Key Terms

Absenteeism Rate — The percentage of scheduled workdays lost to unplanned, unscheduled employee absences during a given period. Calculated by dividing total unplanned absent days by total scheduled workdays and multiplying by 100. Covered in detail on the Absenteeism Rate Calculator page.

Accounts Payable — Money a business owes to suppliers and vendors for goods or services already received but not yet paid for. A current liability on the balance sheet.

Accounts Receivable — Money owed to a business by customers for goods or services already delivered but not yet collected. A current asset on the balance sheet. Covered in detail on the Borrowing Base Calculator page.

Accrued Liabilities — Expenses a business has incurred but not yet paid, such as accrued wages, accrued taxes, or accrued interest. Recorded as current liabilities on the balance sheet.

Adjusted EBITDA — EBITDA adjusted to remove one-time items, above-market owner compensation, and personal expenses run through the business. Used in business valuation to give buyers a cleaner view of normalized operating earnings. Covered in detail on the EBITDA Multiple Valuation and Seller's Discretionary Earnings pages.

Adjusted Book Value — Book value recalculated using current market values for assets rather than their depreciated cost on the balance sheet. Particularly relevant for contractors whose equipment may be worth significantly more or less than its recorded value. Covered in detail on the Book Value Calculator page.

Advance Rate — The percentage of eligible accounts receivable that a lender will advance on a revolving line of credit. Typically 70% to 85% for most commercial lenders. Covered in detail on the Borrowing Base Calculator page.

Amortization — The gradual reduction of a loan balance through scheduled principal and interest payments over time. Also refers to the accounting write-off of intangible assets over their useful life. Covered in detail on the Loan Amortization Calculator page.

Annualized ROI — Return on investment expressed as an equivalent annual rate, adjusted for the time period of the investment. Allows comparison between investments of different durations. Covered in detail on the ROI Calculator page.

Asset Turnover Ratio — A measure of how efficiently a business uses its assets to generate revenue. Calculated by dividing total revenue by average total assets. Covered in detail on the Asset Turnover Ratio page.

Backlog — The total value of signed contracts or committed work that has not yet been completed and billed. A key indicator of near-term revenue visibility for contractors.

Balloon Loan — A loan that amortizes on a longer schedule but requires the full remaining balance to be paid at a specific earlier date. Offers lower monthly payments but creates refinancing risk at the balloon date. Covered in detail on the Loan Amortization Calculator page.

Benefits Cost as a Percentage of Payroll — Total employee benefit costs expressed as a percentage of gross wages. Measures the true cost of employment beyond base wages. Covered in detail on the Benefits Cost as a Percentage of Payroll page.

Book Value — The net worth of a business as recorded on its balance sheet. Calculated by subtracting total liabilities from total assets. Also called net asset value or owners' equity. Covered in detail on the Book Value Calculator page.

Borrowing Base — The maximum amount a lender will advance on a revolving line of credit, calculated as a percentage of eligible collateral — typically accounts receivable. Covered in detail on the Borrowing Base Calculator page.

Break-Even Revenue — The level of revenue at which a business covers all of its costs and generates neither profit nor loss. Covered in detail on the Break-Even Revenue Calculator page.

Break-Even Units — The number of units a business must sell to cover all fixed and variable costs. Covered in detail on the Break-Even Units page.

Cash Conversion Cycle — The number of days it takes for a business to convert its investments in inventory and operations into cash from customers. Covered in detail on the Cash Conversion Cycle page.

Cash Flow Gap — The timing difference between when a contractor pays costs and when it collects revenue on a project. Caused by collection lags, retainage withholding, and payment timing. Covered in detail on the Cash Flow Gap Calculator page.

Change Order — A modification to the original contract scope — additional work, deleted work, or changed conditions. Covered in detail on the Change Order Margin Analyzer page.

Concentration Limit — A lender provision that caps the percentage of accounts receivable from any single customer that can be included in the borrowing base. Typically 20% to 25% of total eligible receivables. Covered in detail on the Borrowing Base Calculator page.

Cost of Absenteeism — The total dollar cost of unplanned employee absences, including direct wages, overtime premiums, and supervisory time. Covered in detail on the Cost of Absenteeism Calculator page.

