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Glossary of Terms

Set out below is a Glossary of standard transactional terminology for private equity and corporate finance transactions. Use the filter menu if you are looking for a specific term, or to navigate the Glossary alphabetically.

Capital gainThe profit remaining when an asset is sold for more than its original purchase price. Capital gains are subject to tax so the investor will not necessarily receive the total profit made. A capital loss is when the asset is sold for less than its original purchase price.

CapexCapital expenditure

ROCEReturn on Capital Employed

BondA debt instrument issued for a period of more than one year with the purpose of raising capital by borrowing. The interest rate and maturity date is often fixed so they are low risk. As a result of this the return is often low.

Debt financingThe use of borrowed money to finance a business. Different forms of debt can be used to raise money for working capital or capital expenditure such as overdrafts, bank loans, lease financing, commercial mortgage, invoice finance, asset finance or bonds. The loan can be secured or unsecured, short or long-term. The lender receives interest at an agreed rate and if the loan is not repaid may be entitled to take control of or sell assets which are owned by the company.

Development capitalInvestors make investments of up to £5 million. They expect the companies to be relatively mature. The money is used to make big changes to the company such as entering new markets, buying other companies or launching new products.

Equity financingFinancing business operations by selling share capital in the company as opposed to taking on debt. The shareholders may be entitled to dividends. This is higher risk than lending and consequently the returns are usually greater.

Private equityA term which covers a range of transactions in which the source of finance is usually a fund established to invest specifically in unquoted companies rather than in publicly quoted shares. It includes forms of venture capital and MBO financing.

RecapitalisationThis is a change in the way a company is financed. It is a result of an injection of capital through either equity or debt.

Seed capitalAn institutional equivalent of a Business Angel. They provide early stage finance to a company with a business venture or idea which has not yet been established. They may be in the form of funds managing other people's money or may be companies investing in their own right.

Venture capitalEquity finance in an unquoted, young company which allows it to start-up, expand or restructure. It is cheaper that bank finance but does involve handing over some control of the company.