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A working library for IB, PE and AM interviews: a behavioural playbook, 125 technical terms defined, and timed practice. No signup to read. Built for European recruiting, not recycled from US guides.

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50 real behavioural questions across fit, motivation, teamwork and curveballs, grouped the way interviewers actually ask them.

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Finance glossary

125 technical terms across valuation, accounting, M&A, LBO, markets and asset management, defined for interview use.

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Glossary · 124 terms

The terms, defined for interviews.

Definitions are free. Inside Greenroom, every term also shows what the interviewer is really testing and how to answer it.

Valuation · 17 Accounting · 27 M&A · 20 PE/LBO · 30 Markets · 18 HF/AM · 12

Valuation

DCF: Discounted Cash Flow — values a company by discounting projected future free cash flows at the WACC. The most theoretically rigorous method but highly sensitive to assumptions.
WACC: Weighted Average Cost of Capital — the discount rate in a DCF. Blend of cost of equity (via CAPM) and after-tax cost of debt, weighted by capital structure.
Terminal Value: Value of all cash flows beyond the explicit forecast period. Calculated via Gordon Growth Model or exit multiple. Often 60-80% of total DCF value.
Trading Comps: Comparable company analysis — values a company using trading multiples (EV/EBITDA, P/E) of publicly listed peers.
Precedent Transactions: Valuation methodology using M&A deal multiples from comparable past transactions. Typically higher than trading comps due to the control premium.
Control Premium: The premium paid above the current market price to acquire a controlling stake. Typically 20-30%. Reflects the value of control and synergies.
Sum-of-the-Parts (SOTP): Values each business segment separately using the most appropriate method, then aggregates. Used for conglomerates or diversified businesses.
Beta: Measure of a stock's sensitivity to market movements. Beta >1 = more volatile than market. Used in CAPM to calculate cost of equity.
Equity Risk Premium (ERP): The excess return expected from equities over the risk-free rate. Typically 4-6%. Used in CAPM: Re = Rf + β × ERP.
EV/EBITDA: Enterprise Value divided by EBITDA — the most common trading multiple in M&A and equity research. Capital-structure neutral (EV strips out financing decisions) and removes D&A noise. Typical range: 6-10x for mature businesses, 12-20x+ for growth.
P/E Ratio: Price-to-Earnings — market cap divided by net income (or share price / EPS). The headline equity multiple. Easy to compute and quote but sensitive to capital structure and accounting choices.
Levered Beta: Beta measured on a company's actual equity, which embeds the volatility amplification from its debt load. The number you observe on Bloomberg or Yahoo Finance. Higher leverage → higher levered beta for the same operating business.
Unlevered Beta (Asset Beta): Beta with the effect of capital structure stripped out — captures only the underlying business risk. β_unlevered = β_levered / (1 + (1−t) × D/E). Used to compare companies with different leverage on a like-for-like basis.
Re-lever / Un-lever Beta: The two-step procedure of stripping financial leverage from comparable companies' equity betas (un-lever), then re-applying the target company's capital structure to compute its cost of equity (re-lever). The standard way to build a defensible CAPM for a private or unlisted target.
CAPM (Cost of Equity): Capital Asset Pricing Model — Cost of Equity = Risk-Free Rate + β × Equity Risk Premium. The dominant framework for the equity discount rate in DCF. Inputs: 10-year Treasury (Rf), comp-derived re-levered beta, Damodaran or historical ERP.
Risk-Free Rate (Rf): The yield on a default-free instrument matching the cash-flow horizon — typically the 10-year US Treasury for USD DCFs, 10-year Bund for EUR. The base of every CAPM cost-of-equity calculation.
Mid-Year Convention: DCF assumption that cash flows arrive in the middle of each forecast year rather than at year-end. Boosts valuation by ~½ year of compounding versus year-end convention, typically a 4-6% lift.

