Terminology

Description

Capital Expenditure

Capital Expenditure is an amount spent to acquire or improve a long-term asset such as equipment or buildings. Usually the cost is recorded in an account classified as Property, Plant and Equipment. The cost (except for the cost of land) will then be charged to depreciation expense over the useful life of the asset

Debt

An amount of money borrowed by one party from another. In project financing, it is the amount borrowed for project development by the lenders.

Debt Service Coverage Ratio

DSCR is calculated as a ratio between the net operating income to the total debt to be serviced. The ratio must ideally be over 1.

Discount Rate

The discount rate is the interest rate used in discounted cash flow (DCF) analysis to determine the present value of future cash flows. The discount rate in DCF analysis takes into account not just the time value of money, but also the risk or uncertainty of future cash flows; the greater the uncertainty of future cash flows, the higher the discount rate.

Equity

In a project financing, the cash or assets contributed by the sponsors. In accounting, the difference between total assets and total liabilities.

Internal Rate of Return (IRR)

IRR is the interest rate at which the net present value of all the cash flows (both positive and negative) from a project or investment equal zero. Internal rate of return is used to evaluate the attractiveness of a project or investment

Net Present Value (NPV)

NPV is the difference between the present value of cash inflows and the present value of cash outflows. NPV is used to analyse the profitability of a projected investment or project.

O&M Expenditure

O&M Expenditure is amount spent on an ongoing, day-to-day basis in order to run a business or system. Depending upon the industry, these expenses can range from the ink used to print documents to the wages paid to employees.

Weighted Average Cost of Capital (WACC)

WACC is the weighted average of all capital sources (equity and debt)