Financial statements and metrics

M&A and corporate finance glossary: 48 entries in English and Polish

M&A and corporate finance glossary: financial statements and metrics

The entries in this section explain the financial statements and metrics behind a company valuation and the price negotiation. They cover EBITDA and its normalization, margins, the balance sheet, the income statement, cash flow, capital expenditure, working capital, leverage, return on capital, and dividends.

Prepared by the Capital One Advisers team. Entries last reviewed: November 12, 2026.

Entries from A to Z (48):

Accrual basis
Accruals, prepayments, and deferred revenue
Adjusted EBITDA, normalized EBITDA
Balance sheet
Book value, carrying amount
Break-even point
Budget and forecast
Capital expenditure, capex
Cash conversion
Cash conversion cycle
Cash flow statement
Compound annual growth rate, CAGR
Consolidated and separate financial statements
Days inventory outstanding, DIO
Days payables outstanding, DPO
Days sales outstanding, DSO
Dividend
EBIT margin, operating margin
EBIT, operating profit
EBITA
EBITDA
EBITDA bridge, EBITDA reconciliation
EBITDA margin
EBITDA normalization
Financial leverage
Financial model
Financial statement audit
Financial statements
Free cash flow, FCF
Goodwill
Gross profit and gross margin
IFRS 16 impact on EBITDA and net debt
Income before taxes and net income
Income statement, P&L
Interim dividend
Last twelve months, LTM, TTM
Liquidity
Maintenance and growth capex
Net working capital, NWC
Non-recurring items, one-time items
Operating cash flow
Operating leverage
Polish Accounting Act vs. IFRS
Pro forma EBITDA
Retained earnings
Return on capital ratios, ROE, ROIC, ROCE
Run-rate
Year to date, YTD

Accrual basis

Polish: zasada memoriału

The accrual basis requires an entity to record revenue and the related costs in the fiscal year to which they relate, regardless of when they are paid. In Poland it follows from Article 6 of the Accounting Act. This is why profit in the income statement can differ from operating cash flow: a sale on credit increases revenue before the customer has paid. In a deal, cash conversion and changes in working capital help assess this gap.

Accruals, prepayments, and deferred revenue

Polish: rozliczenia międzyokresowe i przychody przyszłych okresów

Accruals and deferrals assign revenue and costs to the periods to which they relate. Prepaid expenses are costs already incurred for future periods, such as an annual insurance premium paid in advance. Accrued expenses are probable liabilities for the current period, such as services already received from contractors. Deferred income covers, among other things, amounts received or receivable from customers for services the company will perform in later periods, known as deferred revenue. In a deal, the parties must agree whether such items belong in working capital or among debt-like items.

Adjusted EBITDA, normalized EBITDA

Polish: skorygowana / znormalizowana EBITDA

Adjusted EBITDA, also called normalized EBITDA, is EBITDA adjusted to exclude non-recurring items and items unrelated to ordinary operations, showing the recurring earnings of the company as a stand-alone business on market terms. Adjustments include, for example, litigation costs, owners’ pay above or below market, or the effects of changes in accounting policies. Synergies planned by the buyer are not added to it. The buyer often applies a valuation multiple to adjusted EBITDA and therefore tests every adjustment in a quality of earnings (QoE) review.

Not to be confused with: EBITDA.

More in the articles “The owner’s EBITDA and the EBITDA a buyer will pay for are two different numbers” and “The EBITDA bridge. Why an unqualified audit opinion does not protect the sale price of a company”.

Balance sheet

Polish: bilans

The balance sheet sets out an entity’s assets and the sources that finance them, namely equity and liabilities, including provisions under Polish accounting rules, as of a given date. Total assets equal total equity and liabilities. In a deal, the balance sheet is the starting point for net debt and non-operating assets, which lead from enterprise value to equity value, and for working capital, which is compared with the working capital peg.

