overheads
Cost of doing business, which does not change with the volume
of business. Examples might be rent for business premises, insurance payments, heat and light.

The launching or financing of a business through the trading of its shares on a stock

Follow-on funding
Companies often require several rounds of funding. If an investor has invested in a particular company in the past, and then provides additional funding at a later stage, this is known as ‘follow-on funding’. Finance Wales is able to offer follow-on funding to the businesses it works with.

The act of purchasing an exporter’s receivables (the amount an importer owes an
exporter) at a discount by paying cash. The importer is then obliged to pay its debt to the forfaiter,
i.e. the purchaser.

The act of providing financial resources to finance a need, sources of funding include credit, venture capital, donations, grants, savings, subsidies, and taxes.

Fund raising
The process by which a private equity firm solicits financial commitments from limited partners for a fund. Firms typically set a target when they begin raising the fund and ultimately announce that the fund has closed at such-and-such amount.


The ratio of debt to equity of a company. In general, the higher the gearing, the higher the percentage of annual profits which must be used to pay interest and the greater the vulnerability of the company to events outside its control such as a rise in interest rates
or a fall in sales.

A sum of money given to a business by a government, local authority or public fund to finance a specific business activity.

Gross profit
The profit earned by a business from trading, prior to the deduction of overhead expenses.

Growth capital or development capital
Long-term equity capital raised to allow a company to grow ambitiously without relying wholly on short-term bank debt.

A promise by a guarantor to repay a loan or part of a loan on behalf of the borrower if the borrower cannot.

A person who accepts responsibility for the repayment of a financial obligation should the original borrower default on the terms of repayment or fail to repay the obligation altogether.


Hire purchase
Method of financing the purchase of assets. Under a hire purchase agreement, the business pays an initial deposit with the remainder of the balance and interest being paid over a period of time. At the end of the period, the asset is owned by the business.

Holding period
This is the length of time that an investment is held. For example, if Company A invests in Company B in June 1996 and then sells its stake in June 1999, the holding period is three years.

Hostile takeover
The takeover of a company against the wishes of the incumbent management or board.


An investment is said to be illiquid if it cannot easily be turned back into cash quickly and at a low cost. Shares in smaller companies are more likely to be illiquid than those in larger companies; they will be less easy to sell and you are likely to find that the spread or difference
between the buying and selling price is much wider.

The money that is being generated and received by the organisation as a consequence of carrying out its operations or receiving funding and subsidy for those operations. Initial public offering (IPO): The initial offer and sale of a company’s shares on a public market
such as a stock exchange.

An entity designed to nurture business ideas or new technologies to the point that they become attractive to venture capitalists. An incubator typically provides physical space and some or all of the services – legal, managerial, technical – needed for a business idea to be developed. Private equity firms often back incubators as a way of generating early-stage investment opportunities. 

When a company is unable to pay debts owed.

A charge for the use of money supplied by a lender.

Anyone, such as an accountant or banker, in a position to bring together the principals in a deal or prospective deal.

Putting money into an asset with the expectation of capital appreciation, dividends, and/or interest earnings.

Investment ready
Putting money into an asset with the expectation of capital appreciation, dividends, and/or interest earnings.

Investment agreement
This is a summary of the main terms of the investment into the company. Typically it will describe the amounts and types of shares to be issued. It will set out the manner in which the investors’ capital is to be returned and the way in which the investors are to be protected at such time as their money is at risk. It will also include warranties that certain states of affairs prevail in relation to the company.

Investment capital
Long-term equity capital provided by institutions to facilitate growth in private companies. To some extent the term is interchangeable with venture capital. However, it emphasises that such capital is available for growth projects being carried out by a range of young and established businesses, whereas venture capital is mainly provided for MBOs or MBIs that change the ownership of the business.

Providers of capital for the long term, as distinct from lenders of short-term capital. Investors have rights which lenders do not enjoy – and accept risks which lenders are not exposed to.

