Glossary

Capital Expenditure

Capital expenditure (capex) is cash spent acquiring, upgrading, or extending the useful life of a fixed asset — property, plant, and equipment. In a financial model, capex is the investing outflow that increases gross fixed assets on the balance sheet, and the resulting depreciation schedule allocates that cost across the asset's useful life as a charge against the income statement. Capex is commonly split into maintenance capex (sustaining the existing asset base) and growth capex (expanding it), a distinction that matters directly for free cash flow and returns analysis.

Capital Renewal Reserve

A capital renewal reserve is a cash reserve accrued over time, from operating revenue or a dedicated levy, to fund scheduled component renewal and major refurbishment across a portfolio of infrastructure assets. It applies the same accrual-ahead-of-drawdown discipline as a single project's maintenance reserve account, but at the portfolio level, funding a renewal cost curve spanning many assets and components rather than a single project's own major maintenance schedule.

Capital Structure

Capital structure is the specific mix of debt and equity financing a company uses to fund its assets and operations. Modigliani and Miller's foundational 1958 theorem showed that, under a set of idealized conditions — perfect markets, no taxes, no bankruptcy or agency costs — capital structure does not affect firm value. In practice none of those conditions hold exactly, and trade-off theory explains why capital structure matters: debt provides a valuable tax shield on interest expense, but higher leverage increases the expected costs of financial distress and the agency costs borne by both debt and equity holders. A company's capital structure decision balances these competing forces rather than following a single universal formula.

Case Mix Index (CMI)

Case mix index (CMI) is a single weighted-average figure representing the clinical complexity and expected resource intensity of a hospital or service line's patient population over a given period, derived from the relative weight assigned to each treated case under a diagnosis-related-group or similar classification system. A rising CMI generally reflects a shift toward higher-acuity, higher-resource cases and, all else equal, increases both expected reimbursement and expected cost per case. CMI is one of the most consequential single assumptions in a hospital financial model, since it directly scales reimbursement-rate revenue independent of any change in total patient volume.

Cash Flow Statement

The cash flow statement reconciles the income statement's accrual-based net income to the actual cash generated or consumed over the same period, split into operating, investing, and financing activities. Its output, the net change in cash, added to the opening cash balance, must equal the closing cash balance — which must, in turn, equal the cash line on the balance sheet. In a financial model, this tie-out is one of the clearest mechanical tests of whether the three statements are correctly linked.

Cash Sweep

A cash sweep is a mechanism within a project finance cash waterfall that applies surplus cash, remaining after operating costs, scheduled debt service, and reserve account funding, to accelerate debt repayment beyond the amount scheduled through debt sculpting. Cash sweeps are commonly structured either as mandatory, applying all surplus cash to debt, or conditional, triggered only when a coverage ratio falls within a defined range or a surplus threshold is exceeded, and their presence and terms are a specific, negotiated feature of a project finance financing structure.

Cash Waterfall

A cash waterfall is the contractually defined priority sequence in which cash generated by a project is allocated to successive payment obligations. In a project finance structure, the cash waterfall determines the order in which operating costs, debt service (interest and principal), reserve contributions, and equity distributions are paid from the project's revenue. Senior obligations are paid first; junior obligations and distributions are paid only after senior obligations are fully satisfied. The DSCR and other coverage covenants are calculated at specific points within the waterfall to determine whether cash can flow to the next level.

Circular Reference

A circular reference occurs when a formula in a financial model depends, directly or through a chain of intermediate cells, on its own value. Excel flags circular references by default and returns zero in the affected cells unless iterative calculation is enabled. In financial models, circular references arise most often in interest-on-debt calculations, cash sweep mechanics, and tax shield computations — some are structural errors, others reflect genuine simultaneous financial relationships. The distinction between the two, and how each is handled, is addressed in full on the dedicated technical guide linked below.

Climate Finance Mobilisation Ratio

The climate finance mobilisation ratio measures the amount of commercial capital mobilised per unit of concessional capital deployed in a blended finance structure. It measures financial structuring leverage, not the underlying climate outcome's cost-effectiveness, and should be disclosed alongside cost per tonne abated and other outcome-based KPIs rather than presented as a standalone measure of investment success.

Colocation

Colocation is the practice of housing multiple tenants' IT equipment within a shared data centre facility, with the operator providing power, cooling, physical security, and network connectivity while each tenant owns and manages its own servers and equipment. Colocation spans wholesale arrangements, leasing large dedicated space or power blocks to a small number of tenants, and retail arrangements, leasing smaller rack or partial-rack units to a larger, more diversified tenant base. It is one of several distinct data centre business models, alongside hyperscale build-to-suit and enterprise/captive operation.