Cost Per Hire — The total expense a business incurs to fill an open position, including both external recruiting costs and internal staff time. Covered in detail on the Cost Per Hire Calculator page.

Cross-Aging — A lender provision that excludes an entire customer's receivable balance from the borrowing base if more than a specified percentage of that customer's balance is past due. Covered in detail on the Borrowing Base Calculator page.

Current Ratio — A liquidity measure that compares current assets to current liabilities. Indicates whether a business can meet its short-term obligations. Covered in detail on the Current Ratio page.

Day Count Convention — The method used to calculate interest on a loan, based on assumptions about the number of days in a month and year. Common conventions include Actual/365, Actual/360, and 30/360. Covered in detail on the Loan Amortization Calculator page.

Days Payable Outstanding (DPO) — The average number of days a business takes to pay its suppliers after receiving an invoice. A component of the Cash Conversion Cycle.

Days Sales Outstanding (DSO) — The average number of days it takes a business to collect payment after billing a customer. A component of the Cash Conversion Cycle.

Debt Capacity — The maximum amount of debt a business can reasonably carry given its cash flow and financial obligations. Covered in detail on the Debt Capacity Calculator page.

Debt Service — The total annual principal and interest payments on all outstanding debt obligations.

Debt Service Coverage Ratio (DSCR) — A measure of a business's ability to service its debt from operating cash flow. Calculated by dividing net operating income by total annual debt service. Most commercial lenders require a minimum of 1.25x. Covered in detail on the Debt Service Coverage Ratio page.

Debt to Equity Ratio — A measure of financial leverage that compares total debt to total owners' equity. Covered in detail on the Debt to Equity Ratio page.

Depreciation — The systematic reduction in the recorded value of a fixed asset over its useful life. Added back to net income when calculating EBITDA.

EBITDA — Earnings before interest, taxes, depreciation, and amortization. A measure of operating earnings that strips out financing decisions and accounting conventions. Widely used in business valuation and lending. Covered in detail on the EBITDA Multiple Valuation page.

Employee Turnover Rate — The percentage of a workforce that leaves and must be replaced over a given period. Covered in detail on the Employee Turnover Rate Calculator page.

Enterprise Value — The estimated total value of a business before accounting for debt and cash. Calculated by multiplying EBITDA or revenue by an appropriate multiple. Covered in detail on the EBITDA Multiple Valuation and Revenue Multiple Valuation pages.

Equity Value — The amount a business owner would receive at closing after subtracting debt and adding cash to the enterprise value. Covered in detail on the EBITDA Multiple Valuation page.

Experience Modifier (E-Mod) — A multiplier applied to workers compensation premiums that adjusts cost up or down based on a business's actual claims history relative to industry peers. Covered in detail on the Workers Comp Experience Modifier page.

FICA — Federal Insurance Contributions Act taxes. The employer's share is 7.65% of gross wages, split between Social Security (6.2%) and Medicare (1.45%). Covered in detail on the Labor Burden Rate Builder and Benefits Cost pages.

Full-Time Equivalent (FTE) — A unit of measurement that converts part-time and variable-schedule employee hours into a standardized headcount based on a full-time work schedule. Covered in detail on the Full-Time Equivalent Calculator page.

FUTA — Federal Unemployment Tax Act. An employer-paid payroll tax used to fund unemployment insurance programs.

Gross Margin per Unit — The profit generated on each unit sold after subtracting variable costs. Covered in detail on the Gross Margin per Unit page.

Gross Profit — Revenue minus the direct costs of producing goods or services. Does not include overhead or indirect expenses.

Gross Profit Margin — Gross profit expressed as a percentage of revenue. Covered in detail on the Gross Profit Margin page.

Hurdle Rate — The minimum acceptable annualized return on an investment. Used to evaluate whether a capital investment creates or destroys value. Covered in detail on the ROI Calculator page.

Interest Coverage Ratio — A measure of a business's ability to pay interest on its debt from operating earnings. Covered in detail on the Interest Coverage Ratio page.

Job Cost Variance — The difference between estimated and actual costs on a construction project. A key indicator of estimating accuracy and project management effectiveness. Covered in detail on the Job Cost Variance page.

Labor Burden Rate — The fully loaded cost of an hour of labor, including base wages, payroll taxes, workers compensation, and benefits. Covered in detail on the Labor Burden Rate Builder page.