Accounting

EBITDA: Earnings Before Interest, Tax, Depreciation & Amortisation. A proxy for operating cash flow and the most common multiple denominator in M&A. Excludes capital structure effects.
Free Cash Flow (FCF): Cash generated by the business after capex. FCF = EBIT(1-t) + D&A − Capex − ΔNWC. What's available to service debt and pay equity holders.
Working Capital: Current assets minus current liabilities (excl. cash/debt). Increasing WC = cash outflow. Critical in LBO models and cash conversion analysis.
Goodwill: Intangible asset created in an acquisition when purchase price exceeds fair value of net assets. Tested annually for impairment; not amortised under US GAAP/IFRS.
Capex: Capital Expenditures — spending on long-term assets (PP&E). Maintenance capex sustains current capacity; growth capex drives expansion. Key driver of FCF.
Deferred Revenue: Cash received before the related service/product is delivered. Liability on balance sheet; a positive WC movement when it decreases.
Three Statement Link: How the income statement, balance sheet and cash flow statement tie together. Net income flows from the IS into retained earnings on the BS, the CFS reconciles net income to cash, and the ending cash balance flows back to the BS. A balance sheet that does not balance is the first signal a model is broken.
D&A: Depreciation & Amortisation — non-cash charges that allocate the cost of long-lived assets (PP&E and intangibles) over their useful life. Lowers reported earnings and taxable income but does not consume cash in the period it is booked.
Stock-Based Compensation (SBC): Equity awarded to employees as part of compensation — restricted stock units, options, performance shares. Non-cash on the cash flow statement but a real economic cost: it dilutes existing shareholders.
NOPAT: Net Operating Profit After Tax — EBIT × (1 − tax rate). The starting point for unlevered free cash flow. Strips out the financing decision (interest expense) so you can compare operating performance independent of capital structure.
Deferred Tax (DTA / DTL): Timing difference between book taxes (income statement) and cash taxes paid. A DTL means future cash taxes will exceed booked taxes; a DTA means the opposite — usually because of past losses or differences between book and tax depreciation.
Lease Accounting (IFRS 16 / ASC 842): Modern lease standards bring most leases on-balance-sheet as a right-of-use asset and a corresponding lease liability. EBITDA gets boosted because rent expense is split into D&A above the line and interest below, instead of sitting in operating costs.
Minority Interest (NCI): The portion of a consolidated subsidiary not owned by the parent. Sits in equity on the balance sheet; the income attributable to NCI is deducted to arrive at net income to common shareholders. Added back in the EV bridge.
Equity Method: Accounting treatment for investments where the holder has significant influence (typically a 20-50% stake) but not control. The investment sits as a single line on the BS, updated for the share of investee net income; not consolidated line by line.
Revenue Recognition (ASC 606 / IFRS 15): Standard governing when revenue can be booked: transfer of control to the customer, in an amount reflecting the consideration expected. Forces unbundling of multi-element contracts into discrete performance obligations.
Cash Conversion Ratio: FCF divided by net income (or EBITDA). Measures how much accounting profit translates into actual cash. Healthy businesses target 80-100% on a normalised basis; below 60% is a quality-of-earnings flag.
OpEx: Operating Expenses — recurring costs of running the business (rent, salaries, utilities, SG&A) booked as period expense, in contrast to capex which is capitalised and depreciated. Sits between gross profit and EBIT on the income statement.
COGS: Cost of Goods Sold — direct costs attributable to producing the goods or services sold in the period (raw materials, direct labour, manufacturing overhead). Revenue minus COGS = Gross Profit.
Gross Margin: Gross Profit divided by Revenue. Measures pricing power and direct-cost efficiency before operating overhead. SaaS targets >70%; consumer goods 30-50%; commodity manufacturing 10-20%.
Operating Margin (EBIT Margin): EBIT divided by Revenue. The core profitability metric after all operating costs (COGS + OpEx) but before financing and tax. Captures how well management converts top-line into operating profit.
ROIC: Return on Invested Capital — NOPAT divided by invested capital (debt + equity − cash). Measures how efficiently a business generates operating profit from the capital it has deployed. The cleanest signal of underlying business quality.
ROE: Return on Equity — Net Income divided by shareholder equity. Measures the return generated for equity holders. Levered metric — sensitive to capital structure choices.
Leverage Ratio (Net Debt / EBITDA): Net debt divided by trailing EBITDA. The standard credit metric for corporate borrowers. IG companies typically run 1-2x; LBO targets get pushed to 5-7x; covenant-light loans relax these caps.
Interest Coverage (EBIT / Interest): EBIT divided by interest expense. Measures how many times operating profit covers interest payments. Coverage <1.5x flags distress; investment grade typically runs >5x; high yield 2-4x.
ARR (Annual Recurring Revenue): The annualised value of all active subscription contracts at a point in time. The headline metric for SaaS businesses. Distinct from GAAP revenue (which recognises monthly) and billings (cash received, including multi-year prepayments).
Net Revenue Retention (NRR): Revenue from existing customers in this period vs the prior period, including upsell, downsell, and churn — but excluding new logos. NRR >100% means the existing book grows even with zero new sales. World-class SaaS hits 130%+.
Rule of 40: SaaS heuristic: growth rate + operating margin should exceed 40%. A 60% grower at −20% margin (60−20=40) and a 20% grower at +20% margin (20+20=40) both pass. Reflects the trade-off between growth and profitability in software.