Book value, carrying amount

Polish: wartość księgowa / bilansowa

Book value, or carrying amount, is the amount at which an asset, a liability, or equity is carried in the accounting records and financial statements. The book value of equity is total assets less liabilities, including provisions. It follows accounting rules based on, among other things, historical cost, production cost, or fair value, so it usually differs from market value. The price-to-book ratio (P/B) compares the market value of equity with its book value.

Not to be confused with: market value.

Break-even point

Polish: próg rentowności

The break-even point is the level of sales at which revenue covers fixed and variable costs and operating profit is zero. In a simple single-price model, it is calculated in units as fixed costs divided by the contribution margin per unit, that is, price minus variable cost per unit. Comparing the break-even point with actual sales shows how far sales can fall before the company operates at a loss. It depends on the cost structure and therefore on operating leverage.

Budget and forecast

Polish: budżet i prognoza

A budget is a financial plan adopted by the company for a set period, usually the coming fiscal year, and used to hold management accountable. A forecast is an estimate of future results based on current data, prepared for the current year or several years ahead and updated during the year. In a deal, the buyer compares past budgets with actual results to judge whether management’s forecasts are credible.

Capital expenditure, capex

Polish: nakłady inwestycyjne

Capital expenditure (capex) is spending to acquire, build, or improve fixed assets and to acquire or develop intangible assets that the company will use for more than a year. It appears under investing activities in the cash flow statement and increases the carrying amount of assets on the balance sheet. It is deducted from operating cash flow to calculate free cash flow (FCF). Valuation separates maintenance capex from growth capex.

Cash conversion

Polish: konwersja gotówki

Cash conversion is a percentage that shows how much of a company’s earnings turns into cash. There is no single formula: common versions divide operating cash flow by EBITDA, or EBITDA less capital expenditure by EBITDA. Comparisons therefore need to state the numerator and the denominator. Low conversion on an operating cash flow basis often reflects growing working capital; on a capital expenditure basis, heavy investment. It differs from the cash conversion cycle.

Cash conversion cycle

Polish: cykl konwersji gotówki / środków pieniężnych

The cash conversion cycle is the number of days between paying suppliers and collecting from customers. It is calculated as days inventory outstanding (DIO) plus days sales outstanding (DSO) minus days payables outstanding (DPO). It can be negative when the company pays suppliers later than it sells inventory and collects receivables. If the cycle is shortened just before a sale, the buyer may disregard the effect when setting the working capital peg.

Cash flow statement

Polish: rachunek przepływów pieniężnych

The cash flow statement shows cash receipts and payments for a period, split into operating, investing, and financing activities. Operating cash flows are presented using the direct method or the indirect method, which starts from net income. The statement shows where cash came from and where it went, which net income alone does not reveal. Under the Polish Accounting Act, micro and small entities do not have to prepare it.

Compound annual growth rate, CAGR

Polish: średnioroczna stopa wzrostu

The compound annual growth rate (CAGR) is the constant yearly rate at which a quantity, such as revenue, would have to grow to go from its starting value to its ending value. It is calculated as the nth root of the ratio of the ending value to the starting value, minus one. Here n is the number of years between the two values, for example three for 2022–2025. It requires a positive starting value and a nonnegative ending value. CAGR smooths out swings, so it does not show whether growth was even.

See also: financial model, value drivers.

Consolidated and separate financial statements

Polish: sprawozdanie skonsolidowane i jednostkowe

Separate financial statements, also called stand-alone statements, present a single company. Consolidated financial statements present a corporate group as if it were a single entity: they combine the parent and its subsidiaries and eliminate the parent’s investment in them and the transactions and balances between them. When a group does not prepare consolidated statements, the buyer combines the group companies’ figures and eliminates intercompany items itself. Simply adding up the separate statements can overstate revenue and distort earnings and working capital.

Days inventory outstanding, DIO

Polish: cykl rotacji zapasów w dniach / okres utrzymywania zapasów

Days inventory outstanding (DIO) shows how many days, on average, inventory stays in the company before it is sold or used. It is calculated as average inventory divided by cost of goods sold, multiplied by the number of days in the period. A long holding period ties up working capital and may point to inventory that is hard to sell. It is a component of the cash conversion cycle.

