Valuation

M&A and corporate finance glossary: 58 entries in English and Polish

M&A and corporate finance glossary: valuation

The entries in this section deal with valuing a business and its shares. They cover income, market, and asset-based methods, the cost of capital, standards of value, and the premiums and discounts applied to blocks of shares, as well as investment measures such as NPV and IRR and sensitivity and scenario analysis.

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

Entries from A to Z (58):

Adjusted net asset method
Adjusted present value, APV
Beta
Business valuation methods
Capital asset pricing model, CAPM
Company-specific risk premium
Control premium
Cost of debt
Cost of equity
Discount for lack of control, DLOC
Discount for lack of marketability, DLOM
Discount rate
Discounted cash flow, DCF
Enterprise value, EV
Equitable value
Equity risk premium
Equity value
EV-to-equity bridge
EV/EBIT multiple
EV/EBITDA multiple
EV/sales multiple
Fair value
Fairness opinion
Football field chart
Free cash flow to equity, FCFE
Free cash flow to the firm, FCFF
Gordon growth model
Internal rate of return, IRR
Investment value
LBO analysis
Liquidation value
Market value
Multiples method
Net operating profit after tax, NOPAT
Net present value, NPV
Payback period
Pre-money and post-money valuation
Precedent transactions
Price-to-book ratio, P/B
Price-to-earnings ratio, P/E
Purchase price allocation, PPA
Risk-free rate
Scenario analysis
Sensitivity analysis
Size premium
Standards of value
Startup valuation
Sum-of-the-parts valuation, SOTP
Synergistic value
Terminal value
Time value of money
Trading comparables
Valuation date
Valuation for legal purposes
Valuation range
Value drivers
Value vs. price
Weighted average cost of capital, WACC

Adjusted net asset method

Polish: metoda skorygowanych aktywów netto

The adjusted net asset method is a method within the asset-based approach that sets equity value as the difference between a company’s assets and liabilities, each restated to market value at the valuation date. It is useful for holding companies, real estate companies, and businesses whose earnings do not reflect the value of their assets. It may not fully capture the value of the business as a going concern, although identifiable intangible assets, such as customer relationships, can be valued separately.

Adjusted present value, APV

Polish: skorygowana wartość bieżąca

Adjusted present value (APV) is a method within the income approach that values a business as if it were financed entirely with equity, then adds the present value of the benefits of debt financing, chiefly the interest tax shield, and deducts its costs, such as the costs of financial distress. It is useful when the capital structure changes over time, for example in leveraged buyouts and restructurings, because it does not require a constant WACC.

Beta

Polish: współczynnik beta

Beta measures how strongly a company’s stock returns respond to movements in the market as a whole. A beta of 1 means the same sensitivity as the market, and a beta above 1 means above-average systematic risk. For private companies, beta is derived from comparable listed companies by removing the effect of their debt and then adjusting it to the capital structure of the company being valued.

Business valuation methods

Polish: metody wyceny przedsiębiorstwa

Business valuation methods are the ways of estimating what a business or its shares are worth, grouped into three approaches: income, market, and asset-based. The income approach relies on future cash flows, the market approach on prices of similar companies or deals, and the asset-based approach on the value of assets less liabilities. Comparing the results of several methods helps test how reliable a valuation is and supports a range of value. The price agreed in a deal need not fall within that range.

More in the article “Four valuations of one company. Each answered a different question”.

Capital asset pricing model, CAPM

Polish: model CAPM

The capital asset pricing model (CAPM) sets a stock’s expected return as the risk-free rate plus the equity risk premium multiplied by beta. It assumes investors are rewarded only for systematic risk, which diversification cannot remove. In valuing private companies, the result may be supplemented with additional premiums if the valuation analyst shows that the model misses part of the company’s risk.

Company-specific risk premium

Polish: premia za ryzyko specyficzne

A company-specific risk premium is an addition to the cost of equity that reflects risk factors specific to the company, such as dependence on a single customer or on key people such as the owner. It usually cannot be read from market data, so it rests on the valuation analyst’s judgment. The valuation report should state which risks the premium covers and show that they are not already reflected in the forecasts or in other parts of the discount rate.

See also: cost of equity, discount rate.

Not to be confused with: size premium.

Control premium

Polish: premia za kontrolę

A control premium is the amount by which the price of a controlling stake exceeds the value of the same shares measured at minority-stake prices. It reflects the power to decide on strategy, management, dividends, and financing. In public markets it is estimated by comparing the tender offer price with the share price before news of the deal became public. A premium measured this way is an acquisition premium and may also reflect the buyer’s synergies and competition between bidders.

