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Revenue: Income from the sale of goods or services, net of allowances
​Cost of sales: Costs directly attributable to the production of goods sold or delivery of services rendered in a given period and reflects inventory write-offs, returns, and other related activities
​Gross profit (excl. D&A): Income from the sale of goods or services, net of allowances
​Operating & other expenses: Those expenses and (non-revenue) income items related to core business functions (such as management salaries, advertising costs, and office rental expenses) and exclude costs of financing and discontinued operations.
​EBITDA: Earnings before interest, taxes, depreciation and amortization, a proxy for normalized cash flow
​Depreciation expense: Non-cash expense allocated in a given year from the capital purchase or internal construction of a tangible fixed asset (e.g., a building, machine, or fixture) with a defined useful life. Depreciation expense in the projection period is assumed to reflect the property, plant, and equipment capital intensity of the ongoing business.
​Amortization expense: Non-cash expense allocated in a given year from the purchase of an intangible asset with a defined useful life (e.g., a patent, trademark, or copyright), such as through M&A, or in certain instances its internal development. When terminal amortization is toggled, amortization expense in the projection period is assumed to reflect required capital reinvestment into intangible assets for the ongoing business.
​EBIT: Earnings before interest and taxes (i.e., EBITDA less D&A), also known as pre-tax operating profit
​Adj. tax expense / (benefit): Calculated as EBIT x Normalized tax rate
​Normalized tax rate: Tax rate reflecting national and local statutory tax rates, net of permanent differences between the company’s tax rate and the statutory rate. Permanent differences may include the effect of R&D tax credits, non-deductible entertainment expenses, or other common tax situations.

Alternatively, the normalized tax rate can be treated as equivalent to the cash tax rate reflecting temporary differences between reported and taxable income due to amortization or creation of deferred tax assets and liabilities (so long as changes in these accounts are not double counted in the cash flow statement items). However, the normalized tax rate must reflect the effective rate by the end of the forecast period to correctly calculate terminal value.
​NOPAT: Net operating profit after taxes (i.e., EBIT * (1 - Normalized tax rate))
Depreciation & amortization expense
Sum of depreciation and amortization expenses provided above in P&L statement

Non-cash expense/(income) excluding equity compensation: Reflects any non-cash expenses or losses and income or gains, with the exceptions of non-cash expenses related to equity compensation, depreciation, and amortization. Equity compensation is treated as a cash outflow as a simplifying assumption in DCF analysis, as it represents a real and immediate cost for a company. Items related to borrowings or equity financings such as amortization of debt issuance costs or bond discounts should also be excluded here.

(Inc.)/dec. in operational net working capital: Reflects changes in operating current assets, typically including accounts receivable, inventory, and prepaid expenses, less operating current liabilities, typically including accounts payable, accrued expenses, and current deferred revenue. Financing related items such as interest payable/receivable are not included in Operational net working capital.

(Inc.)/dec. in other long term operating assets: Reflects changes in non-current assets other than property, plant, and equipment and intangible assets. These include items such as operating lease non-current right of use assets and deferred tax assets (unless adjusted taxes in the profit & loss statement are modeled as cash taxes). These exclude non-current assets related to borrowings such as unamortized revolving credit facility costs and those related to financial investments such as cash, stocks, and bonds.

Inc./(dec.) in other long term operating liabilities: Reflects changes in non-current liabilities other than financial liabilities and debt-like items. These include items such as deferred revenue, operating lease non-current liabilities, and deferred tax liabilities (unless adjusted taxes in the profit and loss statement are modeled as cash taxes). These will exclude debt, pension & OPEB, and finance lease obligations, which should only be included on the opening balance sheet.

Operating cash flow: Cash flow generated by core business operations (excluding investing and financing activities)
​Capital expenditures: Investments in the acquisition, upgrade, and maintenance of tangible (i.e., physical) assets such as property, plants, buildings, or equipment with a useful life of more than one year. Such costs are capitalized and then depreciated over a period of several years.

Capitalized development costs: While most research & development costs are expensed as incurred under U.S. GAAP, some costs, such as the cost of software developed for internal use, are permitted to be capitalized. Internal development or acquisition of capitalized intangible assets such as software systems, content, patents, and trademarks might be included here.

Related articles: Valuation Glossary
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