Line of Credit — A revolving credit facility that allows a business to borrow up to a set limit, repay, and borrow again. Used to manage short-term cash flow gaps. Covered in detail on the Line of Credit Sizing Calculator page.

Liquidity — The ability of a business to meet its short-term financial obligations using available cash and assets that can be quickly converted to cash.

Markup — The percentage added to cost to arrive at a selling price. Applied to cost, not to revenue. Covered in detail on the Markup v Margin page.

Margin — A general term referring to the difference between revenue and a specific category of costs, expressed as a percentage of revenue. The type of margin depends on which costs are included: gross margin subtracts direct costs only, operating margin subtracts direct costs and overhead, and net margin subtracts all costs including interest and taxes. In all cases, margin is expressed as a percentage of the selling price — which distinguishes it from markup, which is expressed as a percentage of cost. Covered in detail on the Markup v Margin, Gross Profit Margin, Net Profit Margin, and Change Order Margin Analyzer pages.

Net Profit Margin — Net income expressed as a percentage of revenue. Measures overall profitability after all expenses. Covered in detail on the Net Profit Margin page.

Net Operating Income — Operating earnings before interest and taxes, used by lenders to evaluate debt service coverage capacity.

Overhead Burden Rate — The total indirect costs of running a business expressed as a percentage of direct costs or revenue. Used in job costing and estimating. Covered in detail on the Overhead Burden Rate Calculator page.

Overtime as a Percentage of Total Labor Cost — A metric that measures how much of total labor spending goes toward overtime hours. Used to identify whether overtime is occasional or structural. Covered in detail on the Overtime as a Percentage of Total Labor Cost page.

Payback Period — The number of years required to recover the original cost of an investment from the returns it generates. Covered in detail on the ROI Calculator page.

Pay-When-Paid — A contract provision that allows a general contractor to delay payment to subcontractors until the owner has paid the GC. Covered in detail on the Cash Flow Gap Calculator page.

PTO Liability — The dollar value of earned but unused paid time off that employees have accrued and not yet taken. A real financial obligation on the balance sheet. Covered in detail on the Paid Time Off Liability Calculator page.

Quick Ratio — A liquidity measure similar to the current ratio but excluding inventory from current assets. A more conservative test of short-term financial health. Covered in detail on the Quick Ratio page.

Retainage — A percentage of each progress payment withheld by the owner until project completion. Typically 5% to 10% of the contract value. Covered in detail on the Cash Flow Gap Calculator and Borrowing Base Calculator pages.

Return on Assets (ROA) — Net income expressed as a percentage of total assets. Measures how efficiently a business uses its assets to generate profit. Covered in detail on the Return on Assets page.

Return on Equity (ROE) — Net income expressed as a percentage of owners' equity. Measures the return generated on the owners' investment in the business. Covered in detail on the Return on Equity page.

Return on Investment (ROI) — The financial return generated by a specific investment relative to its cost. Covered in detail on the ROI Calculator page.

Revenue Multiple — A business valuation method that estimates value by multiplying annual revenue by an industry-specific factor. Covered in detail on the Revenue Multiple Valuation page.

Schedule of Values — A breakdown of a construction contract into individual line items, each with an assigned value. Used as the basis for monthly pay applications.

Seller's Discretionary Earnings (SDE) — A measure of the total financial benefit a business provides to a single owner-operator, including salary, benefits, and perks. Used in valuing small businesses. Covered in detail on the Seller's Discretionary Earnings page.

SUTA — State Unemployment Tax Act. An employer-paid payroll tax that funds state unemployment insurance programs. Rates vary by state and claims history.

13-Week Cash Flow Forecast — A rolling, week-by-week projection of cash inflows and outflows over the next quarter. The most widely used short-term cash management tool. Covered in detail on the 13-Week Cash Flow Forecast page.

Working Capital — The difference between current assets and current liabilities. Measures a business's short-term financial health and operational liquidity. Covered in detail on the Working Capital Ratio page.

Working Capital Ratio — Current assets divided by current liabilities. Also called the current ratio. Covered in detail on the Working Capital Ratio page.

Workers Compensation — Insurance that covers employees injured on the job. Premiums are calculated as a percentage of payroll by job classification. Covered in detail on the Workers Comp Experience Modifier page.