Not to be confused with: discount for lack of control, DLOC.

Cost of debt

Polish: koszt długu

The cost of debt is the return a company’s lenders require, that is, the cost of raising debt on market terms at the valuation date. It is estimated from current borrowing rates and yields on bonds with comparable credit risk. In the weighted average cost of capital (WACC), it is taken after tax to the extent that interest reduces taxable income.

Cost of equity

Polish: koszt kapitału własnego

The cost of equity is the return owners require for bearing the risk of investing in a company. It can be estimated with the CAPM as the risk-free rate plus beta times the equity risk premium. For small private companies, the result may be increased by a size premium or a company-specific risk premium if that risk is not already in the forecasts or elsewhere in the rate. It is usually higher than the cost of debt, because owners hold a residual claim that ranks behind lenders.

Discount for lack of control, DLOC

Polish: dyskonto z tytułu braku kontroli / pakietu mniejszościowego

A discount for lack of control (DLOC) is the reduction in the value of shares that do not confer control, relative to their pro rata share of the total equity value on a control basis. It arises because a minority shareholder does not decide on dividends, management, or a sale of the company. Its size depends above all on the rights the stake carries, such as a veto or influence over board appointments, and it is linked to the control premium.

Discount for lack of marketability, DLOM

Polish: dyskonto z tytułu braku płynności

A discount for lack of marketability (DLOM) is the reduction in the value of shares that cannot be sold quickly and cheaply, compared with similar listed shares. It applies mainly to private companies and concerns the ability to sell the shares; the company’s own liquidity is a separate matter. Its size is estimated from empirical studies or option-pricing models. Some Polish literature treats a discount for restricted transferability as a separate concept.

Not to be confused with: liquidity.

Discount rate

Polish: stopa dyskontowa

The discount rate is the rate used to bring future cash flows back to present value at the valuation date. It reflects the time value of money and the risk of the cash flows, so it must match the type of cash flow: the weighted average cost of capital (WACC) for free cash flow to the firm, and the cost of equity for free cash flow to equity. It must also match the currency of the forecast and whether the forecast is nominal or real.

Discounted cash flow, DCF

Polish: metoda zdyskontowanych przepływów pieniężnych

The discounted cash flow (DCF) method is a method within the income approach that brings projected cash flows back to the valuation date at a discount rate reflecting their risk. Free cash flow to the firm, discounted at the weighted average cost of capital, gives enterprise value; free cash flow to equity, discounted at the cost of equity, gives equity value. The result covers the explicit forecast period and a terminal value. It depends heavily on the forecasts, the cost of capital, and the terminal value assumptions.

Not to be confused with: multiples method.

Enterprise value, EV

Polish: wartość przedsiębiorstwa

Enterprise value (EV) is the value of a company’s operations to all providers of capital, owners and lenders alike, regardless of how the company is financed. It equals equity value plus net debt, debt-like items, and non-controlling interests, less non-operating assets not already in net debt. EV/EBITDA and EV/EBIT multiples are based on it, and the bridge to the price of the shares starts from it.

Not to be confused with: goodwill, equity value.

More in the article “Company debt before a sale. Too little costs you for years, too much costs you at the deal”.

Equitable value

Polish: wartość słuszna

Equitable value is a basis of value under the International Valuation Standards (IVS): the estimated price for the transfer of an asset or liability between identified, knowledgeable, and willing parties that reflects the respective interests of those parties. It is used, for example, in setting the price of shares between shareholders or in disputes. IVS called it fair value until its 2017 edition, so it must be kept apart from fair value under IFRS 13.

Not to be confused with: fair value.

Equity risk premium

Polish: premia za ryzyko rynkowe / rynku akcji

The equity risk premium is the excess of the expected return on the stock market over the risk-free rate that investors require for the risk of holding equities. It is estimated from historical returns, market-implied valuations, or surveys. For Poland, one approach is a mature-market premium plus a country risk premium. Country risk must then not be counted twice if the risk-free rate already includes it. In the CAPM, the premium is multiplied by beta.

Equity value

Polish: wartość kapitału własnego

Equity value is the value attributable to a company’s owners, that is, the value of all its shares. It is calculated by deducting net debt, debt-like items, and non-controlling interests from enterprise value and adding non-operating assets not already in net debt. For a listed company, market capitalization is the reference point; in a deal, equity value is the starting point for setting the price of the shares.

