{"id":250620,"date":"2026-06-23T18:45:36","date_gmt":"2026-06-23T21:45:36","guid":{"rendered":"https:\/\/valoriza.com\/?p=250620"},"modified":"2026-07-07T19:01:17","modified_gmt":"2026-07-07T22:01:17","slug":"glosario-esencial-de-terminos-financieros","status":"publish","type":"post","link":"https:\/\/valoriza.com\/en\/articulos\/blog\/glosario-esencial-de-terminos-financieros\/","title":{"rendered":"Essential glossary of financial terms for entrepreneurs\u00a0"},"content":{"rendered":"

Whoever manages a company makes financial decisions every day, often without dwelling on the technical vocabulary that underlies them. That distance between the business owner's intuition and the formal language of corporate finance is rarely a problem as long as the company operates normally. <\/p>\n\n\n\n

But the moment that gap becomes costly is predictable: when an advisor arrives to explain a valuation, when a potential buyer puts an EBITDA multiple on the table, when a bank makes a loan conditional on a specific covenant, or when a corporate restructuring forces you to understand what is moving and why. <\/p>\n\n\n\n

In those instances, not knowing financial terms hinders the conversation and leaves the entrepreneur at a disadvantage compared to those who do master them.\u00a0<\/p>\n\n\n\n

This glossary brings together the concepts that most frequently appear in valorization processes<\/a>, M&A, financing and tax planning.\u00a0<\/strong><\/p>\n\n\n\n

It is not intended to be exhaustive (the universe of financial terminology is vast) but practical: each definition is designed for a business owner to understand what the term means, why it matters, and in what situation they will encounter it. <\/p>\n\n\n\n

The terms are grouped by conceptual family, so that each category can be read as a coherent unit rather than as isolated entries in alphabetical order. <\/p>\n\n\n\n

Result and profitability indicators <\/h2>\n\n\n\n

EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization)<\/a>.\u00a0<\/strong>It is a company's profit before deducting interest, taxes, depreciation, and amortization. It measures the business's ability to generate cash flow from its operations, isolating the effect of how it is financed (debt versus equity) and accounting decisions such as depreciation. It is the most widely used metric in valuation and M&A because it allows for the comparison of companies with different capital structures. When a buyer talks about paying \u201cseven times EBITDA,\u201d they are using this figure as the basis for the price.\u00a0<\/p>\n\n\n\n

EBIT (Earnings Before Interest and Taxes).<\/strong> It is operating profit: similar to EBITDA but after subtracting depreciation and amortization. It reflects the business result considering the wear and tear of its assets, which brings it closer to real economic profitability than EBITDA. <\/p>\n\n\n\n

Operating margin.<\/strong> It is EBIT expressed as a percentage of revenue. It indicates how many pesos of operating profit the company generates for each peso of sales. A stable margin comparable to that of the industry is a sign of a healthy business; an erratic margin usually triggers red flags in any valuation process. <\/p>\n\n\n\n

Net income.<\/strong> It is the final result of the fiscal year, after deducting absolutely everything: costs, expenses, interest, and taxes. It is the figure that ultimately belongs to the owners and the basis upon which dividends are distributed. <\/p>\n\n\n\n

Free Cash Flow.<\/strong> It is the cash generated by the company after covering both its operating expenses and the investments necessary to sustain and grow the business (working capital and fixed assets). Unlike net income, which is an accounting concept, free cash flow measures actual available cash. It is the core input for discounted cash flow valuation. <\/p>\n\n\n\n

\"terminos<\/figure>\n\n\n\n

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Valorization <\/h2>\n\n\n\n

DCF (Discounted Cash Flow, or discounted cash flow).<\/strong>\u00a0It is valuation methodology<\/a><\/strong> more rigorous and widely recognized. It consists of projecting the future cash flows that the company will generate and discounting them to present value using a discount rate. The logic is that a company is worth what its future cash-generating capacity is worth, adjusted for risk and the time value of money.\u00a0<\/p>\n\n\n\n

Discount rate.<\/strong> It is the percentage used to convert future cash flows into present value. It reflects the opportunity cost and the risk of the business: the more uncertain or risky the projected cash flow, the higher the rate and the lower the resulting present value. <\/p>\n\n\n\n

WACC (Weighted Average Cost of Capital).<\/strong> It is the most widely used discount rate in a DCF valuation. It combines the cost of debt and the cost of equity, weighted according to the proportion of each in the company's financing. It represents the minimum return the business must generate to satisfy all its financiers. <\/p>\n\n\n\n

