Investors love acronyms.
During a call between investors or during due diligence, a sentence like "EPS growth was accelerated due to favorable ASP mix shift, and non-GAAP EBITDA improved as well" might be uttered. It makes complete and perfect sense to the parties on the call, but to the untrained ear it's complete gibberish.
Our interpreters on industry discussion calls need to be prepared for these acronyms whenever they occur, one of the reasons we've added a business fundamentals component to our vetting process recently (full disclosure: if you're looking to take that test, committing the below acronyms, their definitions, and why they're useful to investors to memory is highly recommended).
Although the acronym list seems endless, we wanted to share a list of 20 of the most-asked acronyms on industry discussion calls. We drew on both:
The experience of our interpreter community, and
Our leadership's (thanks Matt!) experience with conducting actual due diligence.
The Acronym List
EBITDA - Earnings before Interest, Tax, Depreciation, and Amortization
If you're only able to memorize a single acronym on this list, memorize this one. For investors, this is the holy grail for evaluating the operational value and efficiency of a company as it removes factors like accounting decisions and tax environment out of the conversation.
ASP - Average Selling Price
The average selling price of a product or good across channels or even within an entire market. A company's profits are often tied to a specific product (Apple's iPhone is a good example), so ASP plays a significant role during due diligence.
P&L - Profit and Loss
This refers to the foundational financial statement of any company that charts the revenue, cost, and expenses accrued within a given time period. Obviously essential for investors and accountants to get a basic understanding of a company's financials.
CAGR - Combined Annual Growth Rate
CAGR is useful for investors as it helps them to evaluate the total return on a long-term investment by also including losses in the total evaluation during the investment timeframe.
COGS - Cost of Goods Sold
Used when calculating the gross margin of a company.
Gross margin = Revenue - COGS.
EPS - Earnings Per Share
The annual revenue of a company divided by their share totals. For example, a company earning $1 million USD/year with 1 million shares of stock would have an EPS of $1 USD.
EMEA and APAC - Europe/Middle East/Africa and Asia-Pacific regions
Common abbreviations mentioned by researchers and experts alike during self-introductions.
OEM - Original Equipment Manufacturer
A company defined as an OEM is one whose products are components used in products of a different company. For example, Samsung is the OEM for a number of key components in Apple's products. OEMs are frequent topics of conversation during industry discussion calls as investors are often interested in the details of an industry or product's supply chain.
ROE - Return on Equity
This figure indicates how effectively the company utilizes invested capital to generate returns for its investors.
P-E - Price-to-Earnings ratio
This ratio compares the companies EPS to its actual share price as it appears on the stock market. This is another extremely important equation for investors as it helps them compare different companies in the same industry.
GAAP - Generally Accepted Accounting Principles
A reference to the universal guiding principles that companies and their accountants adhere to. You can find the comprehensive list here.
What do you think of our list? Are there any incredibly important acronyms that you think we missed? Let us know in the comments below!