Glossary
This glossary is a reference point for the terms that come up regularly in Patient Money’s analysis. It isn’t exhaustive, and it isn’t aimed at people who need finance explained from first principles — it’s a place to check the precise meaning of a term when one appears in a deep dive and the context isn’t quite enough. Each entry includes a short explanation and, where relevant, an example drawn from a company covered here.
It will grow over time. When a new term earns its place in the writing, it will earn its place here too.
Valuation
Enterprise Value
Enterprise value (EV) is a more complete measure of what it would cost to buy a business outright than market cap alone. It is calculated as market cap + total debt − cash and cash equivalents. The adjustment matters because an acquirer would inherit the company’s debt and receive its cash. A company with a $1 billion market cap, $200 million of debt, and $100 million of cash has an enterprise value of $1.1 billion. EV is the numerator in many valuation multiples — EV/Revenue and EV/EBITDA — precisely because it accounts for the full capital structure.
GARP (Growth at a Reasonable Price)
GARP is the investment philosophy at the heart of Patient Money. Rather than paying any price for a fast-growing company (growth investing) or buying cheap businesses with no growth (value investing), GARP seeks the middle ground: businesses growing quickly enough to compound meaningfully, at valuations that don’t require everything to go right. A rough Patient Money benchmark is a company growing revenue at 30% or more per year, trading at around 20x net GAAP profit, with operating leverage still ahead of it — meaning the best of the earnings growth hasn’t happened yet.
Market Capitalisation
Market capitalisation — or market cap — is the total value the stock market assigns to a company at any given moment. It is calculated as share price × total shares outstanding. If a company has 100 million shares trading at $10 each, its market cap is $1 billion. Patient Money focuses on companies between $100 million and $10 billion in market cap, a range where institutional coverage is thinner, mispricings persist longer, and a well-researched thesis has more edge than it does in large-cap stocks where every analyst on Wall Street has already done the work.
Valuation Multiple
A valuation multiple is any ratio that expresses a company’s price — whether market cap or enterprise value — as a function of a financial metric: earnings, revenue, EBITDA, free cash flow, and so on. Multiples allow comparison across companies of different sizes. A business trading at 15x earnings is either cheap or expensive depending on its growth rate, its industry, and what comparable businesses trade at. At Patient Money, multiples are always read in context — a 30x earnings multiple on a business with 40% earnings growth and operating leverage ahead may be more attractive than a 12x multiple on a business growing at 5%.
Profitability & Margins
EBITDA
EBITDA stands for Earnings Before Interest, Tax, Depreciation and Amortisation. It is a measure of operating profitability that strips out financing costs (interest), tax treatment, and non-cash accounting charges (depreciation and amortisation). It is widely used because it allows comparison across companies with different debt levels and tax situations, and it is a reasonable proxy for the cash a business generates before capital expenditure. Its limitation is that depreciation and amortisation are real costs — equipment does wear out, and acquired intangibles do decline in value — so EBITDA should not be treated as equivalent to cash profit.
Free Cash Flow
Free cash flow (FCF) is the cash a business generates after paying for the capital expenditure needed to maintain and grow its operations. It is calculated as operating cash flow − capital expenditure. FCF is arguably the most honest measure of a business’s financial health, because cash is harder to manipulate than accounting earnings. A company can report GAAP profits while consuming cash — or report losses while generating cash. Over long periods, intrinsic value tracks free cash flow more closely than any other single metric. The goal for Patient Money names is businesses that are moving towards consistent, growing FCF generation.
GAAP (Generally Accepted Accounting Principles)
GAAP is the standardised set of accounting rules and conventions that US-listed companies are required to follow when reporting their financial results. Established by the Financial Accounting Standards Board (FASB), it aims to ensure consistency and comparability across company reports. The most important implication for investors is that GAAP requires stock-based compensation — shares issued to employees as part of their pay — to be treated as a real expense, which means GAAP profits are typically lower than the “adjusted” figures companies prefer to highlight. Patient Money uses GAAP figures as its default because they represent the most complete and honest picture of a business’s financial performance.
Gross Profit / Gross Margin
Gross profit is revenue minus the direct costs of delivering that revenue — what accountants call cost of goods sold (COGS). For a software business, COGS typically includes hosting costs and payment processing fees; for a marketplace, it includes the cost of facilitating transactions. Gross margin is gross profit expressed as a percentage of revenue: gross margin = gross profit ÷ revenue. A business with $100 million of revenue and $30 million of COGS has a gross margin of 70%. High gross margins — typically 60% or above in software — are a signal that the business has pricing power and that additional revenue drops through to profit relatively efficiently.
