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Fair Market Value (FMV)
Fair Market Value (FMV) is the estimated price at which an asset would trade in a competitive and open market. It represents the value agreed upon by a willing buyer and a willing seller, both having reasonable knowledge of the relevant facts.
For example, a business might determine the FMV of its equipment before selling it to ensure a fair transaction.
Fiduciary Duty
Fiduciary Duty is a legal obligation for one party to act in the best interest of another. In the business context, this duty often applies to company directors, officers, and agents, who must act with loyalty and care towards their stakeholders.
For example, a company’s board of directors has a fiduciary duty to make decisions that benefit the shareholders.
Firm Commitment
Firm Commitment is an underwriting arrangement in which an underwriter agrees to buy all the securities from the issuer and resell them to the public. The underwriter takes on the risk of selling the securities at the agreed-upon price.
For example, a company might enter into a firm commitment with an investment bank for its initial public offering (IPO), ensuring that all shares are sold.
First Mover Advantage
First Mover Advantage refers to the competitive edge gained by being the first to enter a market with a new product or service. This advantage can lead to brand recognition, customer loyalty, and market share before competitors arrive.
For example, a tech company that introduces a revolutionary new gadget before its competitors might capture significant market share due to its first mover advantage.
First Refusal Rights
First Refusal Rights give existing shareholders the option to purchase new shares before the company offers them to external investors. This right helps prevent dilution of their ownership stake.
For example, if a startup issues new shares, the existing investors with first refusal rights can choose to buy those shares before they are offered to new investors.
Fixed Assets
Fixed Assets are long-term tangible assets used in the operation of a business, such as buildings, machinery, and equipment. They are not expected to be converted into cash within a year.
For example, a manufacturing company might list its factory and machinery as fixed assets on its balance sheet.
Fixed Costs
Fixed Costs are business expenses that remain constant regardless of the level of production or sales. They include costs such as rent, salaries, and insurance.
For example, a retail store must pay its monthly rent regardless of how much it sells each month, making rent a fixed cost.
Follow-On Investment
Follow-On Investment refers to additional capital provided to a company by its existing investors after the initial investment. It often occurs in subsequent funding rounds to support the company’s growth.
For example, a venture capital firm might make a follow-on investment in a startup that has demonstrated significant progress since the initial funding round.
Foreign Direct Investment (FDI)
Foreign Direct Investment (FDI) is an investment made by a company or individual in one country into business interests located in another country. It typically involves establishing business operations or acquiring assets in the foreign country.
For example, a multinational corporation might make an FDI by building a factory in another country to expand its production capacity.
Founder Vesting
Founder Vesting is a mechanism that ensures founders earn their equity over time, based on their continued involvement in the company. It protects the company from the risk of a founder leaving prematurely with a large equity stake.
For example, a startup might implement a four-year vesting schedule with a one-year cliff for its founders, meaning they earn their shares over four years but must stay at least one year to receive any equity.
Founders’ Agreement
A Founders’ Agreement is a legal document that outlines the roles, responsibilities, and ownership stakes of the founders of a startup. It helps prevent disputes and provides a clear framework for decision-making.
For example, three co-founders of a tech startup might draft a founders’ agreement to detail each person’s equity stake, roles, and contributions to the company.
Founder’s Equity
Founder’s Equity refers to the ownership stake held by the founders of a company. It represents their initial investment and contribution to the business and can be diluted through subsequent funding rounds.
For example, the founder’s equity in a startup might be 40% initially, but this percentage could decrease as the company raises additional capital and issues new shares.
Friends and Family Round
A Friends and Family Round is an early stage of financing where a startup raises capital from the personal networks of the founders, such as friends, family members, and acquaintances. It often precedes formal seed funding rounds.
For example, a new entrepreneur might raise $50,000 from friends and family to build a prototype and conduct initial market research.
Free Cash Flow (FCF)
Free Cash Flow (FCF) is the amount of cash generated by a company after accounting for capital expenditures needed to maintain or expand its asset base. It is a key indicator of financial health and liquidity.
For example, a company with high FCF might have ample resources to invest in growth opportunities, pay dividends, or reduce debt.
Funding Gap
A Funding Gap is the difference between the capital required to finance a project or business and the amount of capital currently available. It represents the additional funding needed to reach the financial goal.
