Glossary

Detail-heavy slides that sit at the end of a PMC deck. Unlike main-flow slides, appendix slides should be self-explanatory — the reader, not the presenter, has to extract the meaning. The exception to PMC's general rule that slides should be in the Presenting style.

• ace slide making

When a PE fund's GP draws down committed capital from LPs to fund an investment. LPs commit upfront but only fund as deals appear during the investment period.

• private equity

The share of profits a private equity GP earns above a hurdle rate, typically 20% of fund returns. The mechanism that aligns GP incentives with LP outcomes.

• private equity

The second derivative of price with respect to yield — the curvature of the price-yield relationship that duration alone misses. Standard bonds have positive convexity; callable corporates and inflation-linked issues can have low or even negative convexity.

• bonds

The percentage of a bond's face value paid as interest each year, fixed at issuance. Stated in the ticker — for example, MBONO 7.75 11/23/34 carries a 7.75% coupon and matures on 23 November 2034.

• bonds

An independent assessment of an issuer's ability to repay its debt. The major scales (Fitch / S&P) run AAA at the top down through D for default; the cut-off between BBB and BB separates investment grade from high yield.

• bonds

Valuation method that derives intrinsic value as the present value of projected free cash flows plus a terminal value, discounted at the firm's cost of capital.

The weighted-average time it takes to receive a bond's cash flows. Modified duration translates that figure into a price-sensitivity rule of thumb: a bond with modified duration of 5 loses roughly 5% of its price for every 1% rise in yield.

• bonds

EBIT plus non-cash D&A. A rough proxy for operating cash flow before working capital, and the most common base for private-market valuation multiples and credit ratios.

• private equity

The set of items that reconcile enterprise value to equity value: net debt, minority interest, pension underfunding, preferred stock, and other claims senior to common equity.

• private equity

Trading multiple computed as enterprise value divided by EBITDA. The default valuation reference in most private equity transactions because it is independent of capital structure.

• private equity

The principal amount the bond will repay at maturity, and the base on which coupon payments are calculated. Typically €1,000 or $1,000 per bond. A bond trading above face value is at a premium; below, at a discount.

• bonds

Cross-border investment by an entity in one country into a business interest in another. Strong FDI inflows typically appreciate the local currency by increasing demand for it.

• bonds

The private equity firm that manages a fund — sources deals, executes investments, drives operational change, and manages exits. Earns a management fee plus carry on profits above a hurdle.

• private equity

Bonds rated below BBB- (or Baa3 on Moody's). Pay higher coupons to compensate for elevated default risk. Sometimes called "junk bonds." The opposite of investment grade.

• bonds

Bonds rated BBB- (Baa3) or higher — judged to have adequate-to-strong capacity to repay. Many institutional mandates can only hold investment grade paper, which is a major reason BBB-rated issuers fight hard to avoid being downgraded.

• bonds

The discount rate at which the net present value of an investment's cash flows equals zero. The headline annualised return measure for private equity deals; healthy buyout deals target 15–30%.

• private equity

Japanese term for continuous improvement — small, ongoing positive changes that compound into significant gains. Applied to slide-making: each iteration sharpens the deck a little more, and the cumulative effect over many revisions is what separates a good slide from a great one.

• ace slide making

An acquisition financed largely with debt secured against the target company's own cash flows and assets. Equity contributes a minority of the purchase price and benefits as debt is repaid from operating cash flow.

• private equity

An investor in a private equity fund. Commits capital that the GP draws down over time, has limited liability, and limited involvement in day-to-day investment decisions.

• private equity

Total cash returned to investors divided by total cash invested. A simple, time-insensitive measure of how many times the original capital was returned. A 2.0–2.5× MOIC over five years is a typical buyout target.

• private equity

Total interest-bearing debt minus cash and cash equivalents. Subtracted from enterprise value to bridge to equity value in any standard transaction.

• private equity

Current operating assets minus current operating liabilities. Changes in NWC are subtracted from operating cash flow because growing businesses tie up cash in receivables and inventory.

• private equity

The yield spread of a bond over a benchmark curve, after stripping out the value of any embedded options (calls, puts, prepayment rights). The cleanest way to compare credit-driven yield premia across bonds with different optionality.

• bonds

Central bank policy of buying long-dated government bonds (and sometimes corporate or mortgage paper) on the open market to push yields down and inject liquidity. Bullish for bond prices because it removes supply and signals dovish intent.

• bonds

The funding ledger of an LBO transaction. Uses (equity purchase price, refinanced debt, fees) must equal Sources (new debt tranches, sponsor equity, rollover equity, cash on balance sheet).

• private equity

A PowerPoint and Excel add-in widely used in management consulting for fast, professional chart and layout work. Provides chart types (waterfalls, Mekko, build-up/build-down), automatic alignment and distribution tools, and a data-link to Excel. The single biggest productivity multiplier for slide-making at PMC.

• ace slide making

The blended after-tax return debt and equity holders demand for financing the firm. The discount rate in an unlevered DCF.

The plot of yields against maturity for a single issuer's bonds. Normally upward-sloping; a flat curve signals uncertainty, an inverted curve has historically been one of the most reliable recession indicators.

• bonds

The total annualised return an investor earns by buying a bond at its current price and holding it to maturity, assuming all coupons are reinvested at the same rate. Captures coupon income plus the pull-to-par on price.

• bonds