Discount rate
Fundamental analysisThe annual rate used to convert future cash flows into present value, reflecting time and risk.
In plain terms
Your required return. Change it by two points and the valuation moves by a third.
1492 terms
Glossary
Every term is defined twice: once the way a filing would put it, and once the way somebody would explain it to you across a table. The second one is usually the one that sticks.
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Embedded value
Fundamental analysisA life insurer's net worth plus the present value of future profits expected from policies already sold.
In plain terms
The book-value equivalent for insurers, and a model rather than a measurement. Shift the assumed lapse or discount rate and it moves materially, which is why the sensitivity tables matter.
RBI
Market basicsAlso called: Reserve Bank of India
The Reserve Bank of India — the central bank, which sets the policy rate through its Monetary Policy Committee and manages the currency.
In plain terms
Its rate decisions reach every share price through the discount rate. That is how a quality growth stock falls 30% in a hiking cycle with nothing at all wrong at the company.
Repo rate
Market basicsThe rate at which the RBI lends to commercial banks, set by the Monetary Policy Committee roughly every two months.
In plain terms
The macro number that matters most, because it propagates into almost every other price of money. It hits high-multiple growth names hardest through the discount rate.
Run-off
Fundamental analysisAlso called: Runoff, Harvesting a declining business
Operating a declining business for the cash it will return before it stops, rather than reinvesting to sustain it.
In plain terms
Valued as a perpetuity with the decline rate added to the discount rate. A business shrinking 8% a year is worth a low multiple of its cash, not nothing — provided the cash actually comes out.
WACC
Fundamental analysisAlso called: Weighted average cost of capital
Weighted average cost of capital — the blend of the cost of debt and the cost of equity, weighted by how much of each the company uses.
In plain terms
The formal discount rate for a DCF, which most investors reasonably simplify into a required return by business type. Running the model at three plausible rates says more than deriving one precisely.