FMVA key terms

The blended after-tax rate a company is expected to pay to all its capital providers, weighting debt and equity by their market-value proportions. It is used to discount future cash flows to present value.

The sum of a project's expected cash flows discounted to today at a required rate, minus the initial investment. A positive NPV means the project is expected to create value for its owners.

The discount rate at which a project's net present value equals zero. It is the annualized return implied by the cash flows and is compared against a hurdle rate.

The principle that a dollar received today is worth more than a dollar received later, because today's dollar can be invested to earn a return while later dollars carry uncertainty.

A measure of how much a stock's returns move relative to the overall market. A beta above one means the stock is more volatile than the market; below one, less volatile.

The return shareholders demand for owning the stock, commonly estimated as the risk-free rate plus beta times the equity risk premium. It is a key input to WACC.

Cash generated by operations after reinvestment in working capital and fixed assets, available to pay lenders and shareholders. Unlevered free cash flow is measured before interest; levered free cash flow is after debt service.

A model in which the income statement, balance sheet, and cash flow statement are fully linked, so a change in one assumption flows consistently through all three. Cash and retained earnings tie the statements together.

A formula loop where a cell's value depends, directly or indirectly, on itself, such as interest expense based on average debt that already includes that interest. Excel flags it until iterative calculation or a workaround is used.

Testing how an output such as NPV or IRR changes as one or two inputs vary across a range, usually displayed in a two-way grid. It reveals which assumptions the result is most exposed to.

Recalculating a model under a few coherent sets of assumptions, such as base, upside, and downside cases, rather than flexing inputs one at a time. It shows a range of plausible outcomes.

A control cell that confirms the balance sheet balances, cash on the cash flow statement matches the balance sheet, and other structural rules hold, so errors surface immediately rather than silently distorting outputs.

A formula combination that uses MATCH to locate the position of a value in a row or column and INDEX to return the item at that position. Unlike VLOOKUP, it can look to the left.

A cell reference locked with dollar signs, such as $B$4, so it does not shift when a formula is copied across rows or columns. Mixed references lock only the row or only the column.

A descriptive label assigned to a cell or range so formulas read as EBIT rather than D20. It makes models easier to audit and less prone to broken references.

A what-if tool that recalculates a formula for many input values at once and displays the results in a grid. It is commonly used to output sensitivity and scenario results.

The total value of a company's operating business to all capital providers: market value of equity plus debt, preferred stock, and minority interest, less cash. It is the numerator in EV/EBITDA multiples.

The value of the shareholders' claim on a business, equal to enterprise value less net debt and other senior claims. Dividing by diluted shares gives value per share.

The estimated value of all cash flows beyond the explicit forecast period, calculated either as a growing perpetuity or as an exit multiple applied to final-year EBITDA or earnings.

Valuing a business by applying the trading multiples of similar public companies, such as EV/EBITDA, to the target's own metrics. It reflects what the market currently pays for peers.

Valuing a business using the multiples paid in completed acquisitions of similar companies. Because those prices include a control premium, results typically sit above trading comparables.

A valuation method that projects free cash flow, discounts it to today at the cost of capital, and adds terminal value. It is the most assumption-driven approach but also the most flexible.

A horizontal bar chart that shows the valuation range produced by each method side by side, with a reference line for the current share price. It summarizes a valuation in a single exhibit.

A chart showing how a starting value moves through a series of positive and negative steps to an ending value. Useful for bridges such as revenue to net income or EBITDA to free cash flow.

The share of a chart's ink that actually conveys data rather than decoration. Higher ratios mean stripping out gridlines, borders, and 3D effects that distract from the message.

A short opening section that states the recommendation, key findings, and supporting evidence, so a reader can grasp the message and act without reading the full document.

Recording revenue when it is earned and expenses when they are incurred, regardless of when cash changes hands. It gives a more accurate picture of performance than cash-basis records.

The rule that expenses are recognized in the same period as the revenues they helped generate. This is why costs such as cost of goods sold and depreciation are tied to sales.

Cash received from a customer before the good or service is delivered, recorded as a liability until the revenue is earned. It is common in subscription and prepaid businesses.

Current assets minus current liabilities, measuring the short-term cash tied up in running the business. Growth in non-cash working capital reduces free cash flow in the period.

The premium paid in an acquisition above the fair value of the target's identifiable net assets, reflecting synergies and items such as brand. It is tested for impairment rather than amortized.

Cumulative net income kept in the business rather than paid out as dividends. It rolls forward each period and links the income statement to the balance sheet.

A budgeting approach in which every expense must be justified from zero each cycle rather than starting from last year's figure. It surfaces waste but requires more effort to maintain.

A forecast that is continually extended, for example always covering the next twelve months, so planning never becomes stale at the end of a fiscal year.

Comparing actual results with the budget or forecast and explaining the gaps, often separating volume, price, and mix effects to show what drove the difference.

A framework for judging industry attractiveness through rivalry, supplier power, buyer power, threat of new entrants, and threat of substitutes. It helps explain why average profitability differs across industries.

After-tax operating profit divided by the capital invested in the business. A company creates value only when ROIC exceeds its weighted average cost of capital.

A durable advantage that protects a company's profits from competitors, such as switching costs, network effects, brand strength, or scale-based cost advantages. Moats support returns above the cost of capital.