Business Valuation Glossary
Capital Expenditures (CAPX)
Yearly purchases of long-term business assets such as computers, equipment, tools and vehicles.
Capitalized Lease Payments
Payments to for long-term use of equipment or machinery.
Cost of Capital
What investors expect to earn when factoring in the volatility of a business. Also known as the discount rate.
Cost of Sales (COS)
Direct cost of services and production.
Discounted Cash Flow (DCF)
Estimated cash flow that factors in future revenues and expenditures to determine the intrinsic value of a business.
Debt to Capital Ratio (D/K)
Amount of leverage or debt used in the calculation of the discount rate.
Earnings Before Interest Taxes Depreciation and Amortization (EBITDA)
The fundamental measure of business health. EBITDA determines how much financing a lendor can supply. EBITDA = Revenue - Cost of Sales.
Equity Value
Business Value - Net Debt.
Goodwill
Amount of purchase price greater than the business assets.
Gross Margin Percentage
Revenue - Cost of Sales.
Intrinsic Value
Value of a business based on forecasted cash flows plus Terminal Value.
Net Cash Flow (NCF)
The gold standard of business performance, NCF is the value after net income, working capital, capital expenditures and owner compensation is factored.
Net Operating Loss (NOL)
Negative earnings before taxes. NOL is carried forward where the loss can be offset against current year earnings and reduces current year tax liability.
Operating Cash Flow (OCF)
Cash flow prior to capital expenditures. Companies with positive OCF can invest in capital equipment to grow the business.
Pretax Cash Flow With Owner Compensation (PCFWOC)
Cash flows from the business before income taxes and working capital capital are paid. Calculated as EBITDA + Working Capital/Market Value of Owner Compensation.
Present Value (PV)
Value of future cash flows if available today. What a buyer is willing to pay or a seller is willing to receive now for a company in exchange for future cash flows.
Seller Discretionary Cash Flow (SDCF)
For a small business, same as the EBITDA value.
Terminal Value (TV)
Present value of cash flows beyond the forecast projection. Terminal value is added to present value to determine business value.
Unlevered Cash Flow
Calculation of cash flow without debt financing and interest expenses. Unlevered cash flow shows the true fundamental performance of a company.
Volatility
Movement of a business and its industry in relation to the economy as a whole. More volatile businesses require greater returns to compensate investors for greater uncertainty.
Working Capital (WC)
Current assets and liabilities of your company such as accounts receivable (A/R), accounts payable (A/P) and inventory.
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