Glossary
Key financial terms used across our valuation tools. Click a term to learn more.
WACC
Valuation
Weighted Average Cost of Capital. Discount rate that weights the cost of equity (Ke) and debt (Kd) by the company's capital structure.
WACC = Ke × (E / (D+E)) + Kd × (1 - t) × (D / (D+E))
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Beta
Valuation
Measure of systematic risk of a stock relative to the market. Beta = 1 means market-level risk; > 1 means higher volatility; < 1 means lower volatility.
Beta = Cov(Ri, Rm) / Var(Rm)
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Ke (Custo do Equity)
Valuation
Minimum return required by shareholders to compensate for investment risk. Calculated via CAPM.
Ke = Rf + Beta × ERP + CRP
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ERP (Equity Risk Premium)
Valuation
Equity market risk premium. Additional return demanded for investing in stocks instead of risk-free assets.
ERP = E(Rm) - Rf
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CRP (Country Risk Premium)
Valuation
Country risk premium. Additional return demanded for investing in emerging markets vs. developed markets. Usually measured by CDS spread or EMBI+.
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Rf (Risk-Free Rate)
Valuation
Risk-free rate. Yield of an asset considered free of credit risk (e.g., Selic in Brazil, US Treasury in the US).
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EBITDA
Valuation
Earnings Before Interest, Taxes, Depreciation, and Amortization. Proxy for operating cash flow before investments and financing.
EBITDA = Receita - CMV - Despesas Operacionais + D&A
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FCF (Free Cash Flow)
Valuation
Free Cash Flow to Firm. Cash available after operating investments, before payments to creditors and shareholders.
FCF = NOPAT + D&A - CAPEX - Delta Capital de Giro
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NOPAT
Valuation
Net Operating Profit After Tax. Operating result adjusted for taxes, excluding capital structure effects.
NOPAT = EBIT × (1 - t)
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CAPEX
Valuation
Capital Expenditure. Spending on acquisition or maintenance of long-term assets such as equipment and property.
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Valor Terminal
Valuation
Present value of all cash flows beyond the explicit projection period, assuming perpetual growth at rate g.
TV = FCF(n+1) / (WACC - g)
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Equity Value
Valuation
Value of the company's equity. Obtained by subtracting net debt from Firm Value. Divided by number of shares gives the target price per share.
Equity Value = Firm Value - Divida Liquida
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Firm Value (Enterprise Value)
Valuation
Value of the entire firm (equity + debt). Sum of the present value of projected cash flows and terminal value.
Firm Value = NPV(FCFs) + NPV(Terminal Value)
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NPV (Valor Presente Liquido)
Valuation
Net Present Value. Sum of future cash flows discounted at the cost of capital. NPV > 0 indicates the investment creates value.
NPV = Sum[ FCF(t) / (1 + WACC)^t ]
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DPS (Dividendo por Acao)
Valuation
Dividend Per Share. Total dividends distributed divided by the number of outstanding shares.
DPS = Dividendos Totais / Acoes em Circulacao
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Gordon Growth Model
Valuation
Dividend discount model with constant growth. Calculates the intrinsic value of a stock based on expected dividend, cost of equity, and growth rate.
P = DPS(1) / (Ke - g)
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g (Taxa de Crescimento)
Valuation
Perpetual growth rate (in DCF terminal value or DDM). Should be less than or equal to long-term nominal GDP growth.
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EV/EBITDA
Multiples
Enterprise Value divided by EBITDA. Valuation multiple indicating how many times the annual EBITDA the market is paying for the company.
EV/EBITDA = (Mkt Cap + Divida Liq.) / EBITDA
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P/E (Preco / Lucro)
Multiples
Stock price divided by Earnings Per Share (EPS). Indicates how many years of earnings the market is paying. Lower means "cheaper" relative to earnings.
P/E = Preco / LPA
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P/BV (Preco / Valor Patrimonial)
Multiples
Stock price divided by Book Value per Share. P/BV < 1 may indicate the stock is trading below its book value.
P/BV = Preco / (PL / Acoes)
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Selic
Fixed Income
Brazil's benchmark interest rate, set by COPOM/Central Bank. Reference for government bond yields and base for credit costs.
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CDI
Fixed Income
Interbank Deposit Certificate. Interest rate practiced between banks, very close to Selic. Main benchmark for fixed income investments in Brazil.
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IPCA
Fixed Income
Broad Consumer Price Index. Brazil's main inflation indicator, measured by IBGE. Used as indexer for NTN-B bonds.