See also: EV-to-equity bridge, net debt.

Not to be confused with: enterprise value, EV.

More in the articles “Company debt before a sale. Too little costs you for years, too much costs you at the deal” and “Cash in the company’s price. Why a seller who fights over the operating minimum loses on the surplus”.

EV-to-equity bridge

Polish: przejście od wartości przedsiębiorstwa do wartości kapitału własnego

The EV-to-equity bridge is the set of items that leads from enterprise value to equity value at the valuation date. It includes, for example, net debt, debt-like items, non-operating assets, and non-controlling interests. In a deal, depending on the purchase price mechanism, it may also include an adjustment for any gap between working capital and the working capital peg. These items determine how much of the agreed enterprise value belongs to the shareholders.

EV/EBIT multiple

Polish: mnożnik EV/EBIT

The EV/EBIT multiple is enterprise value divided by operating profit (EBIT). Unlike EV/EBITDA, it reflects depreciation and amortization, so it partly captures differences in capital intensity between companies, although depreciation does not equal the spending needed to replace assets. It is sensitive to differences in depreciation policies and to impairments, so the data must be checked for consistency before companies are compared.

EV/EBITDA multiple

Polish: mnożnik EV/EBITDA

The EV/EBITDA multiple is enterprise value divided by EBITDA, that is, earnings before interest, taxes, depreciation, and amortization. Both measures cover the whole operating business, so the multiple helps compare companies with different debt levels and depreciation policies, provided leases are treated consistently in both measures. In deals it is usually applied to normalized EBITDA, adjusted for non-recurring items, and the resulting enterprise value is then bridged to equity value, the starting point for the price of the shares.

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”.

EV/sales multiple

Polish: mnożnik EV/przychody

The EV/sales multiple is enterprise value divided by revenue. It is used especially when a company does not yet have positive operating profit, for example a fast-growing technology firm. It ignores differences in profitability, so it is used to compare companies with similar margins or alongside other measures.

Fair value

Polish: wartość godziwa

Under IFRS 13 and US GAAP (ASC 820), fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. It is an exit price that leaves out benefits specific to one buyer. The Polish Accounting Act has its own definition (Article 28(6)). Fair value differs from equitable value under the International Valuation Standards (IVS), which IVS also called fair value until 2017.

Not to be confused with: market value, equitable value.

Fairness opinion

Polish: opinia o godziwości ceny

A fairness opinion is a financial advisor’s opinion on whether the price or other financial terms of a transaction, such as a share exchange ratio, are fair, from a financial point of view, to a specified group, such as a company’s shareholders. It is prepared for the management or supervisory board to document the care behind a decision, for example in a tender offer, merger, or related-party transaction. It rests on valuation analyses whose scope and limits it describes. It is not a recommendation to enter into the transaction.

Football field chart

Polish: wykres przedziałów wyceny

A football field chart sets side by side the value ranges produced by different methods, for example DCF, trading comparables, precedent transactions, and LBO analysis. The ranges must be expressed on the same basis, such as enterprise value or price per share. The chart shows where the results overlap and helps set the valuation range presented to the board or used in negotiation. The length of each bar depends on the assumptions used, such as the range of multiples.

More in the article “Four valuations of one company. Each answered a different question”.

Free cash flow to equity, FCFE

Polish: wolne przepływy pieniężne dla właścicieli

Free cash flow to equity (FCFE) is net income plus depreciation and amortization and proceeds from new borrowing, less capital expenditures, increases in operating working capital, and debt repayments. Interest is already deducted in net income. It shows what the company could pay out to owners, whatever dividends it actually pays. It is discounted at the cost of equity, which gives equity value directly. The method is used, for example, for banks, where debt is part of the business model.

Not to be confused with: free cash flow to the firm, FCFF.

Free cash flow to the firm, FCFF

Polish: wolne przepływy pieniężne dla przedsiębiorstwa / firmy

Free cash flow to the firm (FCFF) is operating profit (EBIT) less taxes computed as if the company had no debt, plus depreciation and amortization, less capital expenditures and increases in operating working capital. It is measured before any payments to lenders or owners. It belongs to all providers of capital, so it is discounted at the weighted average cost of capital (WACC), which gives enterprise value.

Not to be confused with: free cash flow to equity, FCFE.