Days payables outstanding, DPO

Polish: cykl rotacji zobowiązań w dniach / okres spłaty zobowiązań handlowych

Days payables outstanding (DPO) shows how many days, on average, a company takes to pay its suppliers. It is calculated as average trade payables divided by purchases or by cost of goods sold, multiplied by the number of days in the period. Payables usually include VAT while purchases and costs do not, so both must be put on the same basis and the denominator stated. A buyer may treat heavily overdue payables as debt-like items.

Days sales outstanding, DSO

Polish: cykl rotacji należności w dniach / okres spływu należności

Days sales outstanding (DSO) shows how many days, on average, a company waits to be paid by customers. It is calculated as average trade receivables divided by revenue, multiplied by the number of days in the period. In Poland receivables are usually carried including VAT while revenue excludes it, so both must be put on the same basis first. A rising DSO may mean longer payment terms or collection problems.

Dividend

Polish: dywidenda

A dividend is a distribution to shareholders authorized by their resolution, usually out of the company’s profit. For limited liability and joint-stock companies, the Polish Commercial Companies Code limits the amount available for distribution to the profit for the last fiscal year plus undistributed prior-year profits and distributable amounts from reserves created out of profit, less, among other things, uncovered losses and treasury shares. A dividend paid between the locked box date and closing counts as leakage unless the agreement permits it.

EBIT margin, operating margin

Polish: marża EBIT / marża operacyjna

EBIT margin, or operating margin, is EBIT divided by revenue, expressed as a percentage. Unlike EBITDA margin, it reflects depreciation and amortization, so it better shows the profitability of asset-heavy companies. The gap between the two margins equals depreciation and amortization as a share of revenue. The buyer compares both margins over several years and against competitors.

EBIT, operating profit

Polish: EBIT / zysk operacyjny

EBIT is earnings before interest and taxes. In an income statement prepared under the Polish Accounting Act, it usually corresponds to the line “zysk (strata) z działalności operacyjnej” (operating profit or loss). Companies and analysts do not always define it the same way, so comparisons require checking which items it includes. EBIT reflects depreciation and amortization, so it shows the cost of using up assets better than EBITDA does. It is the basis for the EV/EBIT multiple and for net operating profit after tax (NOPAT).

EBITA

Polish: EBITA

EBITA is earnings before interest, taxes, and amortization of intangible assets. It is calculated by adding back to EBIT the amortization of intangible assets, including goodwill where the accounting rules require it, such as the Polish Accounting Act. Depreciation of fixed assets remains an expense. It is used to compare companies that grow through acquisitions, because it removes the effect of amortizing intangibles recognized in purchase price allocations.

See also: EBITDA; EBIT, operating profit.

EBITDA

Polish: EBITDA

EBITDA is earnings before interest, taxes, depreciation, and amortization, that is, operating profit plus depreciation of fixed assets and amortization of intangible assets. It shows operating results before financing costs and before depreciation and amortization, which are not cash outflows. Other non-cash charges, such as write-downs of receivables, still reduce EBITDA. Neither the Polish Accounting Act nor IFRS defines it, so companies calculate it differently. In deals it is the basis for the EV/EBITDA multiple and the net debt to EBITDA ratio.

Not to be confused with: free cash flow, FCF.

More in the articles “The EBITDA bridge. Why an unqualified audit opinion does not protect the sale price of a company” and “The owner’s EBITDA and the EBITDA a buyer will pay for are two different numbers”.

EBITDA bridge, EBITDA reconciliation

Polish: mostek EBITDA / uzgodnienie EBITDA

An EBITDA bridge, also called an EBITDA reconciliation, is a schedule that leads step by step from EBITDA calculated from reported financial information to adjusted (normalized) EBITDA, showing the amount and rationale for each adjustment. It shows the buyer where the gap between reported EBITDA and the earnings the buyer is asked to pay for comes from. The buyer may reject poorly documented adjustments, which can lower the price.