M&A

Enterprise Value (EV): Total value of a business, capital-structure-neutral: EV = equity value + net debt + minority interest − associates. Used to compare companies regardless of how they're financed.
Net Debt: Total debt minus cash and cash equivalents. Used to bridge from Enterprise Value to equity value. Net debt+ → equity value lower.
Synergies: Value created by combining two companies that wouldn't exist independently. Cost synergies (headcount, overlap) are more reliable; revenue synergies more uncertain.
Accretion / Dilution: In M&A, whether the deal increases (accretive) or decreases (dilutive) the acquiror's EPS post-close. Key metric in all-stock or mixed-consideration deals.
Fairness Opinion: An independent assessment by an investment bank that the deal consideration is fair from a financial point of view. Required for most public company transactions.
Break-up Fee: A penalty paid if the deal falls through, typically by the party that terminates. Usually 2-4% of deal value. Provides deal certainty.
Earn-out: A deferred payment tied to post-close performance milestones. Bridges valuation gaps, especially in tech/pharma deals with uncertain future performance.
CIM: Confidential Information Memorandum — detailed sell-side document describing the business, financials, and investment thesis. Sent to qualified buyers after signing an NDA.
Teaser: Anonymous one-pager sent to gauge buyer interest before signing NDAs. Does not name the target.
Asset Deal vs Stock Deal: Asset deals: buyer purchases specific assets and assumes selected liabilities — buyer gets a step-up in tax basis and avoids unknown liabilities. Stock deals: buyer acquires all shares — simpler legally but inherits all liabilities and gets carryover tax basis.
MAC / MAE Clause: Material Adverse Change / Effect — a contractual provision allowing the buyer to walk away (or renegotiate) if a defined "materially adverse" event hits the target between signing and closing.
Reps & Warranties: Statements made by the seller about the target business — financials, contracts, IP, employees, taxes. Forms the basis of post-close indemnification claims if a representation turns out to be false.
Locked Box vs Completion Accounts: Two ways to set the equity price in M&A. Locked box: price fixed at a historical "locked" date with seller liable for value leakage thereafter (common in Europe). Completion accounts: price adjusted post-close based on actual closing balance sheet (common in the US).
Go-Shop: A negotiated period (typically 30-60 days) after signing during which the target board can actively solicit superior proposals — even though the deal is signed. Common in PE take-privates, rare in strategic deals.
Tender Offer: Public offer made directly to shareholders to buy their shares at a stated price. Avoids the need for a friendly target board — used in hostile bids, also in friendly two-step structures to accelerate closing.
Spin-off vs Carve-out: Spin-off: parent distributes shares of a subsidiary to existing shareholders pro rata; tax-free in the US if structured under Section 355. Carve-out: parent IPOs a partial stake in a subsidiary; raises cash but the parent retains control.
Poison Pill: A shareholder rights plan triggered when a hostile bidder crosses an ownership threshold (typically 10-15%). Floods the market with discounted shares to dilute the bidder. Almost never exercised — its existence forces the bidder to negotiate.
HSR Filing: Hart-Scott-Rodino Antitrust Improvements Act filing required for US deals above a size threshold (~$120m in 2025). Triggers a mandatory 30-day waiting period during which the FTC/DOJ can request a "second request" — extending review by 6-12 months.
Escrow: Portion of M&A purchase price held by a third party (typically 5-15%, for 12-24 months) to fund indemnification claims if reps and warranties prove false. Released to the seller if no claims arise. Largely replaced by R&W insurance above $100m deal size.
Cash-Free Debt-Free: Standard M&A pricing convention — buyer acquires the business assuming zero net debt at close. Seller takes out the cash; buyer assumes operating WC at a normalised level. Forces a clean EV-based negotiation, sidesteps cash-vs-debt distinctions.