Intercompany loans
Intercompany loans are loans made from one business unit of a company to another,


Joint venture
The cooperation of two or more individuals or businesses in a specific business enterprise rather than a continuing relationship. It can be simply an agreement between two parties as to who does what and gets what or it can be an entirely new company set up for the specific purpose of pursuing the joint business.


Lead investor
The firm or individual that organises a round of financing, and usually contributes the largest amount of capital to the deal.

Payment for an asset by regular payments over a fixed period. An ‘off-balance sheet’ method of financing capital expenditure.

Someone who makes funds available to another with the expectation that the funds will be repaid, plus any interest and/or fees.

Letter of credit
A guarantee given by a bank on behalf of an importer to pay an exporter, on presentation of specified documents that represent the supply of goods within a specific time. Used in international trade, it permits two parties to exchange ownership and possession of goods
and the money to pay for them.

The amount of debt used to finance business assets.

Leveraged buy-out (LBO)
This is an MBO in which the equity capital is supported by a very large amount of debt.

A company's legal debts or obligations that arise during the course of business operations.

Limited company
In a limited company, the debts of the company are separate from those of the shareholders.

Limited partners
Institutions or individuals that contribute capital to a private equity fund. LPs typically include pension funds, insurance companies, asset management firms and fund of fund investors.

Limited partnership
The standard vehicle for investment in private equity funds. A limited partnership has a fixed life, usually of ten years.

Line of credit
An agreement negotiated between a borrower and a lender that establishes a maximum amount against which a borrower may draw. The liability of the borrower at any point is only the amount drawn against that maximum. The agreement also sets out other conditions, such as how and when money borrowed against the line of credit is to be repaid.

The sale of all of a company’s assets, for distribution to creditors and shareholders in order of priority. This may be as a result of the failure of the company or by agreement amongst shareholders.

When a company trades its shares on a stock market, it is said to be “listed”.

Loan capital
Form of debt which has to be repaid at a specified time in the future (as distinct from a bank overdraft which may be called in at short notice).

Lock-up period
A provision in the underwriting agreement between an investment bank and existing shareholders that prohibits corporate insiders and private equity investors from selling at IPO.

Loan capital
Form of debt which has to be repaid at a specified time in the future (as distinct from a bank overdraft which may be called in at short notice).

Loans - see debt financing

The term used when income for a project or business is less than expenditure.


Management buy-in (MBI)
An external management team buys into a target company.

Management buy-out (MBO)
The management team buys the company it is running.

Management fee
This is the annual fee paid to the general partner. It is typically a percentage of limited partner commitments to the fund and is meant to cover the basic costs of running and administering a fund.

The mutual combining of two or more companies in the interest of all businesses involved.

Mezzanine financing
A type of loan finance that sits between equity and secured debt. A loan with equity provision– through warrants or options – is sometimes incorporated into the deal. Finance Wales can structure mezzanine finance for businesses.


Net profit
The profit of a business after taking account of all overheads.

Non-executive director
A part-time director who shares all the legal responsibilities of executive directors on the board of a company, but who does not get involved in the day-to-day running of the company.

A document acknowledging that a debt exists and promising to repay that debt.


Operating loan
A loan intended for short-term financing to support cash flow or cover day-to-day operating expenses. Loans of this type are part of the line of credit.

The right to buy stock in a company after a certain period of time.

Overdraft facility
An amount of money that a business with a bank account is temporarily allowed to borrow from a bank at an interest rate and over an agreed period of time.

Overdrawn directors current account
This is a record of any transactions between a director and the company which have resulted in being overdrawn.

Non-labour expenses incurred in the operation of a business that are not directly related to the purchase of goods or services being sold by the business.


A business that is owned and run by two or more individuals who are each responsible for the debts of the business. The company is not a separate legal entity.

Personal guarantee
An unsecured written promise from a business owner and or business executive guaranteeing payment on an equipment lease or loan in the event the business does not pay.

