Understanding the Jargon

Not completely sure what the various valuation terms are? We'll explain them to you and how they fit into your valuation engagement.

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Glossary of Business Appraisal Terms

The glossary below provides definitions of terms strictly from an appraisal perspective and an economic point of view. The broadly described definitions are introductory in nature. The glossary is not intended to and does not provide legal advice or counsel in any way and should not be used for this purpose.



Appraisal Report: Periodic analysis of the condition and performance of a company or earning asset

Appraiser: a person who performs valuations and analyses of businesses, practices and earning assets

ASA: accredited Senior Appraiser designation granted by the American Society of Appraisers

Arbitration:Resolving appraisal disputes by hearings before qualified experts

Allocation of purchase price: defining a transfer price in terms of the specific values attributable to all assets and liabilities


Bankruptcy reorganization plans: formulation and review of proposals for the continuance of a financially troubled enterprise

Balance Sheet: statement of assets and liabilities (Compilations, Reviews, Audits)

Buyers market: an auction in which purchasers have the most influence over price paid and received

Buy-out: the required price to acquire all outstanding shares or ownership

Bid: The price a buyer is willing to pay

Business Cycle: a period which measures a recovery, recession followed by a recovery in business activity: 5 years in length measured by the NBER

Buy-Sell Agreements: a contract specifying terms for acquisition of shares: can be funded with life insurance and administered by a trustee


CBA: Certified Business Appraiser: designation of the IBA

Callable & exchangeable common: shares with a senior capital position which can be exchanged into junior equity

Capitalization Rate: A percentage which defines an investment return

Cash Flow: the amount of cash received and spent by a company

Closed End Fund (trust): a fund which does not offer shares after the initial offering

Control: the ability to define policy of a company or investment venture

Charitable Remainder Trust:An irrevocable trust which provides for and maintains two sets of beneficiaries. The first set are the income beneficiaries who receive the income during their lifetime and the remainder beneficiaries who receives the residual value after the income beneficiaries have passed away

Charitable Lead Trust:a property is conveyed and the income it is donated for a specified term after which the property at it current value is distributed to beneficiaries.


Dilution - Reverse Dilution: percentage ownership in a company reduced by issuance of additional shares or (reverse) increased by retirement of shares

Discounts LOM: discounts for lack of marketability from the price of an asset to reflect the delays or other impediments to its prompt sale or disposition

Discounted Cash Flow Model: the present worth of future benefits of a company defined by a model of its performance

Divestitures: the sale or other disposition of equity within an enterprise


Employee Stock Ownership Plan: tax deductible contributions are used to acquire a company’s shares into a plan for the benefit of personnel.

Equity: the ownership of an enterprise defined as the difference between the total assets in excess of liabilities

Equity equivalent: liabilities payable to owners which are ownership from an economic point of view

ERISA (valuations for ESOP trustees): Employee Retirement Income Security Act requires periodic appraisals of companies for use by a trustee who administer its ESOP

Estate: gift valuations: Appraisal of earning assets which can be taxed or which is tax exempt.


Fees: reasonable: as proposed: Amounts paid for appraisal services: defined by a proposal defining the scope of services and the terms of payment

Financial Statements: compilation: review- audit: accounting statements which measure the condition and performance of an enterprise based on three tests of affirmation by an accountant

Financing: Securing capital for a business or venture

Fairness Opinion: An appraisal which affirms the terms of an offering from an economic point of view

Formulating a bid: defining a reasonable price to be paid

FLP: Family Limited Partnership LLC: A partnership formed for the purpose of managing a portfolio of assets by a family unit


General Partner: The manager of a partnership who assumed liability. A Managing Member of a limited liability company has similar responsibilities and economic loss exposure-

Going Private ESOP: Bidding by an ESOP for publicly owned shares which can reduce capital gains taxes paid by sellers and reduce acquisition costs for a buyer

Going Public: reverse merger: Becoming a public company by acquiring a public company and combining with it

Goodwill: The intangible asset of a company which reflects its going concern character, its acquired name and reputation among other attributes.


