BZT Dictionary®

CAO

Abbreviation of "Chief Administrative Officer", the management person who is responsible for the administration in a company or a business. This is a wide-ranging position and one in which the area of responsibility depends on the size and type of the business. The CAO is responsible for a variety of administrative (business support) processes, which may include the finance department, the human relations department, the reception of visitors, the purchasing of office equipment, IT/telephone, lease agreements, etc.

The CAO usually reports to the CEO. See also "C-suite".

Carry

Carry is a term for the part of the profits in a fund which is distributed to a venture capital or Private Equity management company (the so-called General Partner).

In order for carry to be distributed, however, the profits must exceed a specific level (hurdle). When and how distribution of profits is to be made is partly the result of negotiations and partly dependent on international market practice. The investors in a Private Equity fund may, for example, be willing to distribute 10% of the profits in carry, but only after the fund has reached a total of 20% in annual return.

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Cash cow

A successful product, or a part of a business, which generates large cash flows (and profits). This is often a fully developed product with no growth, and which does not need further investments. The profits from a Cash cow are therefore reinvested in new products and services.

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Cash flow

The company's internally generated funds, that is, the liquidity (cash) which has been created or is being used during a particular period in the business.

In order to obtain a complete picture of how the business is developing, it is not enough to analyze and understand the profit and loss statement and the balance sheet. To understand to the business's need for financing, it is also necessary to report and understand the company's cash flow.

The reported net cash flow is affected by all of the company's revenues and costs, excluding items which do not affect cash flow (write-offs and balance sheet allocations).

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Cash rich

A term for a company, or a business, which is financially very strong. The company has significantly positive cash flow and a larger cash position than the business requires. Another term is a business that is "over liquid" or "overcapitalized".

CCO

Can have several meanings:

• Chief Commercial Officer: Head of marketing, responsible for marketing, market development, sales, etc., with the goal of increasing the company's market share.
• Chief Compliance Officer: Head of regulatory compliance, responsible for the company complying with regulatory requirements, for instance environmental requirements, ISO 9000, etc.
• Chief Communications Officer: Head of information services, with responsibility for the business's external communications and for PR.
• Chief Content Officer: Head of content, with overall responsibility for the content of the media channels which the company uses -- web, text, video, sound, animations, etc.
• Chief Creative Officer: Head of creative services, whose areas of responsibility depend upon the type of business -- for example with responsibility for "branding" and for the company's image which its marketing creates. The title may also encompass creative directors, art directors, designers, copywriters, etc. within an advertising agency.

The CCO usually reports to the CEO. See also "C-suite".

CEO

The executive director. Abbreviation of "Chief Executive Officer". Sometimes also called President.

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CFO

Director of finance. Abbreviation of Chief Financial Officer. The CFO usually reports to the CEO. See also "C-suite"

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CHRO

Chief Human Resources Officer (Head of Personnel) has the overall, strategic responsibility for the HR function (Human Resources) and for all issues related to personnel. This may, for example, encompass policies for the management of recruiting, development of personnel, discharging, and issues of succession and compensation.

The CHRO usually reports to the CEO. See also "C-suite".

CIO

Chief Information Officer is the one who has responsibility for the company's internal information systems and who most often also covers both the telephone and the data communication. An earlier term was Head of IT.

The CIO usually reports to the CEO. See also "C-suite".

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C-level

Synonym to C-suite. The abbreviations in the so-called C-level are equivalent to positions of the top managers in a corporation who report to the CEO - the so-called 2nd tier. See more under C-suite.

Closing

When a business transaction "closes". "Signing" is the event when the seller and the buyer of an asset (e.g. a company) are agreed on price and terms and conditions, and the purchase and sale agreement ("SPA") is signed. In many cases the transaction cannot be concluded at the same time; the companies may, for example, need approval from specific governmental authorities. It is then necessary to wait (weeks, months) so that all the formalities can be in place before it is possible to close the transaction. Only then are shares and money exchanged at the same time as the formal change of ownership occurs.

See also "Signing".

Coaching

Coaching is a supportive activity which is intended to help a person or a group of people (a team) achieve particular goals. Coaching usually exists within the world of sports, but in recent years has been used in many other contexts, for example among those who work with career guidance and leadership. Coaching of business leaders may be carried out in many different ways. Usually goals and partial goals are established jointly, and the coach gives encouragement and asks questions.

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COB

COB is short for Chairman of the Board.

The abbreviations in the so-called C-suite are equivalent to positions of the top managers in a corporation who report to the CEO - the so-called 2nd tier. Here COB is an exception. See more under C-suite.

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COLOMBO

Abbreviation of "Colossally Over-priced MBO", that is, a greatly overpriced buyout transaction. In the years 2006-2007, just before the financial crisis, many COLOMBOs were carried out. See also "MBO".