The spread of investments into the various companies is referred to as the portfolio.

Portfolio company
This is one of the companies backed by Finance Wales.

Preference shares
Like common shares, they represent ownership in a business. However, these shares are usually non-voting and have a fixed dividend rate. In the event of liquidation, preferred shareholders rank ahead of common shareholders but behind creditors for claims against the assets of the business.

Private equity
This refers to the holding of stock in unlisted companies – companies that are not quoted on a stock exchange. It includes forms of venture capital and Management But Out financing.

Profit and loss account
A financial statement presenting the revenue, expenses and profits (or losses) of an organisation during a specified period of time.


This is a structure that determines the eventual equity allocation between groups of shareholders. A ratchet enables a management team to increase its share of equity in a company if the company is performing well.

This refers to a change in the way a company is financed. It is the result of an injection of capital, either through raising debt or equity.

The common term for administrative receivership.

Redeemable shares
Shares which can be repurchased by the company at a predetermined value.

The probability that actual future returns will be less than expected returns.

Risk capital
See venture capital.


A security is a negotiable financial instrument that represents some type of financial value.

Secondary buy-out
A common exit strategy. The institutional investor from the original buy-out exits selling their share typically to another institutional investor.

Secondary market
The market for secondary buy-outs.

Seed capital
The provision of very early stage finance to a company with a business venture or idea that has not yet been established. Finance Wales is able to provide seed capital to tech start-ups from the Wales Technology Seed Fund.

Any person, company or other institution that owns at least one share of a company’s stock. Shareholders are a company's owners.

Small to medium-sized enterprise

Spin-out firms
These are captive or semi-captive firms that gain independence from their parent organisations.

Social enterprise
A social enterprise is an organization that applies commercial strategies to maximize improvements in human and environmental well-being, rather than maximizing profits for external shareholders.

Sole trader
A type of business entity that is owned and run by one natural person and in which there is no legal distinction between the owner and the business.

Start-up company
A company that is in the first stage of its operations.

Succession management
This is the strategic and systemic process for creating successors at many levels of the organisation. Finance Wales is able to provide funding to facilitate this process i.e. a management buy-out or management buy-in

Supported personal guarantee
A promise given by an individual to ensure that a third party fulfils its obligations and/or a promise to fulfil those obligations in place of a third party if that third party fails to do so.

The sharing of deals between two or more investors, normally with one firm serving as the lead investor. Investing together allows venture capitalists to pool resources and share the risk of an investment. Finance Wales has co-invested with syndications on many occasions.


The duration of a loan. Also any of the clauses which form part of a contract.

Term sheet
A summary sheet detailing the terms and conditions of an investment opportunity.

When a private equity firm has raised a fund, or it wishes to announce a significant closing, it may choose to advertise the event in the financial press – the ad is known as a tombstone. It normally provides details of how much has been raised, the date of closing and the lead investors.

Trade sale
Sale of a company to another company. As a form of exit, it is an alternative to flotation and more common.

Turnaround finance is provided to a company that is experiencing severe financial difficulties. The aim is to provide enough capital to bring a company back from the brink of collapse. Turnaround investments can offer spectacular returns to investors but there are drawbacks: the uncertainty involved means that they are high risk and they take time to implement.

Revenue income that a company receives from its normal business activities


The difference or gap between what was planned as part of a budget (the budgeted figure) and what actually happened. Used as a tool for budgetary monitoring and control.

Venture capital
The term given to early-stage investments. Finance Wales is able to provide venture capital to early-satge businesses in Wales.

Vendor Initiated Management Buy-Out (VIMBO)
The vendor/owner of a business leads/drives the MBO process, part funding it through deferred consideration.


Working capital
The amount of money a business needs to cover its day-to-day activities such as paying wages, buying raw materials and paying bills. The main sources are current assets but a business’ current liabilities also have to be taken into account when working out how much money a business has at its disposal.