Gordon growth model

Polish: model Gordona

The Gordon growth model values a stream of cash flows growing at a constant rate forever: the normalized cash flow for the first year after the explicit forecast period is divided by the discount rate minus the constant growth rate. In business valuation it gives the terminal value. The cash flow must allow for the reinvestment needed to sustain that growth. The growth rate must be below the discount rate and should not exceed long-term economic growth, measured on the same nominal or real basis.

Internal rate of return, IRR

Polish: wewnętrzna stopa zwrotu

The internal rate of return (IRR) is the discount rate at which an investment’s net present value equals zero. With a conventional pattern of cash flows, an outlay followed by inflows, an IRR above the required rate of return means a positive NPV. When cash flows change sign more than once, there may be several IRRs. Private equity funds assess returns with IRR alongside the multiple on invested capital (MOIC), because IRR accounts for time while MOIC shows how many times the invested capital has been multiplied.

Investment value

Polish: wartość inwestycyjna / indywidualna

Investment value is the value of an asset or a business to a particular current or prospective owner, given that owner’s investment goals, financing costs, and possible synergies. It can be higher or lower than market value. In a deal, it can be the basis for setting the highest price a given buyer is willing to pay after allowing for transaction costs and terms.

Not to be confused with: market value.

More in the article “Four valuations of one company. Each answered a different question”.

LBO analysis

Polish: analiza LBO

LBO analysis values a company from the perspective of a private equity fund financing the acquisition largely with debt: it finds the highest price at which the fund earns its required internal rate of return (IRR), given assumed cash flows, leverage, and exit value. The result shows what a financial buyer can pay. In a sale process it is one of the reference points alongside DCF and the multiples method.

More in the article “The CEO was preparing the sale of the company to a competitor. In the end he bought it with his team for PLN 61.1 million”.

Liquidation value

Polish: wartość likwidacyjna

Liquidation value is the amount owners would receive after selling a company’s assets separately, paying its liabilities, and covering the costs of liquidation. It assumes the business stops operating, so asset prices are usually lower than in a sale of a going concern. An orderly liquidation is distinguished from a forced sale on short notice, which usually yields less. Liquidation value is a reference point in assessing a company’s value where liquidation is a legally and economically realistic option.

Market value

Polish: wartość rynkowa

Market value is the estimated amount for which an asset or liability would be exchanged on the valuation date between a willing buyer and a willing seller, independent of each other, after proper marketing, with both parties acting knowledgeably, prudently, and without compulsion. This is how the International Valuation Standards (IVS) frame it. Market value leaves out benefits available to only one buyer, such as special synergies.

Not to be confused with: fair value.

Multiples method

Polish: metoda mnożnikowa

The multiples method, part of the market approach, estimates enterprise value or equity value by applying to a company’s financial figures multiples derived from comparable companies or precedent transactions, such as EV/EBITDA or the price-to-earnings ratio (P/E). The result depends on the choice of comparables and on adjustments for differences in size, growth, profitability, and marketability.

Not to be confused with: discounted cash flow, DCF.

More in the article “Four valuations of one company. Each answered a different question”.

Net operating profit after tax, NOPAT

Polish: zysk operacyjny po opodatkowaniu

Net operating profit after tax (NOPAT) is operating profit (EBIT) less taxes calculated as if the company had no debt and paid no interest. It shows the result of operations regardless of how the company is financed. It is the starting point for free cash flow to the firm (FCFF) and for return on invested capital (ROIC).

Net present value, NPV

Polish: wartość bieżąca netto

Net present value (NPV) is the sum of an investment’s discounted future cash flows less its initial outlay. A positive NPV means the investment earns more than the required rate of return used for discounting. In an acquisition, a positive NPV means the value of the acquired shares to the buyer, including synergies and net of integration costs, exceeds the price paid for them.

Payback period

Polish: okres zwrotu

The payback period is the time it takes for an investment’s cumulative cash flows to cover its initial outlay. It is simple to calculate but ignores cash flows after that point and, in its basic form, the time value of money. It shows how quickly the outlay is recovered but does not measure profitability.

Pre-money and post-money valuation

Polish: wycena pre-money i post-money

Pre-money valuation is the equity value of a company before a new investor’s money comes in; post-money valuation is that value plus the new capital raised. In a simple round in which the investor subscribes for new shares in cash, the investor’s stake after the round equals the investment divided by the post-money valuation. The parties must agree whether the share count used to set the price per share already includes the employee option pool and shares from converting convertible loans, because this determines the effective price per share.