More in the article “The EBITDA bridge. Why an unqualified audit opinion does not protect the sale price of a company”.

EBITDA margin

Polish: marża EBITDA

EBITDA margin is EBITDA divided by revenue, expressed as a percentage. It shows operating profit before depreciation and amortization as a share of revenue. It allows comparison of operating profitability across companies of different size, provided they are in the same industry and calculate EBITDA the same way. In a deal, the buyer checks whether the margin is sustainable and whether non-recurring items inflate it.

EBITDA normalization

Polish: normalizacja EBITDA

EBITDA normalization is the process of establishing the EBITDA a company earns under ordinary conditions. It removes non-recurring items and items unrelated to operations, and replaces off-market arrangements with the current owner, such as the owner’s pay or rent, with market rates. The result is adjusted (normalized) EBITDA. In a deal, the seller usually prepares the normalization, and the buyer tests it or prepares its own in a quality of earnings (QoE) review.

More in the article “The owner’s EBITDA and the EBITDA a buyer will pay for are two different numbers”.

Financial leverage

Polish: dźwignia finansowa

Financial leverage is the use of debt to finance operations or an acquisition. It raises the return on equity when the return on invested capital exceeds the after-tax cost of debt and lowers it when the return falls short. With an operating loss, interest adds to the net loss. It is measured, for example, by net debt to EBITDA or by the share of debt in total financing. High leverage is the basis of leveraged buyouts, but loan covenants then limit what the company can do.

Financial model

Polish: model finansowy

A financial model is a set of linked calculations, most often in a spreadsheet, that projects a company’s results and cash flows from a set of assumptions, usually for several years. In a full three-statement model, the income statement, balance sheet, and cash flow statement must reconcile; for example, the change in cash on the balance sheet must match the cash flow statement. The model underlies a DCF valuation, a financing plan, and sensitivity analysis. In a deal, the buyer tests its assumptions and mechanics.

Financial statement audit

Polish: badanie sprawozdania finansowego

A financial statement audit is an auditor’s examination of whether the financial statements give a true and fair view of an entity’s financial position and results under the applicable accounting rules. In Poland a statutory audit, one required by law, applies to, among others, going-concern banks, insurers, and joint-stock companies other than those in formation, and entities that in the previous year met at least two of the three size criteria in Article 64(1)(4) of the Accounting Act. An audit gives no absolute assurance and does not replace financial due diligence.

Financial statements

Polish: sprawozdanie finansowe

Financial statements present an entity’s assets and the sources that finance them as of the balance sheet date, and its results for the period ending on that date. Under the Polish Accounting Act they comprise the balance sheet, the income statement, and the notes, and, for entities other than micro and small ones, generally also a cash flow statement and a statement of changes in equity. The annual financial statements of a limited liability or joint-stock company are approved by a resolution of its shareholders.

Free cash flow, FCF

Polish: wolne przepływy pieniężne

Free cash flow (FCF) is the cash left from operations after capital expenditures. Financial analysis often calculates it as operating cash flow less capex. Valuation distinguishes free cash flow to the firm (FCFF), available to all providers of capital, from free cash flow to equity (FCFE), measured after interest and debt repayments and including proceeds from new borrowing. It differs from EBITDA, which ignores taxes, working capital, and investment.

Goodwill

Polish: wartość firmy

Under the Polish Accounting Act, goodwill is the excess of the purchase price of an entity or an organized part of it over the fair value of the identifiable net assets acquired. When a share purchase gives control, it appears in consolidated statements. It arises only in an acquisition. Under the Act, it is amortized over its useful life, or over no more than five years if that life cannot be reliably estimated. Under IFRS, it is tested annually for impairment and not amortized. The Polish term “wartość firmy” is easily confused with enterprise value.