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Comfort factor

Investing in a company is always risky and an investor wants to feel as comfortable as possible about his or her investment. It is possible to increase the comfort factor by making a penetrating investigation of the enterprise.

Another way of increasing the comfort factor is to go through various scenarios for the development of the investment (the company). Both positive and negative. You want to be able to live and sleep well with the worst-case, that is, even if the worst case scenario happens.

When there is a big gap between your base case and worst-case scenario the comfort factor is considered to be high.

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Comparison-destroying items

Entries on balance sheets and profit and loss statements which are not related to the company's normal business. Usually these are revenues or costs which are of a one-time character or which will not recur annually. In order to obtain a picture of the company's normal business, these entries are excluded.

An example of a comparison-destroying item is the disposition of a subsidiary which has produced a large profit on its sale and a large addition to cash. Another example is the cost of closing down a factory.

Completion

When a transaction becomes legally binding. This normally occurs when all agreements, including appendices, are completed and signed. See also "Closing".

Compliance

A business's obedience to (compliance with) a regulatory structure. As an example, the financial sector must comply with and obey a significant number of requirements and regulations which are principally designed to protect external investors and the general public from misleading information which affects the value of an asset.

Companies must comply with a regulatory structure for bookkeeping, auditing and reporting. Other regulatory structures which must be complied with (if the company is subject to them) are rules for quality (ISO 9000), environment (ISO 14000) and CSR (ISO 26000, Corporate Social Responsibility).

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Conditions Precedent, CP

Entails that a transaction is conditioned upon the fulfilment of a number of factors for the transaction finally to be carried out (to be closed). A common condition precedent is that the transaction is conditioned upon approval by governmental authorities, for instance, the competition authorities in the affected countries.

Consolidation

Consolidation means fusion. The word can be defined and used in various ways depending on context. If what is involved is a fusion of several businesses in a single industry in order to build a larger, stronger business, it is said that an industry has been consolidated.

Consolidation can also mean that the profit and loss statements and the balance sheets of the subsidiaries in a group are consolidated (calculated together) so as to obtain a consolidated result.

Contributions in kind

A business can use its own shares as payment for assets. Upon an issuance against contributions in kind new shares are exchanged for assets, for example where a machine is appraised and is contributed (is exchanged) for an ownership share. It is also common for shares in an acquired company to be contributed (to be exchanged) for shares in the acquiring company.

A prerequisite for a contribution in kind is that the assets, the property to be contributed, are of use to the company. The assets which are contributed must be appraised at market value.

Convertible debenture

A convertible debenture (loan) is a debt instrument issued by a company to finance the business. It is regarded as a hybrid security since it is an ordinary, unsecured, loan with a convertibility option. The option gives the lender the right after a certain time, but not an obligation, to convert the loan to shares in the company. The lender gets interest on the loan but no repayment during the term. The company usually pays a lower interest rate on the loan compared to if there were no option to convert to shares.

The number of shares that corresponds to the amount of the loan is settled in advance. The value of the option is determined with an option-pricing model such as the Black-Scholes valuation formula. When the loan matures, the lender can choose to get the loan repaid in cash or to be converted into shares in the company.

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COO

Chief Operating Officer is the person who is finally responsible for the operations in a company or a business (operations manager).

The COO usually reports to the CEO. See also "C-suite".

Cost

It is necessary in accounting to separate costs so as to obtain as accurate a picture as possible of a company's financial position. An example is rental costs, which usually are periodized. If a company pays rent (makes a payment) for three months in advance, the classification of the rental cost will not be correct if the entire payment is taken as a cost, and impacts the profit and loss statement, only in the month in which the rent was paid. Cost accounting in this example means that the rental cost will be divided into thirds over the three months to which the rental payment relates.

Core business

The nucleus of a company's business, that is, those areas in which the company has special competence and is competitive as compared with its competitors. See also "Back to basics".

Corporates

A term for large companies and their key management personnel. Sometimes the term "large corporates" is also used. Large export companies and nationwide banks are good examples.

Corporate finance

A concept for professional advisory services to companies. A company (or its owner) will use the corporate finance department of an investment bank or a large accounting firm if it needs qualified financial advice. This may involve advice or help relating to:

• Company financing, for example new securities issuances.
• Purchase or merger of companies.
• Disposition of companies or businesses.
• Locating appropriate acquisition objects.
• Valuation of companies.
• Incentive programs.
• Etc...

In many developed countries there is a good infrastructure for corporate finance and financial advisory services. There are small, medium-sized and large firms which offer these services, all depending on the size and complexity of the transaction.

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Corporate raiders

"Corporate raiders" are investors who buy significant shares (controlling positions) in a business without certain large owners, the Board of Directors or the management having consented. This is then regarded as a hostile takeover. The investors' intention is often to take advantage of hidden values of the business, for instance by dividing it up and then selling the parts individually. The hypothesis is that 1+1 equals more than 2.

