FP&A & Corporate Valuation Glossary
Comprehensive definitions, mathematical formulas, and accounting journal entries for FP&A, SaaS metrics, and corporate valuation.
Adjusted EBITDA
EBITDA adjusted for non-recurring expenses, stock-based compensation, and M&A integration costs.
Annual Recurring Revenue (ARR)
Normalized annual subscription revenue generated by active customer contracts.
Break-Even Point
The sales volume at which total revenue equals total fixed and variable costs.
Burn Rate
The rate at which a company consumes its net cash reserves prior to positive operating cash flow.
Burn Multiple
Efficiency metric measuring net cash burned relative to net new ARR generated.
Capital Asset Pricing Model (CAPM)
Model estimating the expected return on equity capital based on systematic risk (Beta).
Cash Conversion Cycle (CCC)
Days required to convert inventory and operational investments into realized cash flows.
Cash Flow from Operations (CFO)
Net cash generated or consumed by core business operating activities.
Contribution Margin
Revenue remaining after deducting total variable production and delivery costs.
Contribution Margin Ratio
Percentage of revenue contributing toward fixed overhead and net operating profit.
Customer Acquisition Cost (CAC)
Total sales and marketing expenditure required to acquire a single net-new customer.
CAC Payback Period
Months required for a customer to generate sufficient gross profit to recover its CAC.
Cost of Goods Sold (COGS)
Direct material, labor, and overhead costs required to manufacture or deliver products.
Discounted Cash Flow (DCF)
Valuation methodology discounting future free cash flows to present value using WACC.
Discounted Payback Period
Time required for discounted cumulative cash inflows to equal the initial investment.
EBITDA
Earnings Before Interest, Taxes, Depreciation, and Amortization.
EBITDA Margin
EBITDA expressed as a percentage of total operational net revenue.
Enterprise Value (EV)
Total enterprise economic value incorporating equity market cap and net debt balances.
Free Cash Flow (FCF)
Cash remaining after deducting essential capital expenditures from operating cash flow.
Free Cash Flow to Equity (FCFE)
Cash available for distribution to equity shareholders after debt service and reinvestment.
Free Cash Flow to Firm (FCFF)
Unlevered free cash flow available to all capital providers (debt and equity).
Gross Margin
Percentage of revenue remaining after deducting Cost of Goods Sold.
Gross Profit
Absolute dollar profit remaining after deducting direct production cost of goods sold.
Hurdle Rate
Minimum acceptable internal rate of return required to approve a capital project.
Internal Rate of Return (IRR)
Discount rate that sets the Net Present Value (NPV) of cash inflows equal to zero.
Lifetime Value (LTV)
Total gross margin expected from a customer over their entire commercial lifespan.
LTV to CAC Ratio
Metric measuring customer lifetime value relative to customer acquisition cost.
Margin vs Markup
Mathematical distinction between profit as % of selling price (Margin) vs % of cost (Markup).
Monthly Churn Rate
Percentage of recurring subscription revenue or customers lost during a single month.
Monthly Recurring Revenue (MRR)
Total predictable monthly recurring revenue generated by subscription accounts.
Net Income
Total bottom-line profit after deducting all operating, tax, and interest expenses.
Net Margin
Percentage of revenue remaining as net income after all operational deductions.
Net Present Value (NPV)
Sum of discounted future cash inflows minus initial capital outlay.
Net Revenue Retention (NRR)
Percentage of recurring revenue retained from existing customers including expansions.
Operating Cash Flow (OCF)
Cash generated from core business operations prior to capital reinvestment.
Operating Income (EBIT)
Profit realized from core operations prior to interest and income tax expenses.
Operating Leverage
Degree to which a firm uses fixed costs in its operational cost structure.
Payback Period
Nominal time required for cumulative cash inflows to equal initial capital cost.
Quality of Earnings (QofE)
Analysis evaluating the sustainability and repeatability of reported GAAP earnings.
Return on Investment (ROI)
Efficiency ratio measuring net financial return relative to total capital cost.
Rule of 40
Principle stating that a software firm’s growth rate plus margin percentage should exceed 40%.
Runway
Months remaining before cash reserves are depleted at current net burn rate.
Terminal Value
Present value of all future cash flows beyond an explicit forecast horizon in DCF models.
Unit Economics
Direct revenues and costs associated with a single business unit or customer.
Variable Cost Ratio
Proportion of each dollar of revenue consumed by variable costs.
Weighted Average Cost of Capital (WACC)
Blended cost of equity and debt capital weighted by target capital structure.
Working Capital
Operational liquidity buffer calculated as current assets minus current liabilities.
Working Capital Ratio
Liquidity ratio measuring current assets relative to current liabilities (Current Ratio).
Year-over-Year (YoY) Growth
Percentage change in financial metric compared to the identical period 12 months prior.
Zero-Based Budgeting (ZBB)
Budgeting process requiring all operating expenses to be justified anew each fiscal cycle.
Adjusted Free Cash Flow
Free cash flow adjusted for stock-based compensation and mandatory debt amortization.
Expansion ARR
Additional subscription revenue generated from upsells, cross-sells, and seat upgrades.