Financial and Valuation Glossary
Short, practical definitions of financial and valuation terms frequently used in GlobalTaxAI reports.
M&A
Mergers and Acquisitions. A broad term for transactions involving company acquisitions, mergers and material changes in ownership.
Due diligence
A detailed review before a transaction, typically covering financial, legal, tax, commercial and sometimes technical matters.
EBIT
Earnings Before Interest and Taxes. A measure of operating profit after depreciation but before financing and tax effects.
EBITDA
Earnings Before Interest, Taxes, Depreciation and Amortisation. A useful operating profitability measure, but not the same as cash flow.
EBITDA margin
EBITDA / revenue. It shows how much EBITDA remains from each unit of revenue.
DCF
Discounted Cash Flow. An income-based valuation method that discounts expected future cash flows to present value.
FCFF
Free Cash Flow to Firm. Cash flow available in principle to both debt and equity capital providers.
WACC
Weighted Average Cost of Capital. The weighted required return on equity and debt capital; a key discount rate in DCF valuation.
Enterprise Value (EV)
The value of the operating business independent of its financing structure.
Equity Value
The value attributable to shareholders after the EV-to-equity bridge, including net debt and other relevant non-operating adjustments.
CAPEX
Capital Expenditure. Investment in long-term assets such as equipment, machinery, buildings or technology.
Net Working Capital (NWC)
A measure of short-term operating funding. In a simple balance-sheet definition: current assets minus current liabilities.
ROE
Return on Equity. Profitability relative to shareholder equity.
ROA
Return on Assets. Profitability relative to the company’s total asset base.
Current ratio
Current assets / current liabilities. A basic measure of short-term liquidity.
Quick ratio
A stricter liquidity ratio that typically excludes inventory from the most liquid current assets.
Beta
A measure of market-related risk sensitivity. For private SMEs it is usually derived from industry benchmarks rather than directly observed.
Equity Risk Premium (ERP)
The additional return investors require above a risk-free rate for bearing equity-market risk.
Terminal value
The component of DCF that summarises value beyond the explicit forecast period, often using a Gordon-growth model.
Terminal growth (g)
The assumed long-term sustainable growth rate used in terminal value. It must remain economically plausible over the long run.
Normalisation
Adjustments intended to remove one-off, non-recurring or non-market items so that sustainable operating performance is more visible.
Scenario analysis
Valuing several plausible futures — for example conservative, base and optimistic — rather than assuming one forecast is certain.
Sensitivity analysis
Shows how the result changes when a key assumption such as WACC or terminal growth changes.