Resources·for SMEs, portfolio companies & PE firms
A glossary of PE/portco reporting terms, translated for founders
LTM, EBITDA add-backs, headroom, covenant cure period, and the rest of the vocabulary that shows up in facility agreements and board packs, explained plainly, without assuming you already know it.
Most of this terminology exists for good reasons. Precision matters in a legal agreement, but almost none of it is explained anywhere a founder or first-time CFO is likely to encounter before they need it. This is a plain-language reference, grouped by topic, with links to longer articles where a term deserves more than a definition.
Cash & liquidity
Burn rate
How much cash the business spends in excess of what it brings in, per month. Runway is simply cash on hand divided by burn rate.
Runway
Months of cash remaining at the current burn rate, assuming no new revenue or funding arrives. See cash runway vs. covenant headroom for how this compares to covenant tracking.
Working capital
Current assets minus current liabilities: broadly, the cash tied up in receivables and inventory, net of what's owed to suppliers in the near term.
Profitability & valuation
EBITDA
Earnings before interest, tax, depreciation, and amortisation: the standard proxy for operating profitability used across deal and lending documents.
EBITDA add-back
An adjustment made to reported EBITDA to remove a one-off or non-operating item, such as a restructuring charge, a legal settlement, or a founder's above-market salary. The add-back policy should be agreed and documented, not decided fresh each quarter.
Gross margin
Revenue minus cost of goods sold, expressed as a percentage of revenue: a measure of how much each unit of revenue actually contributes before overhead.
LTM (last twelve months)
A rolling twelve-month window ending on the most recent closed month, used for valuation multiples and most covenant calculations, instead of a fixed calendar or fiscal year.
Multiple
A valuation shorthand: price divided by a financial metric, most commonly LTM EBITDA, used to compare businesses or size a transaction.
Debt & covenants
Breach
The point at which a covenant's actual value crosses its contractual threshold, a formal event under the agreement, typically triggering notice and remedy obligations.
Compliance certificate
A signed statement, usually from the CFO, confirming covenant compliance for a given period, backed by supporting calculations. See preparing your first covenant certificate for a full walkthrough.
Covenant
A contractual condition in a loan or investment agreement that the business must maintain, such as a maximum leverage ratio, a minimum cash balance, and so on.
Cure period
A window of time, specified in the facility agreement, during which a company can remedy a covenant breach, through an equity injection, a debt paydown, or another agreed fix, before the lender or investor can exercise further rights.
DSCR (debt service cover ratio)
EBITDA divided by total debt service (interest plus scheduled principal repayment): a stricter test than interest cover alone, since it also accounts for amortisation. See preparing your first covenant certificate for a worked calculation.
Headroom
The percentage distance between a covenant's current value and the threshold that would trigger a breach. A leading indicator, unlike a pass/fail compliance check.
Interest cover
EBITDA divided by interest expense. It measures how comfortably operating profit covers the cost of debt. See preparing your first covenant certificate for a worked calculation.
Leverage ratio
Net debt divided by EBITDA: the most common maintenance covenant in PE-backed and bank-financed debt agreements. See preparing your first covenant certificate for a worked calculation.
Net debt
Total drawn debt across all facilities, minus cash and cash equivalents. The numerator in most leverage covenants.
RCF (revolving credit facility)
A flexible credit line that can be drawn and repaid repeatedly up to an agreed limit, typically used to manage working capital swings rather than fund long-term investment. A first-time draw is exactly the kind of signal covered in reading a portco's numbers before the board meeting.
Springing covenant
A covenant that only applies once a facility, usually an RCF, is drawn above a specified threshold, rather than being tested at all times.
Waiver
A lender or investor's formal agreement to overlook a specific breach, usually for a fee or under revised terms, rather than exercising their full contractual rights.
Watch condition
A practical convention, not a contractual term: flagging any covenant with headroom below roughly 10% for closer attention, before it becomes a breach.
Fund & portfolio reporting
Board pack
The set of reports, such as financials, KPIs, covenant status, and commentary, prepared ahead of a board meeting for directors and observers to review. See reading a portco's numbers before the board meeting for what to scan first.
Budget vs actuals
A comparison of actual financial performance against the budget approved at the start of the period: the core mechanism funds use to assess whether management is executing to plan. See reading a portco's numbers before the board meeting for how a GP reads variance.
GP (general partner)
The firm that manages a PE fund and makes investment decisions on behalf of its investors.
LP (limited partner)
An investor in a PE fund, such as pension funds, endowments, and family offices, who commits capital but doesn't manage day-to-day investment decisions.
Portco (portfolio company)
A company a PE fund has invested in. The term used throughout this site for the operating businesses inside a fund's portfolio.
TVPI / DPI / RVPI
Fund-level performance metrics: TVPI is total value (distributed plus remaining) over paid-in capital; DPI is distributed value over paid-in capital, the cash actually returned; RVPI is the remaining, unrealised value over paid-in capital.
See these terms in context
For the full mechanics behind headroom, LTM, and covenant tracking, seehow covenant compliance works across a portfolioandsurviving your first LTM valuation request.