Financial glossary

Definitions are general. Companies and data providers sometimes define terms slightly differently, so always check the definition used in the source you are reading.

Capital employed

Total assets minus current liabilities. The long-term capital invested in a business, whether from owners or lenders.

Capital expenditure (capex)

Cash spent on long-term assets such as plant, equipment and property.

Cash conversion cycle

Receivable days plus inventory days minus payable days. The number of days cash is tied up in running the business.

CAGR (compound annual growth rate)

The constant yearly growth rate that would take a value from its starting figure to its ending figure over a given number of years.

Cash flow from operations (CFO)

Cash generated by a company's normal business activities, as shown in its cash flow statement.

Debt to equity

Total borrowings divided by shareholders' equity. A measure of financial leverage.

EBIT

Earnings before interest and tax. Often used as a measure of operating profit.

Free cash flow (FCF)

Operating cash flow minus capital expenditure. See our note on free cash flow.

Interest cover

EBIT divided by interest expense. How many times operating profit covers interest costs.

Inventory days

Inventory divided by cost of goods sold, multiplied by 365. How long stock is held, on average.

Net debt

Total borrowings minus cash and cash equivalents.

Operating margin

Operating profit (EBIT) divided by revenue.

Payable days

Payables divided by cost of goods sold, multiplied by 365. How long, on average, a company takes to pay suppliers.

PAT (profit after tax)

A company's profit after all expenses, interest and tax.

Receivable days

Receivables divided by revenue, multiplied by 365. How long, on average, customers take to pay.

ROCE (return on capital employed)

EBIT divided by capital employed. See how to read return on capital.

ROE (return on equity)

Profit after tax divided by shareholders' equity.

Working capital

Current assets minus current liabilities. The money tied up in running the business day to day.