For example, a startup might identify a funding gap of $200,000 needed to complete product development and launch its marketing campaign.
Fund Administrator
A Fund Administrator is a third-party service provider responsible for managing the day-to-day operations of an investment fund. This includes tasks such as accounting, investor reporting, and compliance.
For example, a hedge fund might hire a fund administrator to handle its financial reporting and regulatory filings.
Fund Management
Fund Management involves overseeing and handling the investment strategy and day-to-day trading of a fund’s portfolio. It aims to achieve the investment objectives of the fund and maximize returns for investors.
For example, a mutual fund manager might actively buy and sell stocks to outperform the market and generate returns for the fund’s investors.
Fund of Funds (FoF)
A Fund of Funds (FoF) is an investment vehicle that holds a portfolio of other investment funds rather than investing directly in stocks, bonds, or other securities. It provides diversification and professional management.
For example, an investor might choose to invest in a FoF to gain exposure to a broad range of hedge funds, reducing risk through diversification.
Funding Round
A Funding Round is a stage in the process of raising capital for a company, typically from investors such as venture capitalists, angel investors, or private equity firms. Each round is identified by a series, such as Seed, Series A, Series B, etc.
For example, a startup might complete a Series A funding round to raise $5 million for product development and market expansion.
Fundraising
Fundraising is the process of seeking and securing financial resources to support a company’s operations, growth, or specific projects. It can involve various sources, including investors, grants, and crowdfunding.
For example, a nonprofit organization might conduct a fundraising campaign to finance its community outreach programs.
Future Value
Future Value is the value of an asset or cash flow at a specified date in the future, calculated based on an assumed rate of growth or interest. It helps investors and businesses estimate the potential return on investments.
For example, an investor might calculate the future value of a $10,000 investment with a 5% annual return over 10 years to determine its worth in the future.
Fiscal Policy
Fiscal Policy refers to government policies regarding taxation, government spending, and borrowing. It is used to influence a country’s economic conditions, including growth, inflation, and employment.
For example, a government might implement expansionary fiscal policy by increasing public spending and cutting taxes to stimulate economic growth during a recession.
Fiscal Year
A Fiscal Year is a one-year period that companies and governments use for accounting and financial reporting purposes. It does not necessarily coincide with the calendar year.
For example, a company’s fiscal year might run from April 1 to March 31, during which it prepares and publishes its financial statements.
Financial Engineering
Financial Engineering involves the use of mathematical techniques, financial theories, and computer modeling to solve financial problems and create new financial products. It combines elements of finance, economics, and engineering.
For example, a financial engineer might develop a new derivative product to help companies hedge against currency risk.
Financial Forecasting
Financial Forecasting is the process of estimating a company’s future financial performance based on historical data, market trends, and economic conditions. It helps businesses plan and make informed decisions.
For example, a startup might create a financial forecast to predict its revenue growth and expenses over the next three years.
Financial Model
A Financial Model is a mathematical representation of a company’s financial performance. It is used to analyze and forecast future financial outcomes, often supporting investment decisions and strategic planning.
For example, an investor might use a financial model to evaluate the potential return on investment for a new business venture.
Financial Projections
Financial Projections are estimates of a company’s future financial performance, including income statements, balance sheets, and cash flow statements. They are used to plan for growth, secure funding, and manage resources.
For example, a company might prepare financial projections to present to potential investors during a fundraising round.
Financial Statements
Financial Statements are formal records of a company’s financial activities, providing a summary of its financial position, performance, and cash flows. The main statements include the balance sheet, income statement, and cash flow statement.
For example, a publicly traded company must publish its financial statements quarterly to inform shareholders and regulators about its financial health.
Financing Round
A Financing Round is a stage in the process of raising capital for a company, typically involving investors such as venture capitalists, angel investors, or private equity firms. Each round aims to meet the specific funding needs at different stages of a company’s growth.
For example, a startup might complete a Series B financing round to raise $10 million to scale its operations and expand into new markets.
Fully Diluted Shares
Fully Diluted Shares represent the total number of shares a company would have if all convertible securities, such as stock options, warrants, and convertible bonds, were exercised or converted into shares. It provides a comprehensive view of potential equity dilution.
For example, an investor might look at the fully diluted shares to understand the total potential ownership in the company if all options and convertible securities are exercised.