Gross profit and gross margin

Polish: zysk brutto ze sprzedaży i marża brutto

Gross profit is net revenue from sales of products and goods less the cost of products and goods sold. In the by-function income statement under the Polish Accounting Act, it is a separate line, above selling expenses and general and administrative expenses. Gross margin is gross profit divided by revenue, expressed as a percentage. It shows how much of sales remains after the cost of making the products or buying the goods sold. The Polish term “zysk brutto” on its own means profit before tax, not gross profit.

IFRS 16 impact on EBITDA and net debt

Polish: MSSF 16 a EBITDA i dług netto

IFRS 16 requires a lessee to recognize most leases on the balance sheet as a right-of-use asset and a lease liability. Payments included in the lease liability no longer reduce EBITDA and are replaced by depreciation of the right-of-use asset and interest. Compared with the former operating lease treatment, this raises EBITDA, and net debt rises if lease liabilities are included in it. A valuation must therefore treat leases consistently in the multiple and in the EV-to-equity bridge.

More in the article “The owner’s EBITDA and the EBITDA a buyer will pay for are two different numbers”.

Income before taxes and net income

Polish: zysk brutto i zysk netto

Income before taxes, in Polish “zysk brutto,” is operating profit plus finance income less finance costs. Net income, “zysk netto,” is income before taxes less income tax and other mandatory reductions of profit. The net income shown in the approved financial statements is the basis for the shareholders’ resolution on profit distribution. It depends on the financing structure and on taxes, so business valuation more often uses EBITDA or EBIT.

Not to be confused with: gross profit and gross margin.

Income statement, P&L

Polish: rachunek zysków i strat

The income statement, also called the profit and loss statement (P&L), shows an entity’s revenue, expenses, and profit or loss for a period. The Polish Accounting Act allows two formats: by nature of expense, which groups costs by type, and by function of expense, which groups them by function, such as cost of goods sold. Management chooses the format. EBIT and EBITDA are calculated from the income statement; under the by-function format, depreciation and amortization have to be taken from the notes or the accounting records.

Interim dividend

Polish: zaliczka na poczet dywidendy

An interim dividend is a payment of part of the expected dividend during the fiscal year. For limited liability and joint-stock companies, the Polish Commercial Companies Code allows it if the articles authorize the management board, the company has sufficient funds, and the prior year’s approved financial statements show a profit. It may not exceed half of the profit earned since the prior year-end, with statutory adjustments. In a joint-stock company, that profit must appear in audited financial statements, and the supervisory board must approve the payment.

Last twelve months, LTM, TTM

Polish: ostatnie 12 miesięcy

The last twelve months (LTM), also called trailing twelve months (TTM), is the twelve-month period ending at the end of the latest reporting period for which data are available, for example October through September. LTM results are usually calculated by taking the result for the last full fiscal year, adding the year-to-date result for the current year, and subtracting the result for the same period of the prior year. Deals and multiples use LTM figures because they are more current than annual data.

Liquidity

Polish: płynność finansowa

Liquidity is a company’s ability to pay its current obligations on time. It is measured, among other ways, by the current ratio, that is, current assets divided by current liabilities, and by a cash flow forecast. A company can be profitable and still run short of cash, for example when it grows fast and customers pay late. It differs from the liquidity, or marketability, of shares, which is the ability to sell them quickly without a large price discount.

Maintenance and growth capex

Polish: nakłady odtworzeniowe i rozwojowe / capex odtworzeniowy i rozwojowy

Maintenance capex is the spending needed to keep current production and sales capacity, for example replacing worn-out machines. Growth capex funds expansion: new capacity, new products, or new markets. Financial statements usually do not split capex this way, so management sets the split and the buyer verifies it. Understated maintenance capex in a forecast inflates free cash flow and the valuation.

Net working capital, NWC

Polish: kapitał obrotowy netto

Net working capital (NWC), in accounting terms, is current assets less current liabilities. Deals usually define it more narrowly, as operating current assets, mainly inventory and trade receivables, less operating current liabilities, mainly trade payables, excluding cash and financial debt. The parties agree on the exact items in the purchase agreement. In a closing accounts deal, working capital at closing is compared with the working capital peg, and the difference adjusts the price.

