Glossary of IPO Analysis Terms

© 2001 IPOdesktop.com

(Gaskins IPO Desktop)

Seven Summary Ratios

Valuation Metrics...can be applied to any public company

Market Value ======

Price per share times number of shares issued & outstanding

= MktValue

1. Price-to-Sales

MktValue divided by Annualized Sales. Lower is better

2. Price-to-Earnings (loss)

MktValue divided by Annualized Earnings (loss). Lower is better

3. Price-to-Book Value

MktValue divided by Book Value. Lower is better

4. Price-to-Tangible BkVlu

MktValue divided by Tangible Book Value. Lower is better

5. % offered in IPO

Expected IPO proceeds divided by MktValue.

Higher is better, unless IPO proceeds go to selling shareholders

or unless % offered is over 40% (an empirical rule of thumb)

Profit/Loss

6. Gross Margin %

Gross Margin divided by Sales. Higher is better

7. Profit Margin %

Profit divided by Sales. Higher is better

More definitions are listed below

Proven Venture Capital Scoring System: 

one to five, five is high

Management

Does management run a profitable business?

Market Growth

Is the company in a growing market niche?

Dominant

Can the company dominate it's market niche?

Proprietary

Does the company have something that is proprietary?

27 Definitions...used in IPO Financial Analysis

Valuation

% offered in IPO

Expected IPO proceeds divided by market value

Annualized Earnings(loss)

Quarterly earnings (loss) multiplied by four

Annualized Sales

Quarterly sales multiplied by four. Not used for seasonal businesses

Market value

Price per share times number of shares issued & outstanding

Price-to-Book Value

Market value divided by Book Value

Price-to-Earnings (loss)

Market value divided by Annualized Earnings (loss)

Price-to-Sales

Market value divided by Annualized Sales

Price-to-Tangible Bk Value

Market value divided by Tangible Book Value

Selling Shareholders

Pre-IPO investors who use the IPO to sell their stock

Use of Proceeds

Usually for working capital, debt repayment, or selling shareholders

Profit/Loss Income Statement

Amortization

Non-cash (income statement) charge, applies to 'Goodwill'

Cost of GoodsSold(COGS)

Direct cost of goods, not including adv, sales, marketing, etc.

Depreciation

Non-cash charge reducing an asset's value: a building 'depreciates' 

Equity Charges

Non-cash compensation charges, usually related to stock options

Excluded charges

Usually equity compensation, amortization, sometimes depreciation

Gross Margin

Sales minus Cost of Goods Sold (COGS)

Gross Margin %

Gross Margin divided by Sales

Income Statement

Sales & expenses over a specified time, similar to a tax return

Profit %

Profit divided by Sales

Balance Sheet

Balance Sheet

A snapshot on a particular day of assets & liabilities

Book Value

Shareholder's Equity on the balance sheet

Current Assets

Assets which can be converted to cash within 12 months

Current Liabilities

Liabilities which are due and payable within the next 12 months

Goodwill

Price paid (in acquiring a business) over Tangible Book Value

Shareholders Equity

Total assets less all liabilities (current + long term)

Tangible Book Value

Book Value less 'goodwill asset accounts' on the balance sheet

Working Capital

Current assets less current liabilities

Alphabetical Listing

% offered in IPO

Expected IPO proceeds divided by IPO market value

Amortization

Non-cash (income statement) charge, applies to 'Goodwill'

Annualized Earnings(loss)

Quarterly earnings (loss) multiplied by four

Annualized Sales

Quarterly sales multiplied by four. Not used for seasonal businesses

Balance Sheet

A snapshot on a particular day of assets & liabilities

Book Value

Shareholder's Equity on the balance sheet

Cost of GoodsSold(COGS)

Direct cost of goods, not including adv, sales, marketing, etc.

Current Assets

Assets which can be converted to cash within 12 months

Current Liabilities

Liabilities which are due and payable within the next 12 months

Depreciation

Non-cash charge reducing an asset's value: a building 'depreciates'

Equity Charges

Non-cash compensation charges, usually related to stock options

Excluded charges

Usually equity compensation, amortization, sometimes depreciation

Goodwill

Price paid (in acquiring a business) over Tangible Book Value

Gross Margin

Sales minus Cost of Goods Sold (COGS)

Gross Margin %

Gross Margin divided by Sales

Income Statement

Sales & expenses over a specified time, similar to a tax return

Market value

Price per share times number of shares issued & outstanding

Price-to-Book Value

Market value divided by Book Value

Price-to-Earnings (loss)

Market value divided by Annualized Earnings (loss)

Price-to-Sales

Market value divided by Annualized Sales

Price-to-Tangible Bk Value

Market value divided by Tangible Book Value

Profit %

Profit divided by Sales

Selling Shareholders

Pre-IPO investors who use the IPO to sell their stock

Shareholders Equity

Total assets less all liabilities (current + long term)

Tangible Book Value

Book Value less 'goodwill asset accounts' on the balance sheet

Use of Proceeds

Usually for working capital, debt repayment, or selling shareholders

Working Capital

Current assets less current liabilities