What Is an Earn Out

question 5

Multiple Choice

What is an earn out?

• A) Clause in a purchase agreement where the buyer earns out the difference in purchase price through performance in their own stock
• B) Clause that allows the seller to buy part of the company back if it "earns out" specific milestones
• C) Clause in a purchase agreement that allows the seller to receive stock in the buyer company so that they can "earn out" some of the future company value
• D) Clause where the purchase price of a business is dependent on future performance

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Definitions:

Total Inventory Cost

Total inventory cost includes all costs associated with holding and managing inventory, such as purchasing, storing, and handling costs.

Carrying Cost

The total cost of holding inventory, including storage, insurance, taxes, and opportunity costs, among others.

Order Quantity

The amount of stock or goods a company purchases or plans to purchase in a single order.

Operating Cycle

The amount of time it takes for a business to buy inventory, sell that inventory, and collect cash from the sale.