Net Income (GAAP vs. Adjusted)
Net income is the bottom-line profit of a business after all expenses, interest, and tax. GAAP net income includes stock-based compensation (SBC) as a real expense, because issuing shares to employees does dilute existing shareholders. Adjusted net income, as reported by many technology companies, strips SBC out, which can make profitability look considerably more flattering than it is. Patient Money uses GAAP net income as the primary profitability measure, because SBC is a genuine cost of employing people, and a business that is only profitable on an adjusted basis is not yet truly profitable.
Operating Profit / Operating Leverage
Operating profit is gross profit minus operating expenses — things like sales and marketing, research and development, and general and administrative costs. It is the profit a business makes from its core operations before interest and tax. Operating leverage is the dynamic where operating expenses grow more slowly than revenue, causing operating profit to grow faster than both — and is one of the most powerful forces in a maturing technology business. You can see this playing out when a company’s revenue grows 30% year-on-year but its operating profit grows 60%, because the fixed cost base didn’t scale with the top line.
Unit Economics
Unit economics describes the profitability of a single unit of business — one customer, one transaction, one loan, one policy. A business with good unit economics makes more from each customer over their lifetime than it spends acquiring them, and does so with enough margin to cover shared fixed costs. Unit economics that improve over time — as the business learns, scales, and retains customers longer — are a strong signal of a durable, compounding business. The opposite — unit economics that deteriorate as a company grows — is one of the clearest warning signs in any deep dive.
Business Model & Growth
Churn
Churn is the rate at which customers cancel or stop using a service over a given period. A monthly churn rate of 2% means 2% of customers leave every month — which sounds small but compounds to roughly 22% of the customer base lost over a year. Logo churn measures the percentage of customers lost; revenue churn measures the percentage of revenue lost, which can differ significantly if churning customers are smaller or larger than average. Low churn is a prerequisite for healthy unit economics and durable revenue growth — a leaky bucket requires ever more new customers just to stand still.
Customer Acquisition Cost (CAC)
Customer acquisition cost is the total sales and marketing spend required to acquire a single new customer, calculated as total S&M expenditure ÷ new customers added in the period. A business spending $10 million on sales and marketing to acquire 10,000 new customers has a CAC of $1,000. CAC should always be read alongside lifetime value — a $1,000 CAC is fine if each customer generates $5,000 of profit over their relationship with the business, and deeply problematic if they generate $800.
Lifetime Value (LTV) / LTV:CAC Ratio
Lifetime value is the total profit a business expects to generate from a single customer over the entire duration of their relationship. It is typically estimated as average annual gross profit per customer ÷ annual churn rate. The LTV:CAC ratio expresses how many times over a business earns back its customer acquisition cost — a ratio of 3x or above is generally considered healthy. Businesses where LTV:CAC is improving over time — because customers stay longer, spend more, or cost less to acquire — are compounding in a way that is easy to underestimate from the outside.
Net Revenue Retention (NRR)
Net revenue retention measures how much revenue a business generates from its existing customer base this year compared to last year, accounting for expansion, contraction, and churn. An NRR above 100% means the existing customer base is growing in revenue terms even without any new customers — customers are spending more over time. An NRR of 120% means that even if a business signed no new customers at all, revenue would still grow 20% from the existing base. For software and platform businesses, NRR is one of the most important metrics in the model: it determines how much of the growth engine runs on autopilot.
Take Rate
Take rate is the percentage of the total transaction value that a marketplace or platform keeps as its own revenue. If a payments company processes $1,000 of transactions and earns $25, its take rate is 2.5%. Take rate is a core metric for marketplace and fintech businesses — DLocal (DLO), for example, earns its revenue as a percentage of the cross-border payment volumes it processes. A rising take rate can indicate growing pricing power; a falling one may reflect competitive pressure or a deliberate choice to win volume at lower margin.
Competitive Position
AI Underwriting
Traditional credit underwriting relies on a relatively small set of variables — credit scores, income, debt-to-income ratios — to decide who gets a loan and at what rate. AI underwriting uses machine learning models trained on large datasets to assess credit risk using a far wider range of signals, with the goal of more accurately predicting repayment behaviour. Upstart (UPST) is the most prominent example in Patient Money’s coverage: its thesis is that its AI model approves more applicants at lower default rates than traditional FICO-based underwriting, and that the advantage widens as more loan data is fed back into the model over time.
