The Value Equation

Glossary of Terms

Asset efficiency

Improving a company's current equity return through a reduced business investment achieved by less invested in hard assets and a faster cash flow cycle.

Business investment

Cash assets at cost, less any non-interest-bearing obligations.

Capital efficiency

Improving a company's current equity return through capital stack adjustments that optimize OPM and equity use while limiting OPM payments and cost.

Capital stack

The various sources of capital used to finance business investment that bear a cost, including OPM, YOM, and OPM equity, used to finance a business investment.

Cash flow cycle

The time between the beginning of product creation and the collection of cash from the ultimate product sale. Slow cash flow cycles raise business investment through elevated inventory and accounts receivable levels.

Conglomerate

A company having diversified, unrelated business holdings.

Core competencies

Essential skills tethered to the problems and stakeholders that businesses are designed to address.

Cost of capital

The total annual OPM cost, together with the desired annual rate of return for equity investors shown as a percentage of the combined amount of OPM and equity.

EBITDA

Earnings before interest, taxes, depreciation, and amortization.

EBITDAR

Earnings before interest, taxes, depreciation, amortization, and rents on assets you could have otherwise purchased. This variable is generally preferable to EBITDA when computing the V-variable, ...