PE/LBO

LBO: Leveraged Buyout — acquisition financed primarily with debt (60-70%). PE funds use LBOs to amplify equity returns. Returns driven by EBITDA growth, debt paydown, and multiple expansion.
IRR: Internal Rate of Return — annualised return on a PE investment. Accounts for time value of money. PE funds typically target 20-25%+ IRR.
MOIC: Multiple on Invested Capital — total return multiple regardless of time. MOIC 3x = tripled the investment. Used alongside IRR (MOIC ignores time).
Multiple Expansion: Increase in the EV/EBITDA multiple from acquisition to exit. E.g., buying at 7x and selling at 10x. One of the three main PE return drivers.
Carried Interest (Carry): The PE fund manager's profit share — typically 20% of gains above the hurdle rate (usually 8%). The primary incentive for PE professionals. Taxed as long-term capital gains (~20% in the US, vs ~37% on ordinary income) when held over 3 years — a tax break repeatedly debated in Congress and a structural reason PE comp dwarfs banking salaries.
Hurdle Rate: Minimum return LPs must receive before the GP earns carry. Typically 8%. Ensures LPs are compensated before the manager profits.
PIK (Payment in Kind): Interest paid by issuing additional debt rather than cash. Used in highly leveraged deals. Defers cash out but compounds total debt burden.
Revolver: A flexible revolving credit facility drawn and repaid as needed. Used for working capital needs. Typically the most senior and cheapest debt in an LBO capital structure.
Covenant: Restriction imposed on the borrower by lenders. Maintenance covenants: tested regularly (e.g., leverage ≤5x). Incurrence covenants: triggered only by an action.
Platform Company: In a PE roll-up strategy: the initial anchor acquisition. Add-on acquisitions are subsequently integrated into the platform to build scale and create multiple arbitrage.
Continuation Fund: A PE vehicle where the GP transfers portfolio companies from an existing fund into a new one — allowing continued ownership beyond the original fund's term. Existing LPs can roll or sell for liquidity.
NAV Financing: A loan secured against the Net Asset Value of a PE fund's portfolio. Allows the fund to pay LP distributions or fund investments without selling assets. Grown rapidly since 2022 as exit markets froze.
Dividend Recapitalisation: A PE-backed company raises additional debt and pays proceeds as a special dividend to the sponsor — returning capital without selling the company. Increases leverage but provides early LP distributions.
Equity Rollover: Existing shareholders contribute a portion of their sale proceeds back into the new buyout structure. Management rolling equity signals confidence and aligns incentives with the PE sponsor.
DIP Financing: Debtor-In-Possession financing — credit provided to companies in Chapter 11 bankruptcy. Super-senior priority over all pre-petition creditors, court-approved, short-term (12-18 months).
Fulcrum Security: The debt class in a restructuring that is "at the money" — partially covered by enterprise value. Fulcrum holders convert debt to equity in reorganisation. Classes above are repaid in full; classes below receive nothing.
Sources & Uses: The two sides of an LBO funding ledger. Uses: equity purchase price + refinanced debt + transaction fees. Sources: new debt + sponsor equity + cash on hand + management rollover. They must balance to the dollar.