Embedded Finance
Embedded finance is the integration of financial services — payments, lending, insurance, banking — directly into non-financial products and platforms. Rather than a customer visiting a bank to get a loan, the loan is offered at the point of need inside a software platform they already use. DLocal embeds cross-border payment infrastructure into platforms operating in emerging markets; Porch Group (PRCH) embeds insurance products into the home-buying and home services process. Embedded finance is significant because it reaches customers at the moment of highest relevance, reduces acquisition costs, and creates switching costs that standalone financial products lack.
Moat
A moat — borrowed from Warren Buffett’s analogy of a castle surrounded by water — is a durable competitive advantage that protects a business’s market position and profitability from rivals. Common sources of moat include network effects (the product becomes more valuable as more people use it), switching costs (customers find it expensive or painful to leave), cost advantages (the ability to deliver a product more cheaply than any competitor), and intangible assets like licences, data, or brand. Patient Money looks for businesses whose moats are widening over time, not merely present — because a static moat is one that competitors are already working to drain.
Secular Tailwind
A secular tailwind is a long-term structural trend that benefits a business regardless of the economic cycle — as distinct from a cyclical tailwind, which is temporary and tied to the economic environment. The shift of financial services onto technology infrastructure, for example, is a secular tailwind for businesses like Upstart or DLocal: it will play out over a decade or more, and a recession does not reverse it. Secular tailwinds matter because they give management something to grow into even when execution is imperfect, and they reduce the analytical dependence on precise economic forecasting.
Total Addressable Market (TAM)
Total addressable market is the maximum revenue a business could theoretically generate if it captured 100% of its target market. It is a useful framing device for understanding the scale of an opportunity — a business with $500 million of revenue in a $5 billion market is running out of room; one with the same revenue in a $500 billion market is just getting started. TAM figures should be treated with healthy scepticism: they are often calculated by companies themselves and have a tendency to expand to whatever number makes the opportunity look most exciting. What matters more than the TAM headline is whether the business has a credible path to taking a meaningful share of it.
Investing Concepts
Bull / Bear Case
Most investment theses contain a range of plausible outcomes. The bull case is the optimistic scenario — where the business executes well, its market expands, and the market re-rates the stock upward. The bear case is the pessimistic scenario — where competition intensifies, execution disappoints, or macro conditions deteriorate. A rigorous bull/bear analysis assigns rough probabilities to each and thinks through what the stock would be worth under each scenario. The base case — the most likely outcome — sits between them. Patient Money publishes explicit bull, base, and bear cases for each name covered, precisely because they create accountability.
Catalyst
A catalyst is an event that could cause the market to meaningfully re-price a stock — upward or downward — in the near term. Typical catalysts include earnings beats or misses, guidance changes, new product announcements, regulatory decisions, or management changes. Catalysts matter because a stock can be fundamentally undervalued for a long time without moving, and identifying what might close the gap between price and value is useful for understanding the timing dimension of a thesis. Patient Money is not primarily a catalyst-driven publication — a 3 to 5 year horizon means catalysts are directional indicators rather than trading triggers.
Drawdown
A drawdown is the percentage decline in a stock’s price from a previous peak. A stock that falls from $100 to $60 has experienced a 40% drawdown. Drawdowns are a routine feature of investing in small and mid-cap technology stocks — the businesses covered at Patient Money regularly experience significant drawdowns without any fundamental deterioration in the underlying business. The distinction between a price drawdown and a thesis drawdown — where something has genuinely changed in the business or its competitive position — is the most important analytical question to answer when a covered name falls sharply.
Investment Thesis
An investment thesis is the reasoned argument for why a stock will be worth meaningfully more in three to five years than it is today. A good thesis has three components: a clear view on what the business is and how it makes money; a view on why the market is currently mispricing it; and a set of conditions that would cause the thesis to change. Patient Money publishes its theses in full, updates them when new information arrives, and writes explicitly about what would cause a position to be exited. The goal is a thesis that still makes sense to defend in public three years after it was written.
Small Cap / Mid Cap
Companies are broadly categorised by market capitalisation. Small-cap companies typically have market caps between $300 million and $2 billion; mid-cap companies between $2 billion and $10 billion, though the precise boundaries vary by source. Patient Money covers the full range from $100 million to $10 billion — encompassing micro-cap, small-cap, and mid-cap names. This is the part of the market where institutional research coverage is thinnest and mispricings are most persistent, because the largest funds cannot build meaningful positions without moving the price, leaving the field cleaner for investors who can act with smaller amounts of capital.