Holding Period Gain/Loss: the difference between a purchase and sale price expressed in percentage terms reflecting the period in which the asset was held

Hurdle rate: the required rate of return in a discounted cash flow analysis, above which an investment makes sense and below which it does not.


IBA: the Institute of Business Appraisers, grantor of the CBA designation

Interest and principle deductions: debt service costs which are tax deducted in an ESOP format

Independence of an appraiser: the objectivity of an appraiser whose opinions are prepared solely to be defended and not to serve a legal or economic strategy or tactic.

Intangible Assets: something of value which can not be seen such as a copyright, patent, agreement, software or goodwill


JIT - Just in time: an operating policy which provides for deliver at the instant that an asset is needed

Joint Venture: an enterprise formed by individuals or corporations which provides for a sharing of obligations, potential gains and losses

Junior debt: an obligation which is paid only after the repayment of an obligation which is defined as having a priority position


Kurtosis: a measure of whether the data are peaked or flat relative to a normal distribution, that is, data sets with high kurtosis tend to have a distinct peak near the mean, decline rather rapidly, and have heavy tails.

Key Person value insurance: the value (cost) associated with replacing important individuals in a senior management team. Trusteed Cross Purchase Agreements depend on this value and typically arrange for life insurance to fund such purchases


Leverage use of - Lev ESOP - buy out: the degree to which an investor or business utilizes borrowed money - when used with an ESOP the leverage service expenses can be materially reduced.

Liability, current value: the obligations of an enterprise. Long term liabilities can be valued in present worth terms

Liquidity factor: the number of units traded per dollar change in price.

LLC- Limited Liability Company: a business form which provides for allocation of risk in a similar manger as in a partnership

Lost Profits and Opportunity Analyses: valuation of monetary loss arising from changed policies or other economic events.


Marketability: Disc for lack of - the cost which must be paid to turn an asset into cash, based on restrictions, the passage of time or similar characteristic.

Middle Market Company: a publicly owned company with a market capitalization of between $1 billion and $5 billion. Some middle market companies are privately owned and have resources that are below these dollar levels


Negotiating appraisal issues: courts and other reviewers of valuation opinions can ask appraiser appraisers to defend their opinion in a forum where opposite opinions are expressed. Issues can be negotiated on the basis of the value of what is given and received by parties to a dispute such as a divorce or business dissolution.

Net Present Value: the current monetary value of an earning asset

Non-operating income: income received by as business from assets or operations which are outside its typical or normal framework.


Operating Statement: a financial statement which presents the total revenues received and expenses paid by an enterprise

Option: first refusal: to buy - an agreement which allows an investor to acquire or sell an asset on specific terms for a specific time period.

Offer - entertaining one: the price at which a holder of an asset will consider selling it.

Opportunity Cost: the value which must be sacrificed or given up as a result of an economic decision and the passage of time.


Private Equity: any type of equity investment in an asset in which the ownership is not freely tradeable on a public stock market. Private equity refers to the manner in which the funds have been raised, namely on the private markets, as opposed to the public markets.

Premium adjustments: additions to the value of an asset (typically) shares or a block of ownership to reflect greater control or similar attribute

Present Worth: the current value of an asset which has earning characteristics over a period or periods into the future.


Qualified appraiser: under section 6695A of the Pension Protection Act - the Definition of an experienced appraiser who has earned a professional designation and adheres to standards in the delivery of objective value opinions

Q ratio: the market value of a company divided by the replacement value of the firm's assets:


REIT -real Estate Investment Trust: is a tax designation for a corporation investing in real estate that reduces or eliminates corporate income taxes. In return REITs are required to distribute 90% of their income, which may be taxable in the hands of the investors. The REIT structure was designed to provide a similar structure for investment in real estate as mutual funds provide for investment in stocks

Real estate appraisal: a report which supports an opinion of value for real estate based on its cost, market or earnings characteristics

Restricted Shares: ownership in an enterprise which can be transferred only under specified conditions

Rolling Statement: an operating statement prepared for a 12 month period ending within a fiscal year. These statements are constructed by adding the interim year performance to the most recent year end statement.