Comparable Company Analysis

Comparable company analysis, commonly called "trading comps," values a business by applying valuation multiples — most commonly EV/EBITDA, EV/Revenue, and P/E — observed in the current trading prices of similar, publicly traded peer companies to the subject company's own financial metrics. It is a relative valuation method: rather than deriving value from the subject company's own forecast cash flows, as DCF does, it derives value from how the market is currently pricing genuinely comparable businesses. Trading comps reflect a minority, marketable basis of value, since the observed prices are for freely traded, non-controlling shares, not for control of the company.

Concession Model

A concession model is a financial model built for a public-private partnership in which a private concessionaire receives the contractual right to develop, operate, and earn revenues from a public infrastructure asset for a defined concession period, in exchange for meeting specified performance and availability standards. The financial model projects the concessionaire's revenues (from either availability payments, user charges, or a combination), operating and maintenance costs, capital expenditure, financing costs, and returns to equity investors over the concession period.

Condition-Based Maintenance

Condition-based maintenance schedules intervention, maintenance, refurbishment, or renewal, from an asset or component's actual measured condition, obtained through inspection or monitoring, rather than from a fixed age or calendar-based interval. It sits between purely reactive maintenance (responding only after failure) and purely age-based preventive maintenance (intervening on a fixed schedule regardless of actual condition), and is the data foundation for a condition-based remaining useful life estimate.

Conditions Precedent

Conditions precedent (CPs) in project finance are the contractual requirements that must be satisfied, waived, or deferred before a lender is obliged to advance funds under a loan facility. CPs are set out in the financing agreements and typically include: provision of executed project documents, evidence of regulatory approvals, insurance certificates, legal opinions, and in most institutional project finance transactions, an independent financial model audit certificate confirming that the financial model has been reviewed and that specified checks have been completed. Financial close cannot occur until all material CPs have been satisfied.

Construction Contingency

Construction contingency is an amount of funding reserved in a project finance sources and uses statement specifically to absorb cost overruns during the construction phase, distinct from and additional to the base construction budget. Because a project finance lender's exposure is fixed at financial close while the construction contract's final cost is not fully certain until completion, contingency sizing and its drawdown mechanics, including who bears responsibility for funding a shortfall once contingency is exhausted, is one of the most heavily negotiated points in project finance structuring.

Contribution Margin

Contribution margin is revenue less directly attributable variable cost, calculated before any shared corporate overhead is allocated. It measures the amount a unit, product, or segment's own sales activity contributes toward covering shared fixed costs and, beyond that, toward group profit — distinct from a fully allocated profit figure, which also deducts a share of overhead the unit's own management typically does not control.

Control Premium

A control premium is the additional amount, expressed as a percentage above the per-share trading or minority value, that a buyer is willing to pay to acquire a controlling interest in a business. The premium reflects value that is only accessible to a controlling holder — the ability to redirect strategy, replace management, extract synergies, alter the capital structure, or control the timing and amount of distributions. Control premiums are commonly observed and measured in precedent M&A transactions and are the conceptual inverse of a minority discount.

Cost of Capital

Cost of capital is the blended rate of return a company must earn to satisfy all of its capital providers — debt holders and equity holders alike — weighted by each group's proportion of the total capital structure. It functions as the minimum acceptable return, or hurdle rate, against which investment and capital allocation decisions are measured: a project that earns less than the cost of capital destroys value even if it is nominally profitable. This page is a short orientation to the concept; the detailed calculation mechanics — the CAPM-based cost of equity, the after-tax cost of debt, and market-value weighting — are covered in full on the existing WACC page, which this Knowledge Centre's DCF domain uses directly as its discount rate.

Cost of Debt

Cost of debt is the effective interest rate a company pays on its borrowings, reflecting its credit risk and the terms available in current debt markets. In a WACC build, cost of debt is used on an after-tax basis, since interest expense is tax-deductible in most jurisdictions and the resulting tax shield reduces the effective cost of borrowing to the company. Cost of debt can be measured on a marginal basis (the rate at which new debt could currently be raised) or an embedded basis (the weighted average rate on debt already outstanding), and the choice between them should match the analytical purpose.

Cost of Equity

Cost of equity is the rate of return equity investors require to compensate them for the risk of holding a company's stock, given its systematic risk relative to the broader market. It is most commonly estimated using the Capital Asset Pricing Model (CAPM), which expresses cost of equity as the risk-free rate plus a beta-adjusted equity risk premium. Cost of equity serves two roles in a DCF valuation: it is one of the two components blended into WACC (alongside the after-tax cost of debt), and it is used as the sole discount rate when valuing a levered cash flow (FCFE) directly.