Terminal value.<\/strong> Since it is not possible to project cash flows to infinity, DCF valuation projects a limited number of years and then estimates a \u201cterminal value\u201d that captures the value of all subsequent cash flows. In many valuations, this terminal value represents a significant proportion of the total value, which is why the assumptions behind it deserve special scrutiny. <\/p>\n\n\n\n

Multiple comparables.<\/strong> It is an alternative (or complementary) valuation method to the DCF. It consists of estimating the value of a company by applying the multiples at which similar companies have been traded or are traded \u2014for example, value-to-EBITDA, value-to-sales, or price-to-earnings. It is especially useful as a market check against the result of a DCF. <\/p>\n\n\n\n

Enterprise Value.<\/strong> It is the total value of the business transaction, regardless of how it is financed. It is calculated as the value of equity plus net financial debt. It is the figure to which EBITDA multiples are applied, and it is best not to confuse it with equity value (what the owner actually receives). <\/p>\n\n\n\n

Equity Value.<\/strong> It is what the owners' stake is worth once debt is subtracted. It is the relevant figure for the seller: the effective price of their shares. The difference between Enterprise Value and Equity Value is precisely the net financial debt, and understanding it avoids costly misunderstandings in a negotiation. <\/p>\n\n\n\n

Financial structure and debt <\/h2>\n\n\n\n

Net financial debt.<\/strong> It is the total debt with a financial cost (bank loans, bonds, leasing) minus available cash and cash equivalents. It represents the company's \u201creal\u201d debt, discounting the cash that could be used to pay it off. It is a key component to move from enterprise value to equity value. <\/p>\n\n\n\n

Leverage.<\/strong> It is the degree to which a company finances its operations with debt rather than equity. Higher leverage amplifies both gains and losses, and increases financial risk. It is usually measured by the Net Financial Debt to EBITDA ratio. <\/p>\n\n\n\n

Covenant.<\/strong> It is a financial condition or commitment that a bank or creditor imposes in a credit agreement. For example, keeping the debt-to-EBITDA ratio below a certain level. Breaching a covenant can trigger the early acceleration of the loan, making it a term that every business owner with structured financing must monitor. <\/p>\n\n\n\n

Working capital. <\/strong>It is the difference between current assets (accounts receivable, inventory, cash) and current liabilities (accounts payable). It measures the resources the company needs to tie up to operate day-to-day. Changes in working capital directly affect cash flow, and its normalization is one of the most heavily negotiated points in an M&A transaction. <\/p>\n\n\n\n

Capital structure.<\/strong> It is the combination of debt and equity with which a company finances its assets. The optimal structure seeks to minimize the cost of capital (WACC) without assuming excessive financial risk. <\/p>\n\n\n\n

\"terminos<\/figure>\n\n\n\n

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Mergers and acquisitions (M&A) <\/h2>\n\n\n\n

M&A (Mergers and Acquisitions).<\/strong>\u00a0It is the set of transactions through which companies are bought, sold, or merged<\/a><\/strong>. It ranges from the search for the counterparty to negotiation, structuring, and closing.\u00a0<\/p>\n\n\n\n

Due diligence.<\/strong> It is the process of comprehensive review carried out by a buyer (or a seller preparing) before closing a transaction. It covers the financial, commercial, legal, tax, and labor audit of the target company, in order to validate information, identify risks, and adjust the price or conditions. <\/p>\n\n\n\n

Letter of Intent (LOI).<\/strong> It is the document that formalizes the parties' interest in moving forward with a transaction, establishing the main terms before the definitive negotiation. It is usually non-binding regarding the price, but sets the framework for the process. <\/p>\n\n\n\n

Earn-out.<\/strong> It is a mechanism by which part of the purchase price is conditioned on the future performance of the acquired company. It allows closing the gap when buyer and seller disagree on value: the seller receives the additional amount only if the company meets certain goals after the sale. <\/p>\n\n\n\n

Synergy.<\/strong> It is the additional value generated when two companies combine and the result is worth more than the sum of their separate parts, whether through cost reduction, increased revenue, or operational efficiencies. The quantification of synergies usually justifies the premium that a strategic buyer is willing to pay. <\/p>\n\n\n\n

Scouting.<\/strong> It is the active and structured search for potential buyers or sellers for a transaction, considering strategic criteria and synergies, based on the client's objectives. <\/p>\n\n\n\n