Roll-over under s 1042: Section 1042 of the Internal Revenue Code provides for a carryover cost basis under certain condition, when Qualified Replacement Securities are purchased when, for example a shareholder sells shares into an ESOP.

Risk premium: an adjustment applied to a capitalization rate to reflect the added exposure attributable to a particular investment when compared to another. Such premiums can be applied when comparing public to privately owned securities


Shareholder dispute resolution: differences in value opinions between shareholders by the introduction of one or more appraisal reports.

Sellers Market: the transfer of ownership of an asset in an auction environment where the weight of influence over price is described as weighted in favor of those seeking sell.

Stock purchase option: the right but not the obligation to acquire a security at a fixed price for a specified term

Size adjustment: additions to - or subtractions from a capitalization rate or other security characteristic which accounts for the amount of capital, sales, or other attribute of a company


Term to maturity: the prescribed period between the present and the date when security is turned into cash or when its conditions expire.

Term Insurance: a contract between an underwriter and an insured which provides solely for a death payment during a specified period.

Turnaround Analysis: a study of potential earnings and the probability of moving from unfavorable to favorable. The analysis typically defines the required period together with scenarios of changes in ownership value.


USPAP - Uniform Standards of Professional Appraisal Practice: published by the Appraisal Foundation, an organization authorized by Congress to self regulate all disciplines of the appraisal profession.

Un-leveraged Beta: the calculation of a market beta attribute adjusted for its existing debt. These calculations allow the more meaningful comparisons between companies in the same industry which have differing debt capital structures.


Value - current - desktop: restricted -appraisal opinion terms which are qualified on the basis of earning time lines and the depth of analysis of a particular company or investment

Venture Capital: investment in an enterprise based on projections, scenario analysis or similar expectation

Vesting - schedule: a time line which defines measured additions to ownership which is typically used in employee benefit plans such as ESOPs.

Voluntary liquidation: a decision made without duress when an investor concludes that a minimum or hurdle rate of return is not achievable.


Warrants to purchase: like an option, gives the holder the right but not the obligation to buy an underlying security at a certain price, quantity and future time. However, unlike an option it is issued by a company. The security represented in the warrant (usually share equity) is delivered by the issuing company instead of an investor holding the shares.

Welfare Benefit Plan: a Welfare Benefit Plan is an employee benefit program that is sponsored by the employer and which provides welfare benefits to its participants. It is a "single employer" welfare benefit plan, meaning that all of the employee benefits are paid for by the same company. There is no pooling of benefits among the employees of various companies. Since Welfare Benefit Plans are for the benefit of employees and the business owners, the assets in the plan should not normally be available to creditors of the business.

Working Capital: the difference between the current assets and liabilities of a company. “Required” working capital is defined by calculation of a cash turnover cycle


XR - ex rights: a security price reduced by the value of a recently declared purchase right


Year to date performance: calculation of the operating character of an enterprise based on the months in the current year compared the same period in prior years. This is in contrast to rolling performance which measures the operating character for the past 12 months ending during a financial reporting period.

Yield Curve: a chart which presents the return available from a security, typically a fixed income security, at several maturity dates. A connection of these return points results in a line or curve

Yield to Maturity: a rate of return measuring the total performance of a bond (coupon payments as well as capital gain or loss) from the time of purchase until maturity


ZFR: Zweifler Financial Research: a business valuation practice organized in 1982 with clients in most states of the Union, and many foreign countries. ZFR provides a broad array of valuation services and counsel

ZAS: Zweifler Appraisal Service, Incorporated: the parent of Zweifler Financial Research. ZAS provides specialized valuation counsel beyond the preparation of reports and litigation support.

Z score- (Altman’s): combines five common business ratios into a weighted system calculated to determine the likelihood of a company going bankrupt.

Zero Sum Game: a situation in which a gain by one person or side must be matched by a loss by another person or side.