Financial Comparison Glossary

Financial Comparison Glossary

Use this skill to prevent conceptual confusion in financial tools, due diligence reports, risk screens, calculators, and client explanations. It is a public/portable glossary layer, not a substitute for a full financial model audit.

This file is self-contained for loaders that read only SKILL.md. If calculator/model integrity skills are available, use them too when building or verifying numbers; otherwise apply the checks below directly.

Core Rule

Do not let a polished interface or memo blur financial categories. If two concepts are different, label them differently and make the model/report show the difference.

Concepts To Distinguish

• Cash flow vs Profit: cash flow is timing of cash in/out; profit is accounting result after expenses. A profitable model can have cash stress; positive cash flow is not automatically approved dividends.
• EBIT vs EBITDA: EBIT includes depreciation/amortization impact; EBITDA excludes interest, taxes, depreciation, and amortization. EBITDA is not free cash flow.
• CapEx vs OpEx: CapEx purchases long-term assets and affects cash at purchase; OpEx supports ongoing operations and affects current-period operating result.
• Debt vs Equity: debt has repayment/interest obligations; equity shares ownership/risk/upside and usually has no fixed repayment obligation.
• Market value vs Book value: market value reflects perceived/current value; book value reflects accounting carrying value.
• Assets vs Liabilities: assets generate or preserve value; liabilities require future settlement.
• ROI vs ROE: ROI measures return on an investment/project; ROE measures return generated on shareholder equity.
• Accounting vs Finance: accounting records and reports past/current transactions; finance models decisions, risk, capital allocation, and future value.

Calculator And Dashboard Checks

When reviewing a model or dashboard, ask:

• Is EBITDA being presented as cash available, dividends, or value without bridge? If yes, relabel or add bridge.
• Is RF/debt being treated like equity proceeds? If yes, show interest, maturity, repayment/provision, and risk.
• Are CapEx/assets treated as expenses without useful life or exit? If yes, define purchase, operating start, and exit/residual.
• Are dividends/distributions shown before legal, tax, debt, reserve, and cash constraints? If yes, label as economic simulation, not approved dividend.
• Are nominal values mixed with discounted values? If yes, show both and label WACC/discount rate.
• Are gross third-party revenues shown as company revenue when only commission/take-rate belongs to the company? If yes, correct to net commission.
• Are accounting provisions, reserves, and actual cash payments conflated? If yes, separate retained/reserved cash, accounting provision, and cash outflow.

Client-Facing Explanation Pattern

Use this structure:

1. Define the term in one sentence.
2. State what it is not.
3. Explain why the distinction matters for the decision.