Glossary

Glossary

Active investing: Investing in which decisions are made to create a portfolio seeking to outperform an index.

Book Value: Book Value is the value of an asset as carried on a company’s balance sheet.

Capital Expenditure (capex): Capital Expenditure (capex) is the amount spent to acquire or upgrade productive assets in order to increase the capacity or efficiency of a company for more than one accounting period.

Compounder:“Compounder” is a reference to companies believed to be able to consistently compound shareholder wealth.

Conglomerates: A conglomerate is a company that owns controlling stakes in a number of separate businesses.

Credit Default Swap: Credit default swaps are a type of insurance against default risk by a particular company. The company is called the reference entity and the default is called credit event. It is a contract between two parties, called protection buyer and protection seller. Under the contract, the protection buyer is compensated for any loss emanating from a credit event in a reference instrument. In return, the protection buyer makes periodic payments to the protection seller.

Derivative: A derivative is a contract between two or more parties whose value is based on an agreed-upon underlying financial asset or set of assets.

Discount Rate: Discount rate refers to the interest rate used in discounted cash flow analysis.

Discounted Cash Flow (DCF): Discounted cash flow (DCF) is a valuation method used to estimate the attractiveness of an investment opportunity. DCF analysis uses future free cash flow projections and discounts them to arrive at a present value estimate, which is used to evaluate the potential for investment.

EBITDA: EBITDA is a company’s earnings before interest, taxes, depreciation and amortization.

Economic Moat: An economic moat refers to a business’ ability to maintain competitive advantages over its competitors in order to protect its long-term profits and market share from competing firms.

Enterprise Value (EV): Enterprise value (EV) is a company’s market capitalization plus debt, minority interest and preferred shares, and less total cash and cash equivalents.

Enterprise Value to Sales (EV/sales): Enterprise value to sales (EV/sales), is a valuation measure that compares a company’s enterprise value to the company’s sales.

FANG: FANG securities refers to a popular acronym for Facebook, Amazon, Netflix, and Google (now Alphabet).

Free Cash Flow (FCF): Free Cash Flow (FCF) is a measure of a company’s ability to generate the cash flow necessary to maintain operations. Generally, it is calculated as operating cash flow minus capital expenditures.

Free Cash Flow Yield (FCF Yield): Free Cash Flow Yield (FCF Yield) equals a company’s free cash flow per share divided by the current market price per share.

FX: FX is an abbreviation for foreign currency.

Hedge Funds: Pooled funds generally available to accredited investors that invest in a variety of assets.

Intrinsic Value: Intrinsic Value is the estimated appraisal value of a business, calculated using fundamental analysis.

Leverage: Financial leverage refers to the use of debt to purchase assets.

M&A: M&A stands for mergers and acquisitions.

Margin of Safety: “Margin of Safety” is a reference to the difference between a stock’s market price and Southeastern’s calculated appraisal value. It is not a guarantee of investment performance or returns.

Momentum investing: An investment strategy that attempts to take advantage of market trends.

NAV: Net asset value.

Operating Income (OI): Operating income (OI) is the income from a company’s primary business operations, excluding extraordinary income and expenses. It is also referred to as earnings before interest and taxes (EBIT).

P/E Premium: P/E Premium is the amount a stock’s Price/Earnings ratio exceeds that of another stock or average of a group of stocks.

Passive investing: Creating a portfolio intended to track the returns of an index or benchmark.

Price / Earnings (P/E): Price / Earnings (P/E) is the ratio of a company’s share price compared to its earnings per share, expressed as a number or as a multiple of earnings per share (P/E multiple).

Private equity: Investing through an entity or vehicle that is not publicly listed or traded.

Private Market Value (PMV): Private market value (PMV) is the break-up market value of all divisions of a company if divisions were each independent and established their own market stock prices.

Quant power: “Quant power” is a reference to quantitative investment strategies, which analyze historical data and use developed algorithms to assist in making investment decisions.

Reinsurance: Insurance that is purchased by an insurance company in order to transfer certain amounts of risk.

Return on Equity (ROE): Return on equity (ROE) is a measure of profitability that calculates how many dollars of profit a company generates with each dollar of shareholders’ equity.

Shadow Indexing: Shadow Indexing (sometimes called closet indexing) is a term used to describe funds that claim to actively manage investments but have portfolios not much different from the benchmark index.

Spin Off: A spin off is a type of corporate action where a company “splits off” sections as a separate business.