Corporate raiders are regarded by some as being short-sighted, greedy investors while others think that they liberate values in sleepy businesses. See also "Pirates".

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Corporate turn-around

Measures for turning around developments in a company which has fallen into serious difficulties. Very comprehensive measures are almost always needed to convert loss into profit.

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Corporate venture, CV

A venture capital company which is within a large, established business (for instance, Intel or Ericsson) and which invests in closely related new ideas and technologies which are of interest for the long-term development of the business. The capital which is invested comes from the balance sheet of the CV, i.e. not from a typical Venture Capital fund.

The advantages for the company (the target company) which CV invests in are that it obtains access to expertise in the industry, and often its first customer. The disadvantage for other shareholders in the target company is that there may be only one (1) possible buyer in the event of a sale of the company, that is, of the parent company which owns the Corporate Venture company. A potential buyer may for instance be a competitor to the CV's parent, which would make the transaction impossible. A CV with a controlling position may thus be able to dictate the price and the terms and conditions.

Cost of capital

The cost which the company/the business has for the capital which it uses. The cost of capital can be divided up into two principal groups:

• The cost of the capital which the owners have invested, that is, the company's equity capital on its balance sheet. The cost of the equity capital corresponds to the owners' requirements for return and is dependent on alternative, comparable possible investments.
• The cost of borrowed capital, that is, interest-bearing debt to banks or other lenders. The interest on loans varies partly with the risk in the company and partly with the level of market interest rates.

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CPI

CPI is an abbreviation of "Consumer Price Index" and is a statistic measure of the average change over time in consumer prices. In calculating the Consumer Price Index, a comprehensive, mixed basket of goods for private consumption is used. The basket is divided into twelve principal groups, and some 90 subordinate groups, in conformity with an international classification (COICOP = Classification of Individual Consumption by Purpose).

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CRO

Chief Risk Officer (CRO) is responsible for analyzing risks and managing conduct in order to minimize the company's essential risks, for example its financial, operational, product-related and PR risks.

The CRO usually reports to the CEO. See also "C-suite".

Creditor

A creditor – is someone who has a claim against someone else. A synonym is claimant. A person or a firm that the creditor has a claim against is called debtor. In other words, the debtor has a debt to the creditor.

Crossover investor

A crossover investor is an investor who invests in several stages of a company's life cycle, e.g. before, during and after a company's IPO. The aim is to maximize the return.

Crossover investors are common in young technology and biotechnology companies.

Crowd funding

"Crowd funding", or grass roots financing, is a method of financing a company, or a project, in which many private investors each make a relatively small investment. Usually these investments are coupled with high risk and are used, for example, to finance the start-up phase of a new business. But crowd funding is also used to finance other types of projects, for example a website, a new film, or a new music project.

One of the advantages of this method is that a project can find capital willing to take risks in situations where institutional investors and banks consider the risk entirely too large or the upside entirely too small. Among the disadvantages is that there will be a large number of investors to take into consideration and to keep informed.

There are a number of internet-based services in case it is desired to use crowd funding. In any case, it is important to describe, and to be clear about, both the possibilities and the risks in the investment.

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CSR

An abbreviation of "Corporate Social Responsibility". The concept CSR began to be used as early as the 1960s and has been used all the more often in recent years. It has even become a modern buzzword. ISO 26000 is the international standard which is used for guidance and certification of a company's CSR work.

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C-suite

Abbreviations, which originally derive from the USA, of the authority and position in a business of its top managers. In addition to the CEO, officers who report directly to the CEO, the so-called "second tier", are included. A synonym is C-level. Their position (title) is usually shortened to three letters which start with a C and end with an O. Examples are:

• Chief Administrative Officer (CAO).
• Chief Creative Officer (CCO).
• Chief Executive Officer (CEO).
• Chief Financial Officer (CFO).
• Chief Human Resources Officer (CHRO).
• Chief Information Officer (CIO).
• Chairman of the Board (COB).
• Chief Operations Officer (COO).
• Chief Risk Officer (CRO).
• Chief Technology Officer (CTO).
• and so on...

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CSO

Chief Science Officer (Head of Research) is responsible for research within the company, for example in a pharmaceutical company.

The CSO usually reports to the CEO. See also "C-suite".

CTO

Chief Technical Officer (Technical Director) is responsible for the company's research and technological development.

The CTO usually reports to the CEO. See also "C-suite".

Customer Experience (CX

Customer Experience (CX) – is a concept that encompasses all the contacts that you as a customer have with a company. The CX includes your overall experience as a customer of the company, its products and services.

The experience may include your observations from only one purchase occasion or during a longer time with repeated purchases. CX reflects the feeling you have as a customer after all interactions with the company.

CX is sometimes confused with the UX (user experience) which, however, is a narrower concept than the CX. CX is measured using e.g. NPS method (Net Promoter Score), which means that you need to answer whether you would recommend the company to a friend.

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