Glossary

Loan-to-Deposit Ratio

The loan-to-deposit ratio compares total loans to total deposits, giving a core indicator of how much of a bank's lending is funded from its deposit base versus wholesale or other funding sources. A ratio above 100% means the bank is lending more than it holds in deposits, funding the difference through wholesale markets — a funding structure that carries more refinancing and liquidity risk than deposit-funded lending.

MIRR (Modified Internal Rate of Return)

Modified Internal Rate of Return (MIRR) is a capital budgeting metric that corrects two specific weaknesses of IRR — its implicit assumption that interim cash flows are reinvested at the IRR itself, which is often unrealistic, and its potential to produce multiple or no real solutions for a non-conventional cash flow series. MIRR resolves both by using an explicit finance rate for outflows and a separately specified reinvestment rate for inflows, producing a single, more defensible rate of return.

MW Under Management

MW under management is the total critical IT load capacity, expressed in megawatts, that a data centre operator has built and is operating across its portfolio, whether or not that capacity is currently leased. It is the core scale metric for a data centre operator, broadly analogous to assets under management in other capital-intensive, capacity-based sectors, and should always be read alongside utilisation rate rather than in isolation.

Machine Learning

Machine learning is a category of artificial intelligence technique that learns statistical patterns from historical, structured data in order to predict or classify a future or unseen value. In finance, it underlies forecasting, anomaly detection, and credit scoring applications, and its reliability is established empirically, by measuring predictive accuracy against held-out historical data, rather than by auditing a fixed rule set.

Macro (Excel)

An Excel macro is a recorded or programmatically written sequence of instructions that automates tasks in Microsoft Excel. Macros are written in Visual Basic for Applications (VBA), the scripting language embedded in Microsoft Office applications. When executed, a macro performs a series of operations on the workbook — such as formatting cells, copying data, running calculations, or generating reports — without requiring manual input. In financial modelling, the term macro refers specifically to VBA-based automation within an Excel workbook (.xlsm or .xlsb file format). It is distinct from Excel functions, formulas, and add-ins.

Maintenance Reserve Account (MRA)

The maintenance reserve account (MRA), sometimes called a major maintenance reserve or lifecycle reserve, is a cash reserve accrued over time from operating cash flow, ahead of the specific periods in which major maintenance or lifecycle capital expenditure is scheduled to occur. Unlike ordinary operating costs, major maintenance events, such as a scheduled turbine overhaul, a plant shutdown for equipment replacement, or a PPP lifecycle renewal, are infrequent, large, and known in advance from a technical maintenance schedule, making a funded reserve the appropriate mechanism rather than treating the event as a single-period operating cost spike.

Market-Implied Growth Rate

The market-implied growth rate is the perpetuity growth rate that, when input into an otherwise fully specified DCF, produces a value equal to the company's current observed market price or trading value. Rather than treating the growth rate as an assumption to be forecast, this approach reverses the usual DCF mechanics: it holds every other assumption — the explicit-period forecast, the discount rate, and the terminal value structure — fixed, and solves algebraically for the growth rate that reconciles the model's output to the observed price. The resulting figure reveals what long-run growth expectation the market is implicitly pricing into the current valuation, which can then be assessed for reasonableness against macroeconomic and industry benchmarks.

Material Adverse Change

A material adverse change (MAC) clause is a provision in a purchase agreement defining the circumstances under which a buyer may walk away from, or seek to renegotiate, a signed transaction if the target's business deteriorates significantly between signing and closing. It exists because a transaction is typically signed before it closes, particularly where regulatory approval or financing conditions must be satisfied, creating a gap during which the target's business condition could change materially from what was diligenced.

Merchant Tail

The merchant tail is the period following power purchase agreement or other contract expiry during which a power project sells its output at prevailing merchant market price rather than a fixed contracted price. It carries materially higher revenue risk than the preceding contracted period and should be modelled as its own explicit period with its own price assumption and discount rate.

Mid-Year Convention

The mid-year convention is a DCF timing refinement that discounts each period's cash flow as if it were received at the midpoint of that period, rather than at its end. Standard end-of-period discounting implicitly assumes a company's entire annual cash flow arrives in a single lump sum on the last day of the year, which understates present value relative to how cash actually flows into a business — continuously or in regular instalments throughout the period. The mid-year convention corrects for this by using a discount period of 0.5, 1.5, 2.5, and so on, instead of 1.0, 2.0, 3.0. The adjustment increases the present value of every forecast cash flow and the terminal value by a small, consistent amount, and is considered standard institutional practice for operating businesses with continuous cash generation.