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Duration
Fixed Income
Measure of a bond price's sensitivity to interest rate changes. Expressed in years. Higher duration means higher bond volatility.
D = Sum[ t × PV(CF_t) ] / Preco
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Convexidade
Fixed Income
Measure of the curvature of the price-yield relationship of a bond. Corrects the linear approximation of duration for large rate changes.
C = Sum[ t × (t+1) × PV(CF_t) ] / (Preco × (1+y)^2)
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DV01
Fixed Income
Dollar Value of a Basis Point. Absolute change in bond price for a 1 bps (0.01%) change in interest rate.
DV01 = Duration × Preco × 0.0001
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YTM (Yield to Maturity)
Fixed Income
Internal rate of return of a bond held to maturity, considering all coupons and face value.
Preco = Sum[ CF_t / (1 + YTM)^t ]
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Juros Real
Fixed Income
Inflation-adjusted interest rate. Represents the investor's real purchasing power gain.
Juros Real = (1 + Selic) / (1 + IPCA) - 1
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BDR (Brazilian Depositary Receipt)
BDR
Certificate issued in Brazil representing shares of foreign companies. Allows Brazilian investors to buy international stocks directly on B3, in BRL.
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Razao BDR (BDR Ratio)
BDR
Number of BDRs equivalent to 1 share of the underlying foreign company. Example: if ratio is 10, then 10 AAPL34 BDRs = 1 Apple share (AAPL). Target price per BDR = underlying share price / ratio, converted to BRL.
Preco BDR = (Preco Acao USD / Razao) x USDBRL
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USDBRL (Taxa de Cambio)
BDR
US dollar / Brazilian real exchange rate. Used to convert target prices of US companies (USD) to BRL in BDR valuation. Source: BCB PTAX (sell rate).
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Beta (Regressao)
Portfolio
Beta calculated via linear regression (OLS) of portfolio returns against the benchmark (Ibovespa or S&P 500). Measures portfolio sensitivity to market based on actual historical data.
Beta = Cov(Rp, Rm) / Var(Rm)
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Alpha de Jensen
Portfolio
Intercept of portfolio vs benchmark return regression, annualized. Measures excess return after adjusting for systematic risk (beta). Positive alpha indicates value-adding management.
Alpha = Rp - [Rf + Beta × (Rm - Rf)]
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TWR (Time-Weighted Return)
Portfolio
Time-Weighted Return. Eliminates the effect of deposits and withdrawals, purely measuring asset performance. Chains sub-period returns geometrically. GIPS standard for manager comparison.
TWR = Product(1 + R_i) - 1
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MWR / XIRR
Portfolio
Money-Weighted Return, equivalent to XIRR (Internal Rate of Return). Considers timing and size of each deposit/withdrawal. Reflects the actual investor return including timing decisions.
NPV(r) = Sum[ CF_i / (1+r)^(t_i/365) ] = 0
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HHI (Indice Herfindahl-Hirschman)
Portfolio
Portfolio concentration index. Sum of squared weights of each position, multiplied by 10,000. HHI < 1,500 = diversified; 1,500-2,500 = moderate; > 2,500 = concentrated.
HHI = Sum(w_i^2) × 10000
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R² (Coeficiente de Determinacao)
Portfolio
Proportion of portfolio return variance explained by the benchmark. R² close to 1 means the portfolio tracks the market; close to 0 indicates independent behavior.
R² = Corr(Rp, Rm)²
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Sharpe Ratio
Portfolio
Excess return per unit of risk (volatility). Measures portfolio efficiency: how much additional return is obtained for each unit of risk taken. Higher Sharpe = better risk-adjusted performance.
Sharpe = (Rp - Rf) / Sigma_p
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Fronteira Eficiente
Portfolio
Set of optimal portfolios offering the maximum expected return for each risk level (Markowitz, 1952). Portfolios below the frontier are inefficient — it is possible to obtain more return without increasing risk.
min w'Sigma w s.t. w'mu = mu_target, w'1 = 1
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Drawdown
Portfolio
Percentage decline in portfolio value from its previous peak. Maximum drawdown (MDD) is the largest historical drop — measures the worst loss an investor would have suffered if they bought at the peak.
DD(t) = (V(t) - V_peak) / V_peak
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Markowitz (Media-Variancia)
Portfolio
Harry Markowitz portfolio selection theory (1952). Optimizes asset allocation to maximize expected return for a given risk level, using the return covariance matrix. Foundation of Modern Portfolio Theory (MPT).
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Desvio Padrao
Statistics
Measure of dispersion of results around the mean. In Monte Carlo simulation, indicates the uncertainty of the estimated target price.
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