Financial dictionary

An earn-out is an agreed-upon arrangement in a merger or acquisition where the seller receives additional payments from the buyer based on the future performance or results of the acquired company. These payments are often tied to achieving specific financial or operational goals over a set period following the completion of the transaction. The earn-out arrangement helps balance the risk between the seller and the buyer, and it also motivates the seller to continue successfully managing the business post-acquisition.

EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) is a financial metric that measures a company's profit before accounting for interest, taxes, depreciation, and amortization. EBITDA provides an insight into a company's operational performance and its ability to generate profit from core business activities without the impact of non-operational costs and accounting practices. This metric is often used to compare the performance of different companies.

Equity is the ownership stake in a company, representing the value of the company’s assets after subtracting its liabilities. It is the amount owned by shareholders or owners and reflects the difference between the company’s total assets and its total liabilities. In the context of stocks, equity represents the value of a shareholder's ownership in the company. For individuals or households, equity can refer to the ownership value in real estate, i.e., the property value minus any mortgage or other liabilities.

An equity fund is a type of mutual fund that invests most of its assets in company stocks. The goal of an equity fund is to achieve investment growth through stock appreciation, either in the form of capital gains (increase in stock prices) or dividends (profit distributions by companies). This type of fund can be focused on specific industries, regions, or company sizes.

ESG (Environmental, Social, and Governance) criteria assess companies based on their environmental, social, and governance practices. Environmental factors relate to a company's impact on the environment, such as greenhouse gas emissions, resource usage, and waste management. Social factors focus on a company's relationships with employees, customers, and communities, including labor conditions, equality, and diversity support. Governance factors concern the way a company is managed, including ethics, transparency, risk management, and leadership. Investors and companies increasingly consider ESG criteria when making investment decisions, as these factors can impact a company's long-term sustainability and performance.