Glossary
Every term explained in plain English. No jargon without context.
The actual money coming into and going out of a business. Unlike profit on paper, cash flow shows real money movement. If a company makes €1M in sales but customers haven't paid yet, the cash flow is zero until they do.
A similar company used for comparison in valuation. Nike and Adidas are good comparables (same industry, similar model). Nike and Tesla are not (completely different businesses). Finding good comps is as much art as science.
When your returns earn returns of their own. If you earn 10% on €100 (€10), next year you earn 10% on €110 (€11). The effect snowballs over time. Einstein (supposedly) called it "the eighth wonder of the world."
A valuation method that adds up all future cash flows, discounted to present value. It's the "theoretically correct" way to value anything, but requires many assumptions about the future. A DCF is only as good as its inputs.
The interest rate used to convert future money into today's value. It reflects both time value (money now is worth more than money later) and risk (riskier investments need higher returns to be attractive). Higher discount rate = future money worth less today.
Earnings Before Interest, Taxes, Depreciation, and Amortization. A measure of operating profit that strips out financing decisions and accounting items. It shows how much cash the core business generates before other factors.
The total value of a company including debt. EV = Market Cap + Debt - Cash. If you bought a company, you'd pay the market cap but also take on its debts (minus cash on hand). EV is the "full price tag" for the entire business.
Total company profit divided by the number of shares. If a company makes €100M and has 10M shares, EPS is €10. It's how much profit each share "owns."
Cash generated by the business after all operating expenses and capital investments. It's the money left over that could be distributed to owners or reinvested. This is what matters most for valuation.
The percentage increase in a metric (usually revenue or profit) from one period to the next. If revenue grows from €100M to €120M, that's a 20% growth rate. High growth rates are rare and hard to sustain.
A company's own forecast for future performance. When a company says "we expect revenue of €5B next year," that's guidance. It often moves stock prices more than current results because it shapes expectations.
The "true" value of an asset based on its fundamental ability to generate cash. Unlike market value (what people are paying), intrinsic value is what something is actually worth based on its economics. Investors try to find gaps between the two.
The total value of a company's shares. Market Cap = Share Price × Number of Shares. If a stock trades at €100 and there are 1 billion shares, market cap is €100 billion. It's what the "market" thinks the company is worth.
A ratio comparing a company's value to a financial metric (like earnings or revenue). P/E = 20x means investors pay €20 for every €1 of profit. Higher multiples usually mean higher expectations for growth or quality.
How much investors pay for €1 of profit. P/E = Stock Price ÷ EPS. A P/E of 25x means investors pay €25 for every €1 the company earns. The market average is around 18-20x.
What future money is worth today after discounting. €110 next year at a 10% discount rate has a present value of €100 today. This concept is central to all valuation work.
Total sales before any costs are deducted. If a company sells 1 million shoes at €100 each, revenue is €100 million. Revenue is the "top line" — the starting point before expenses eat into it.
The value of all cash flows beyond the explicit forecast period in a DCF model. Since we can't forecast forever, terminal value captures "everything after Year 5" (or whatever your forecast horizon is) in one number.
The principle that money today is worth more than the same amount in the future. Why? Because you could invest it, inflation erodes purchasing power, and the future is uncertain. This is why we discount future cash flows.
The process of determining what something is worth. Can be done through DCF (summing future cash flows), multiples (comparing to similar companies), or other methods. More art than science — two analysts can look at the same company and get wildly different values.