Glossary | Longleaf Partners Funds

Glossary

Glossary

Termsort descending Definition
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.
Terminal value Terminal value is the sum of all cash flows from an investment beyond a forecast period based on a specified rate of return.
Time Arbitrage Time arbitrage refers to an opportunity created when a stock is sold based on a short-term outlook with little change in the long-term prospects of the company.
Triple A Rating The highest rating given to a bond by a rating agency.
Underwriting Generally, insurance underwriting is the process of evaluating risk of potential clients in order to decide how much coverage the client should receive.
Value investing Assessing a stock’s intrinsic value, through a valuation method like discounted cash flow analysis, in order to find investments that are undervalued by the market.
Working Capital Working capital is the amount of current assets minus the amount of current liabilities as of a specific date.