More in the article “Cash in the company’s price. Why a seller who fights over the operating minimum loses on the surplus”.

Non-recurring items, one-time items

Polish: zdarzenia jednorazowe

Non-recurring items, also called one-time items, are revenue or costs that arise from unusual circumstances and are not part of the company’s recurring earnings, for example litigation costs, restructuring severance, or a gain on the sale of property. EBITDA normalization removes them to show recurring earnings. The buyer checks whether costs presented as non-recurring appear every year, because such recurrence may show that they are an ordinary cost of doing business.

Operating cash flow

Polish: przepływy pieniężne z działalności operacyjnej

Operating cash flow is the net of cash receipts and payments in a period from a company’s operating activities, which cover its principal business and other activities not classified as investing or financing. It reflects changes in working capital and usually income tax paid. It is shown in the first section of the cash flow statement. Comparing it with EBITDA shows how much of the profit turns into cash.

Operating leverage

Polish: dźwignia operacyjna

Operating leverage is the effect of fixed costs on how strongly operating profit responds to changes in revenue. When fixed costs make up a large share of total costs and operating profit is positive, a small change in revenue can cause a much larger percentage change in that profit, in either direction. Companies with high operating leverage grow profit quickly when sales rise and are more exposed to a drop in demand. It differs from financial leverage, which comes from debt.

Polish Accounting Act vs. IFRS

Polish: ustawa o rachunkowości a MSSF

The Polish Accounting Act and International Financial Reporting Standards (IFRS) are the two sets of rules under which Polish entities prepare financial statements. Consolidated financial statements of banks and of issuers whose securities are admitted to trading on a regulated market must follow IFRS. In other cases allowed by the Act, such as a company in a group whose parent prepares consolidated statements under IFRS, IFRS is optional, and the approving body decides. The two sets of rules differ in, among other things, how they treat leases and goodwill.

Pro forma EBITDA

Polish: EBITDA pro forma

Pro forma EBITDA is EBITDA restated as if a given event had happened at the start of the period, such as the acquisition of another company or the sale of a segment. This makes results after the change comparable with earlier periods. Pro forma adjustments rest on assumptions. Planned cost savings and synergies are shown separately because they have not yet been realized, and the buyer checks which effects have already materialized.

Retained earnings

Polish: zyski zatrzymane

Retained earnings are accumulated profits that the company has not paid out to its owners and that finance its operations. On a balance sheet prepared under the Polish Accounting Act, they appear mainly as prior years’ profit or loss and within reserve capital and other reserves created out of profit. They do not represent the same amount of cash. How much can be paid out from them is set by the profit distribution rules of the Commercial Companies Code.

Return on capital ratios, ROE, ROIC, ROCE

Polish: wskaźniki rentowności kapitału

Return on capital ratios relate profit to capital. Return on equity (ROE) is net income divided by equity. Return on invested capital (ROIC) is net operating profit after tax (NOPAT) divided by the capital invested in operations, usually equity plus net debt less non-operating assets not already in net debt. Return on capital employed (ROCE) is EBIT divided by capital employed, usually total assets less current liabilities. A business creates value when its ROIC stays above its weighted average cost of capital (WACC).

Run-rate

Polish: wynik w ujęciu rocznym

Run-rate is an estimate of annual revenue or earnings at the current scale of the business. The simplest method annualizes a recent short period, for example by multiplying the last quarter’s result by four. Run-rate may also include the full-year effect of new contracts or acquisitions that annual results do not yet reflect. Simple extrapolation ignores seasonality, so run-rate figures need checking before they are used in a valuation.

Year to date, YTD

Polish: od początku roku

Year to date (YTD) is the period from the first day of the fiscal or calendar year through the reporting date, for example January through September. YTD results are usually compared with the same period of the prior year. They are also used to calculate last twelve months (LTM, TTM) results.