Minority Discount

A minority discount is the reduction applied to a non-controlling equity stake's pro-rata share of a company's control value, reflecting the fact that a minority holder cannot direct strategy, replace management, force a sale, or control the timing and amount of distributions. It is the conceptual inverse of a control premium: rather than adding a premium to reach a control value, a minority discount subtracts from a control value to reach the value realistically attainable by a non-controlling holder. Minority discounts are commonly applied in private company valuation, shareholder disputes, and estate and gift tax valuation.

Model Architecture

Model architecture is the set of layout decisions that determine how a financial model's worksheets are ordered, how a reader navigates between them, and how different categories of cell content are visually distinguished. It is the concrete implementation of the broader engineering principles covered in Spreadsheet Engineering, rather than a synonym for them — architecture is the specific layout a builder chooses, not the principles that layout is meant to satisfy.

Model Audit Certificate

A model audit certificate (also referred to as a model audit report or model assurance certificate) is a formal written document issued by an independent auditor or model review firm confirming that a financial model has been independently reviewed, describing the scope of the review, identifying findings, and providing a level of assurance about the model's arithmetical accuracy and internal consistency. In project finance, a model audit certificate is typically a condition precedent (CP) to financial close, meaning that lenders will not fund the first drawdown until the certificate has been delivered by an approved independent reviewer.

Model Governance

Model governance is the organisational framework through which an institution defines, implements, and enforces policies and controls for the development, approval, use, validation, change, and retirement of financial models. It establishes accountability for model quality, a structured process for model oversight, and a documented record of model use and validation history. Effective model governance ensures that decisions made using financial models are based on outputs that have been developed to an appropriate standard, validated by a party independent of the developer, and used within the bounds for which they were designed.

Model Handover

Model handover is the structured process by which responsibility for a financial model — including operational ownership, update obligations, and decision-making authority — is formally transferred from one individual or team to another. It encompasses the transfer of the model file, all associated documentation, version history, and the knowledge required to operate the model correctly and safely. Model handover occurs in several contexts: when a staff member leaves an organisation, when a project transitions from development to operations, when an advisory firm concludes an engagement and returns a model to the client, or when model ownership is reassigned within a team.

Model Inventory

A model inventory (also referred to as a model register or model catalogue) is a centralised, maintained register of all financial models in active use within an organisation. It records, for each model, the information required to govern it effectively: its purpose, owner, developer, validation status, approved use cases, material limitations, and review schedule. The model inventory is the foundational document of a model governance framework. Without a complete inventory, an organisation cannot systematically apply governance controls, cannot assess its aggregate model risk exposure, and cannot demonstrate oversight to investors, lenders, or regulators.

Model Materiality

Model materiality is the threshold at which an error, deviation, limitation, or uncertainty in a financial model is considered significant enough to affect a decision, require remediation, or warrant disclosure. A finding is material if, had it been known, it would or could have changed a decision made using the model's outputs. Model materiality is a judgement — it depends on the purpose of the model, the magnitude of the finding, and the sensitivity of the key outputs to the finding. The same error may be material in one context and immaterial in another.

Model Risk Score

A model risk score is a numeric summary of a financial model's structural audit findings, calculated by weighting each triggered rule or issue against a fixed, disclosed basis. Under FMAE's active SM-2.0 methodology, the score is calculated as 100 minus the combined weight of every triggered rule, normalized against a fixed basis of 207.0, with a small set of critical-override rules able to cap the resulting letter grade regardless of the numeric score.

Model Tiering

Model tiering is the process of classifying financial models into risk-based categories — tiers — that determine the level of governance oversight, validation rigour, documentation standards, and review frequency applied to each model. Higher-tier models, which are more complex, more material to decision-making, or more difficult to verify, receive more intensive governance than lower-tier models. Model tiering allows organisations to apply governance resources proportionately. Without tiering, an organisation must either apply heavy governance to every model (impractical) or apply light governance to every model (insufficient for high-risk models). Tiering resolves this by concentrating oversight where it matters most.

Model Validation

Model validation is the structured, independent process of assessing whether a financial model is conceptually sound, mathematically correct, implemented as intended, and fit for its approved purpose. It is conducted by a reviewer who is independent of the model's developer and produces a documented assessment of the model's strengths, limitations, and any findings requiring remediation. Model validation is a component of model governance. The governance framework defines when validation is required, who conducts it, and what the validation must assess. The validation itself is the technical execution of that requirement.