Precedent transactions

Polish: transakcje porównawcze / porównywalne

Precedent transactions are past acquisitions of similar companies whose multiples, such as deal enterprise value (EV) to EBITDA, are used to value a business. Prices in such deals may reflect a control premium, synergies available to a particular buyer, and terms specific to the deal. Data on acquisitions of private companies is often incomplete, and market conditions at the time of a deal may differ from today’s.

Not to be confused with: trading comparables.

Price-to-book ratio, P/B

Polish: wskaźnik cena/wartość księgowa, C/WK

The price-to-book ratio (P/B) is the market value of equity divided by its book value. It matters mainly for companies whose value lies in financial or physical assets, such as banks, insurers, or real estate companies. In firms whose value comes from know-how and customer relationships, book value says little about market value.

Price-to-earnings ratio, P/E

Polish: wskaźnik cena/zysk, C/Z

The price-to-earnings ratio (P/E) is the share price divided by earnings per share, or market capitalization divided by net income attributable to shareholders. It relates to equity value, so it depends on leverage, interest expense, taxes, and non-recurring items. When comparing companies with different debt levels, multiples based on enterprise value give a clearer picture.

Not to be confused with: EV/EBITDA multiple.

Purchase price allocation, PPA

Polish: alokacja ceny nabycia

Purchase price allocation (PPA) assigns the consideration for an acquired business, including contingent consideration at acquisition-date fair value, to its identifiable assets and liabilities, generally measured at fair value at the acquisition date, including intangibles such as brands and customer relationships. Under IFRS 3, the excess of the consideration, plus the amount of any non-controlling interest and the fair value of any previously held interest, over those net assets is goodwill. The allocation is recognized in the acquirer’s own statements or, when control is acquired through a stock purchase, in its consolidated statements.

Risk-free rate

Polish: stopa wolna od ryzyka

The risk-free rate is the return on an investment with practically no default risk, usually taken as the yield on government bonds in the currency of the valuation. For a valuation in Polish zloty, the reference is usually the yield on long-term Polish government bonds. These yields may include a premium for sovereign credit risk, which has to be considered when setting the equity risk premium. The rate is the starting point for the cost of equity in the CAPM.

Scenario analysis

Polish: analiza scenariuszy

Scenario analysis values a business under several internally consistent sets of assumptions, for example base, upside, and downside cases, in which many inputs such as revenue, margins, and capital expenditures change at once. It shows how value responds to different courses of events. Scenario results can be weighted by their probability. Scenario analysis complements sensitivity analysis, which changes one or two assumptions.

See also: valuation range, financial model.

Not to be confused with: sensitivity analysis.

Sensitivity analysis

Polish: analiza wrażliwości

Sensitivity analysis shows how the valuation result changes when one or two assumptions change and the others stay fixed. Typical inputs tested are the cost of capital, the long-term growth rate, the margin, or the multiple. The result is usually shown in a table. The analysis shows which assumptions the valuation depends on most and helps support the valuation range.

See also: valuation range, value drivers.

Not to be confused with: scenario analysis.

Size premium

Polish: premia za wielkość

A size premium is an addition to the cost of equity intended to reflect the higher risk of small companies compared with the large listed companies on whose data beta and the equity risk premium are usually based. It is estimated from studies of historical stock returns of companies of different sizes. The valuation report should name the source of the premium used and justify applying it.

See also: cost of equity, discount rate.

Not to be confused with: company-specific risk premium.

Standards of value

Polish: standardy / podstawy wartości

Standards of value, called bases of value in the International Valuation Standards (IVS), are definitions that state what kind of value a valuation determines: for whom, and under what assumptions about the parties and the terms of the transaction. Examples include market value, fair value, equitable value, and investment value. The same company can have different values under different standards, so the valuation engagement should name the standard at the outset.

More in the article “Four valuations of one company. Each answered a different question”.

Startup valuation

Polish: wycena startupu

Startup valuation is estimating the value of a young company with high growth potential and high uncertainty about its future results. Such a company often does not yet have stable revenue or profits, so methods based on earnings are of limited use. Tools used include revenue multiples, the venture capital method, which works back from the value at exit and the investor’s target return, and comparison with valuations in similar funding rounds. The outcome depends largely on negotiation between founders and investors.

Sum-of-the-parts valuation, SOTP

Polish: metoda sumy części

A sum-of-the-parts (SOTP) valuation values a company with several distinct businesses as the sum of the values of its segments. Each segment is valued with a method suited to its industry, such as DCF or multiples, usually as enterprise value. The capitalized value of unallocated corporate overhead is deducted from the total, and the EV-to-equity bridge items, including net debt, are then applied. For a listed group, the method shows whether the market values it below the sum of its parts, which can support separating or selling a segment.