Mezzanine Debt: Junior debt sitting between senior loans and equity. Higher coupon than senior (often 10-15%) and may include equity warrants. Used to fill the gap between senior debt capacity and the sponsor's equity cheque.
Term Loan A vs Term Loan B: TLA: amortising senior debt held by banks, ~5-7 year tenor, lower margin. TLB: institutional debt held by CLOs and direct lenders, bullet repayment, ~7 year tenor, higher margin and looser covenants.
Quality of Earnings (QoE): A buy-side or sell-side diligence report adjusting reported EBITDA for one-offs, accounting policy choices, and management add-backs. The number that survives QoE is what the deal prices off, not headline EBITDA.
Dry Powder: Capital committed by LPs to a PE fund but not yet invested. Industry-wide dry powder hit record levels in 2024-2025 as extended hold periods and slower exit markets kept fundraising pace high while deployment slowed.
J-Curve: The shape of PE fund returns over time — early years show negative IRR (fees and management costs with no realisations), then returns turn positive as portfolio companies mature and exit. Most funds break even around year 4-5.
Chapter 11: US bankruptcy code provision allowing a debtor to reorganise while continuing to operate. Management stays in control as "debtor in possession". Produces a plan of reorganisation that, if approved by creditors and the court, restructures the balance sheet and exits the company from bankruptcy.
Plan of Reorganisation (POR): The blueprint filed in Chapter 11 detailing how the debtor will restructure its balance sheet, settle creditor claims, and exit bankruptcy. Voted on by creditor classes and confirmed by the bankruptcy judge.
Cramdown: Confirmation of a Chapter 11 plan over the objection of a dissenting creditor class. Requires the plan to be "fair and equitable" and not "discriminate unfairly" — typically tested via the absolute priority rule: senior classes paid in full before junior classes recover anything.
Make-Whole Premium: A clause requiring the borrower to compensate lenders for early repayment by paying the present value of remaining interest. Effectively prevents prepayment except at full economic cost to the borrower.
Cash-on-Cash Multiple: Total cash distributed to LPs divided by total cash invested. Same as MOIC for the purposes of an LBO model — sometimes used interchangeably. Distinct from IRR (which time-weights).
Roll-up Strategy: PE thesis of buying multiple small businesses in the same sector and merging them into a single platform. Generates value through multiple arbitrage (small companies trade at lower EV/EBITDA than larger ones) plus cost synergies. Common in fragmented industries (dental, veterinary, HVAC, IT services).
Add-on Acquisition: A smaller company purchased by an existing PE-backed platform to extend its product, geography or customer base. Add-ons typically trade at lower multiples than the platform and accrete value via multiple arbitrage and synergies.
Vintage Year: The year a PE fund makes its first investment (or holds its final close). The benchmark category for performance comparison — funds are compared to peers of the same vintage to control for macro conditions at entry.

