WACC
Weighted average cost of capital is the blended return a company must earn for the people and lenders funding it. It is often used as the discount rate in a valuation.
Open WACC calculatorPlain language, precise terms
Finance glossary
Short definitions for the terms that show up in decisions. Each one points to a calculator when it is useful to run the numbers.
35 terms
Valuation and returns
Discounted cash flow
Discounted cash flow, or DCF, estimates what a business is worth today from the cash it can produce in the future. Later cash is worth less today, so the model discounts each forecast cash flow back to the present.
Open DCF calculatorTerminal growth
Terminal growth is the steady annual growth rate assumed after a forecast period ends. In a discounted cash flow model, it helps estimate the value of cash flows beyond the explicit forecast.
Open DCF calculatorEnterprise value
Enterprise value is the value of the operating business before allocating value between debt and equity holders. It is a useful starting point when comparing businesses with different financing structures.
Open enterprise value calculatorEquity value
Equity value is the portion of a company's value that belongs to its owners after debt and other claims are considered. For a public company, it is commonly called market capitalization.
Open EV to equity bridge calculatorEBITDA multiple
An EBITDA multiple values a business by multiplying earnings before interest, taxes, depreciation, and amortization by a comparable market multiple. It is a quick comparison tool, not a substitute for understanding the business.
Open EBITDA multiple calculatorMarket-to-book ratio
Market-to-book ratio compares what investors think a company's equity is worth with the accounting value shown on its balance sheet. A higher ratio can reflect growth expectations, valuable intangibles, or both.
Open market-to-book calculatorInternal rate of return (IRR)
Internal rate of return is the annualized return implied by a series of cash flows. It helps compare investments with different timing, but it can mislead when cash flows change direction more than once.
Open IRR calculatorMoney-on-money multiple
Money-on-money multiple shows how many dollars come back for every dollar invested. A 2.0x multiple means an investor received twice the invested amount, without saying how long that took.
Open money-on-money calculatorReturn on investment (ROI)
Return on investment measures gain or loss relative to the amount invested. It is useful for a simple snapshot, but it does not account for how long the investment was held.
Open ROI calculatorLeveraged buyout (LBO)
A leveraged buyout uses borrowed money alongside investor equity to buy a business. Returns are driven by business performance, the sale price, and how much debt is repaid before the sale.
Open LBO returns calculatorSensitivity analysis
Sensitivity analysis changes important assumptions, such as growth or a valuation multiple, to show how much an answer can move. It is a practical way to see which assumptions deserve the closest attention.
Open sensitivity analysis calculatorDebt and interest
Interest rate
Interest rate is the price paid to borrow money, expressed as a percentage of the balance over a period. The rate, compounding frequency, and loan term all affect the total cost of borrowing.
Open interest calculatorAmortization
Amortization is the scheduled repayment of a loan through regular payments. Early payments often contain more interest; later payments generally pay down more principal.
Open interest calculatorDebt-to-equity ratio
Debt-to-equity ratio compares borrowed funds with owner or shareholder funding. It helps show how much of a business is financed by lenders versus owners.
Open leverage ratios calculatorInterest coverage ratio
Interest coverage ratio compares operating earnings with interest expense. A higher number usually means the business has more room to make interest payments when results soften.
Open leverage ratios calculatorMarket value of debt
Market value of debt is what existing debt is worth at current market interest rates, which can differ from the balance recorded on the books. It matters when estimating the value of the whole business.
Open market value of debt calculatorDeleveraging
Deleveraging means reducing debt relative to the size or earnings of a business. It can lower financial risk, though it may also limit cash available for other uses.
Open deleveraging calculatorOperations and cash
Marginal cost
Marginal cost is the additional cost of producing one more unit. It helps an owner judge pricing, volume decisions, and whether added sales are likely to improve profit.
Open marginal cost calculatorWorking capital
Working capital is current assets minus current liabilities. It shows whether a business has enough near-term resources to pay bills, buy inventory, and keep operating.
Open working capital calculatorOperating cash flow
Operating cash flow is cash generated or used by the normal business, such as collecting from customers and paying suppliers and employees. Profit and operating cash flow can differ because of timing and non-cash accounting items.
Open cash flow calculatorCost of goods manufactured (COGM)
Cost of goods manufactured is the total production cost of items completed during a period. It includes direct materials, direct labor, factory overhead, and the change in work in process.
Open COGM calculatorAccounting statements and capital
Balance sheet
A balance sheet is a point-in-time picture of what a business owns, what it owes, and the owners' remaining interest. Its core check is assets equal liabilities plus equity.
Open balance sheet calculatorCapital expenditures (CapEx)
Capital expenditures are purchases that create or improve long-lived assets, such as equipment, vehicles, or a building. Unlike routine operating costs, they are generally recorded as assets and expensed over time.
Open CapEx calculatorProperty, plant, and equipment (PP&E)
Property, plant, and equipment are physical long-lived assets used to run a business. A PP&E schedule tracks the opening balance, purchases, depreciation, and disposals over time.
Open PP&E schedule calculatorDepreciation
Depreciation spreads the cost of a long-lived physical asset over the years it is expected to be useful. It reduces accounting profit but is usually not a cash payment in the period it is recorded.
Open PP&E schedule calculatorResearch and development (R&D) capitalization
R&D capitalization treats qualifying development spending as an investment that is amortized over its useful life instead of expensing it all immediately. This can help show the long-term economics of innovation-heavy businesses.
Open R&D capitalization calculatorTime value and risk
Discount factor
A discount factor is the number used to convert a future cash amount into its value today. It becomes smaller as the wait for the cash gets longer or the required return rises.
Open discount factor calculatorPresent value
Present value is what a future payment or stream of payments is worth today at a chosen required return. It lets you compare cash received at different times on the same basis.
Open finance functions calculatorNet present value (NPV)
Net present value adds the present value of expected future cash flows and subtracts the initial investment. A positive NPV means the project clears the return required by the model's assumptions.
Open finance functions calculatorCapital asset pricing model (CAPM)
CAPM estimates the return equity investors may require based on the risk-free rate, market risk premium, and a company's beta. It is commonly one input to a cost of equity estimate.
Open CAPM calculatorBeta
Beta measures how strongly an investment has tended to move with the overall market. Levered beta includes the effect of debt; unlevered beta aims to isolate the risk of the underlying business.
Open beta conversion calculatorProperty investment
Cap rate
Capitalization rate is a property's annual net operating income divided by its purchase price or current value. It helps compare income-producing properties before financing is considered.
Open rental ROI calculatorCash-on-cash return
Cash-on-cash return is the annual cash flow an owner receives divided by the cash invested. It shows how much cash is working after financing, rather than the property's total value.
Open rental ROI calculatorRental yield
Rental yield is rental income expressed as a percentage of the property's value or purchase price. Gross yield uses rent before costs; net yield accounts for operating expenses and is more useful for comparing the property's economics.
Open rental ROI calculatorFor educational and informational purposes only. Not financial advice.