Synergistic value

Polish: wartość synergiczna / połączenia

Synergistic value is the value that arises from combining two or more assets or businesses when the combined value exceeds the sum of the separate values. It matters in an acquisition by a strategic buyer that can achieve synergies other buyers cannot. The buyer may be willing to pay the seller part of this excess, so the price in such a deal can exceed market value.

Terminal value

Polish: wartość rezydualna / końcowa

Terminal value is the value of the business, or of equity in an FCFE model, attributable to the years beyond the explicit forecast period, expressed as of the end of that period. It is calculated either from the cash flows of later years, for example with the Gordon growth model, assuming a constant growth rate, or with an exit multiple. It usually makes up a large part of a DCF result, so the assumptions behind it need particular care.

Time value of money

Polish: wartość pieniądza w czasie

The time value of money is the principle that an amount received today is worth more than the same amount received in the future, because it can be invested right away to earn a return. Discounting, which brings future cash flows to present value, rests on this principle. The discount rate also reflects the risk of future cash flows and, when the forecast is nominal, inflation. The principle underlies the DCF method and the NPV and IRR measures.

Trading comparables

Polish: spółki porównywalne

Trading comparables, also called guideline public companies, are listed companies similar to the one being valued in industry, business model, size, and outlook, whose market multiples are used in the valuation. These multiples reflect prices of minority stakes traded on the exchange. Valuing a private company may therefore call for adjustments for differences in control and marketability, such as a control premium or a discount for lack of marketability, unless the valuation already reflects them in another way.

Not to be confused with: precedent transactions.

Valuation date

Polish: dzień / data wyceny

The valuation date is the date as of which the value of a business or shares is determined. A valuation reflects information and market conditions known or knowable at that date, so later events usually do not change its result. The valuation date may differ from the date of the valuation report. In a valuation for legal purposes, it is often set by a statute, the articles of association, or a court.

Valuation for legal purposes

Polish: wycena do celów prawnych

A valuation for legal purposes is prepared when the value of shares or a business is set under a statute, the articles of association, or a court ruling, for example on a shareholder’s exit or expulsion, a share redemption, an estate or property division, or litigation. The standard of value and the valuation date may follow from the statute, the articles, or the ruling; otherwise they follow from the purpose of the valuation. In a dispute, the court reviews it, usually with an expert’s help, so its assumptions need careful documentation.

More in the article “Partner splits most often begin with the company’s success”.

Valuation range

Polish: przedział wyceny

A valuation range is the span within which, in the valuation analyst’s judgment, the value of a business lies under stated assumptions. It may come from scenario analysis, from sensitivity analysis of the main assumptions such as the cost of capital, growth rates, or multiples, and from comparing the results of different methods. In a sale, it helps the seller set price expectations and assess the offers received.

More in the article “Four valuations of one company. Each answered a different question”.

Value drivers

Polish: czynniki wartości

Value drivers are the variables that most affect a company’s value, such as revenue growth, operating margin, capital expenditures, working capital, and the cost of capital. Understanding them helps assess which management actions may increase value and prepare a company for sale. Sensitivity analysis tests how a change in each of them affects the valuation result.

Value vs. price

Polish: wartość a cena

Value is an estimate of what a business is worth under a specified standard of value and stated assumptions; price is the amount the parties actually agree on. The same company can have a different investment value to different buyers, for example because of synergies, financing costs, or plans for the business. Price emerges in negotiation and also depends on the number of interested buyers, the purchase price mechanism, and how the agreement allocates risk.

More in the article “Four valuations of one company. Each answered a different question”.

Weighted average cost of capital, WACC

Polish: średni ważony koszt kapitału

The weighted average cost of capital (WACC) is the return that providers of equity and debt together require, weighted by the market values of equity and debt, usually in the company’s target capital structure. The cost of debt is taken after tax to the extent that interest reduces taxable income. In a DCF valuation, WACC is the discount rate for free cash flow to the firm (FCFF).

If you need a company valuation, see the service page Company valuations.

Other sections of the glossary: Deal basics and types, Sale process and documents, Due diligence, Price and settlement, SPA and risk allocation, Shareholders and investor rights, Financial statements and metrics, Stock exchange, Corporate banking. Index of all entries: M&A and corporate finance glossary.