Markets

Investment Grade (IG): Debt rated BBB-/Baa3 and above by S&P/Moody's. Lower yield, tighter spreads. Issued by large, stable corporates.
High Yield (HY): Debt rated BB+/Ba1 and below — "junk bonds." Higher yield for higher default risk. Used heavily in LBO financing.
Credit Spread: Yield difference between a corporate bond and the equivalent risk-free government bond. Tight spreads = low risk perception = favourable financing conditions for M&A.
VIX: The CBOE Volatility Index — measures market's expectation of 30-day S&P 500 volatility. High VIX = fear/uncertainty. Inversely correlated with risk appetite and M&A activity.
SOFR: Secured Overnight Financing Rate — the benchmark replacing USD LIBOR since 2023. Backed by overnight Treasury repo transactions, more reflective of actual market activity than the survey-based LIBOR it succeeded.
Fed Funds Rate: The target rate at which US banks lend reserves to each other overnight. The primary monetary-policy tool of the Federal Reserve. Set in a range (e.g., 4.25-4.50%) at FOMC meetings eight times a year.
Yield Curve: Plot of bond yields against maturities for a given issuer (typically Treasuries). Normal curve: upward-sloping (longer = more yield). Inverted: short rates exceed long rates — historically a recession signal.
Inverted Yield Curve: When short-dated yields exceed long-dated yields. Has historically preceded most US recessions by 12-18 months. Reflects the market's expectation that short rates will fall — usually because the Fed will cut into a slowdown.
Credit Default Swap (CDS): Insurance-like derivative where the buyer pays a periodic premium and receives a payout if a reference entity defaults. Used to hedge credit exposure or speculate on creditworthiness.
Duration: Weighted-average time to receive a bond's cash flows; a measure of price sensitivity to interest-rate changes. A 5-year-duration bond drops roughly 5% if yields rise 1%.
IPO Process: A private company's first sale of shares to the public. Multi-month sequence: kickoff → drafting → SEC review → roadshow → pricing → trading. Bookrunners stabilise the stock for roughly 30 days post-listing.
Bookbuilding: The price-discovery process during an IPO or follow-on. Bookrunners take indications of interest from institutional investors across a range, then set the final price based on demand depth and quality.
Greenshoe (Over-Allotment Option): Allows underwriters to sell up to 15% additional shares above the base offering size. Used to stabilise the stock if it trades down post-IPO — underwriters short-sell into the IPO, then either buy back in the open market or exercise the green shoe.
PIPE (Private Investment in Public Equity): Private placement of equity (or convertible) into a public company, typically at a discount to the market price. Faster to execute than a registered follow-on — used in stressed situations or when speed matters more than full price discovery.
Basis Points (bps): One basis point = 1/100th of a percentage point (0.01%). Standard unit of measure for interest rates, spreads and yield changes. "Spreads widened 50bps" means yields rose 0.50 percentage points.
ECM / DCM / Lev Fin: Three product groups within IB capital markets. ECM (Equity Capital Markets): IPOs, follow-ons, convertibles, blocks. DCM (Debt Capital Markets): IG bonds, syndicated loans. Lev Fin: high-yield bonds, leveraged loans to PE and sub-IG corporates.
Convertible Bond: Debt that can be converted into a fixed number of equity shares of the issuer. Pays a lower coupon than straight debt in exchange for the equity upside option. Used by growth companies wanting cheap financing without immediate dilution.
Preferred Stock: Hybrid security — sits between debt and common equity in the capital stack. Pays a fixed dividend like a bond but has no maturity (perpetual). Used in PE deals (preferred equity tranche) and bank capital structures (AT1, CoCo).

HF/AM

Value at Risk (VaR): Statistical measure of the maximum potential loss over a given horizon at a given confidence level. E.g., "1-day 95% VaR of $10M" means a 5% chance of losing more than $10M in a day.
Sharpe Ratio: Risk-adjusted return metric. Formula: (Portfolio Return − Risk-Free Rate) / Portfolio Standard Deviation. Above 1.0 is generally good; above 2.0 is excellent.
Maximum Drawdown: The largest peak-to-trough portfolio decline over a period. If a fund goes from $100M to $60M before recovering, maximum drawdown is 40%. A critical risk metric for LPs.
Alpha: Excess return relative to the benchmark after adjusting for market risk (beta). Alpha = Portfolio Return − (Rf + β × Market Risk Premium). The measure of genuine skill.
Net Exposure: In a long/short fund: Longs % − Shorts %. E.g., 80% long and 40% short = 40% net long. Tells you how much market directional risk the portfolio is taking.
Active Share: How different a portfolio is from its benchmark. 0% = identical to the index. 100% = no overlap. Above 70% is considered high-conviction active management.
Factor Model: Framework explaining portfolio returns via systematic risk factors (market, value, momentum, size, quality). Used to decompose whether returns come from skill (alpha) or known risk factors (beta).
High-Water Mark: The peak NAV a hedge fund has previously reached. Performance fees are only earned on returns above this mark — losses must be made back before the manager is paid again.
Information Ratio: Active return divided by active risk: (Portfolio Return − Benchmark Return) / Tracking Error. Measures the consistency of alpha generation. Above 0.5 is good; above 1.0 is excellent for active managers.
Tracking Error: Standard deviation of the difference between portfolio returns and benchmark returns. Low tracking error = portfolio hugs the benchmark; high = active deviation. Index funds run below 0.5%; concentrated active funds run 4-8%.
Long/Short Equity: Hedge-fund strategy taking long positions in undervalued names and short positions in overvalued ones. Typical net exposure runs 30-60% (mostly long bias); pure market-neutral runs 0% net.
Merger Arbitrage: Strategy of buying the target stock and (in stock deals) shorting the acquirer once a deal is announced, capturing the spread between the deal price and the post-announcement target price. Returns depend on deal-closure probability and timing.

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