Valuation Terminology

    Business Valuation Glossary

    A comprehensive reference of valuation terms, methodologies, and industry-specific metrics. Understanding these concepts is essential for navigating business valuations with confidence.

    12 Core Terms
    6 Startup Terms
    4 Industry Metrics

    Core Valuation Terms

    Essential terminology used across all business valuation methodologies and contexts.

    Valuation Fundamentals

    DCF (Discounted Cash Flow)
    A valuation method that projects future cash flows and discounts them to present value using an appropriate discount rate. The gold standard for valuing profitable, established businesses.
    Related: WACC, Terminal Value, Free Cash Flow
    EBITDA
    Earnings Before Interest, Tax, Depreciation, and Amortisation. A measure of operating profitability commonly used as a basis for valuation multiples in business sales.
    Related: EBIT, SDE, Normalised Earnings
    WACC
    Weighted Average Cost of Capital. The blended cost of debt and equity financing used as the discount rate in DCF valuations. Reflects the required return for investors.
    Related: DCF, Cost of Equity, Risk Premium
    Enterprise Value
    The total value of a business including both equity and debt, minus cash. Represents what a buyer would pay to acquire the entire business operations.
    Related: Equity Value, Market Capitalisation
    Goodwill
    The intangible value of a business above its net tangible assets. Includes brand reputation, customer relationships, workforce expertise, and competitive advantages.
    Related: Intangible Assets, Brand Value
    Capitalisation Rate
    The rate used to convert a single earnings figure into a capital value. Calculated as the discount rate minus expected long-term growth rate.
    Related: DCF, Earnings Multiple
    SDE (Seller Discretionary Earnings)
    A measure of owner benefit that adds back owner salary, perks, and one-time expenses to net profit. Commonly used to value owner-operated small businesses.
    Related: EBITDA, Normalised Earnings
    Control Premium
    An additional amount paid above minority share value to acquire a controlling interest in a business. Typically ranges from 20-40% for private companies.
    Related: Minority Discount, DLOC
    DLOM (Discount for Lack of Marketability)
    A reduction applied to value for shares that cannot be easily sold on a public exchange. Typically ranges from 15-35% for private company interests.
    Related: DLOC, Illiquidity Discount
    Terminal Value
    The value of a business beyond the explicit forecast period in a DCF analysis. Typically calculated using perpetuity growth or exit multiple methods.
    Related: DCF, Gordon Growth Model
    Normalised Earnings
    Adjusted earnings that remove one-off, non-recurring, or non-operating items to reflect sustainable, ongoing profitability of the business.
    Related: EBITDA, SDE, Addbacks
    Fair Market Value
    The price a willing buyer would pay a willing seller, both having reasonable knowledge of relevant facts and neither under compulsion to transact.
    Related: Enterprise Value, Fair Value

    Startup & Growth Company Terms

    Specialised terminology for early-stage companies, venture capital, and high-growth business valuations.

    Startup Metrics

    Pre-Money Valuation
    The value of a company immediately before receiving new investment. Used with investment amount to calculate investor ownership percentage.
    Related: Post-Money Valuation, Dilution
    Post-Money Valuation
    The value of a company immediately after receiving new investment. Calculated as pre-money valuation plus the new investment amount.
    Related: Pre-Money Valuation, Cap Table
    TAM (Total Addressable Market)
    The total market demand for a product or service. Represents the maximum revenue opportunity if a company achieved 100% market share.
    Related: SAM, SOM, Market Sizing
    MRR (Monthly Recurring Revenue)
    Predictable monthly revenue from subscriptions or contracts. A key metric for SaaS and subscription business valuations.
    Related: ARR, Churn Rate, Net Revenue Retention
    Burn Rate
    The rate at which a startup spends cash before becoming profitable. Used to calculate runway and inform fundraising timing.
    Related: Runway, Cash Flow
    Cap Table
    A spreadsheet showing the equity ownership structure of a company, including shares held by founders, investors, and option pool allocations.
    Related: Dilution, ESOP, Preferred Shares

    Industry-Specific Metrics

    Key performance indicators and valuation metrics specific to particular industries.

    Industry KPIs

    RevPAR (Revenue Per Available Room)
    A key metric for hotel and accommodation valuations. Calculated as average daily rate multiplied by occupancy rate.
    Related: ADR, Occupancy Rate
    ARPU (Average Revenue Per User)
    The average revenue generated per customer. A critical metric for SaaS, telecommunications, and subscription business valuations.
    Related: LTV, CAC, Churn
    LTV:CAC Ratio
    Lifetime Value to Customer Acquisition Cost ratio. Measures marketing efficiency. A ratio above 3:1 is typically considered healthy for growth companies.
    Related: ARPU, Churn Rate, Payback Period
    FUM (Funds Under Management)
    Total assets managed on behalf of clients. A key valuation metric for financial planning, wealth management, and investment businesses.
    Related: Recurring Revenue, Fee Income

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