Tax and corporate aspects <\/h2>\n\n\n\n

PPA (Purchase Price Allocation).<\/strong> It is the accounting process by which, following an acquisition, the price paid is allocated among the various identifiable assets and liabilities of the acquired company, assigning the remainder to goodwill. It has relevant accounting and tax implications. <\/p>\n\n\n\n

Goodwill (lesser value).<\/strong> It is the premium paid by a buyer above the fair value of a company's identifiable net assets. It reflects intangibles not recorded on the balance sheet, such as brand equity, customer base, or market position. It appears on the buyer's balance sheet following an acquisition. <\/p>\n\n\n\n

Transfer pricing.<\/strong> They are the prices at which transactions are carried out between related companies (for example, subsidiaries of the same group). Tax regulations require these prices to be adjusted to market conditions, which frequently requires valuation reports to support them before the regulator. <\/p>\n\n\n\n

Corporate restructuring.<\/strong> It is the reorganization of the legal and ownership structure of a group of companies\u2014mergers, spin-offs, contributions, creation of holdings\u2014usually with objectives of operational, tax, or governance efficiency. It typically requires valuations to support the values at which the movements are made. <\/p>\n\n\n\n

Estate.<\/strong> It is the set of assets, rights, and obligations that a person leaves behind upon death and which is distributed among their heirs. When that estate includes shares in companies, their valuation is decisive for the purposes of the succession and the associated tax obligations. <\/p>\n\n\n\n

\"terminos<\/figure>\n\n\n\n

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Corporate governance and incentives <\/h2>\n\n\n\n

Corporate governance.<\/strong> It is the set of practices, structures, and rules through which a company is directed and controlled, defining how decisions are made and how the interests of shareholders, management, and other relevant groups are balanced. Good corporate governance is, in itself, a factor that adds value to the company. <\/p>\n\n\n\n

Vesting.<\/strong> It is the mechanism by which an executive gradually acquires the right to a benefit \u2014typically shares or stock options\u2014 as they fulfill a retention period or certain goals. It seeks to align the executive's interest with long-term value creation. <\/p>\n\n\n\n

Stock options<\/a>.<\/strong>\u00a0They are options that grant an executive the right to buy company shares at a preset price in the future. If the company grows and its shares are worth more, the executive captures that difference, which incentivizes them to maximize the company's value.\u00a0<\/p>\n\n\n\n

Phantom shares.<\/strong> They are an incentive that replicates the economic benefit of owning shares\u2014the executive receives a payment equivalent to the share appreciation\u2014but without delivering actual ownership or equity. They allow aligning incentives without diluting owners or altering the ownership structure. <\/p>\n\n\n\n

Familiarizing oneself with this vocabulary does not turn an entrepreneur into a financial analyst, but it does change their position in any high-impact conversation. <\/p>\n\n\n\n

The difference between someone who understands what an EBITDA multiple means or why the terminal value makes up a large part of a valuation, and someone who relies entirely on the interpretation of third parties, translates into more informed decisions and a real ability to question, negotiate, and gauge what is at stake. <\/p>\n\n\n\n

The language of corporate finance is not an end in itself; it is the tool that enables informed participation in decisions that define the value of a business built over years. <\/p>","protected":false},"excerpt":{"rendered":"

This glossary brings together financial terms that appear in valuation processes, M&A, financing, and tax planning.\u00a0<\/p>","protected":false},"author":5,"featured_media":250626,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_joinchat":[],"footnotes":""},"categories":[25],"tags":[],"class_list":["post-250620","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-blog"],"_links":{"self":[{"href":"https:\/\/valoriza.com\/en\/wp-json\/wp\/v2\/posts\/250620","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/valoriza.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/valoriza.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/valoriza.com\/en\/wp-json\/wp\/v2\/users\/5"}],"replies":[{"embeddable":true,"href":"https:\/\/valoriza.com\/en\/wp-json\/wp\/v2\/comments?post=250620"}],"version-history":[{"count":4,"href":"https:\/\/valoriza.com\/en\/wp-json\/wp\/v2\/posts\/250620\/revisions"}],"predecessor-version":[{"id":250628,"href":"https:\/\/valoriza.com\/en\/wp-json\/wp\/v2\/posts\/250620\/revisions\/250628"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/valoriza.com\/en\/wp-json\/wp\/v2\/media\/250626"}],"wp:attachment":[{"href":"https:\/\/valoriza.com\/en\/wp-json\/wp\/v2\/media?parent=250620"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/valoriza.com\/en\/wp-json\/wp\/v2\/categories?post=250620"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/valoriza.com\/en\/wp-json\/wp\/v2\/tags?post=250620"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}