Glossary of Commonly Used Terms

NPS(Net Promoter Score)

Net promoter score is a widely used market research metric that typically takes the form
of a single survey question asking respondents to rate the likelihood that they would
recommend a company or a product.

= % − %

Social Share of Voice (SSoV)

It is a way to measure how much people are talking about the brand on social media. It's
usually calculated as a percentage of total mentions within an industry or a de ned group
of competitors.

′
= × %

FICO Score
Financial institutions and lenders use this to determine how much credit they can offer
borrowers and at what interest rate.

Knowledge Process Outsourcing

KPO refers to outsourcing knowledge-intensive activities that are data-driven and
encompass the process of gathering, managing, analysing and delivering objective
insights into businesses.

Personally Identi able Information (PII)

PII refers to any user data that could be used to distinguish one person from another.
Standard PII identi ers include phone numbers, email addresses, social security numbers
or mailing addresses.

Return on Ad Spend (ROAS)

It is a marketing metric that measures the ef cacy of a digital advertising campaign.
ROAS helps online businesses evaluate which methods are working and how they can
improve future advertising efforts.

Client Retention Rate

It is used to measure the number of loyal customers, i.e. the customers who continued to
purchase the product and are satis ed with it. The percentage of customers and revenue
lost during a period is called the Churn Rate.

© Consulting & Analytics Club, IIT Guwahati

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 Client Lifetime Value (CLV)
It is the pro t brought by a customer to the business, and in this way, the company can
individually ful l the need of the customer.
= ×

Time Value of Money 

A sum of money today is worth more than the same sum in the future, as it can earn
interest in the meantime. A delayed investment is a lost opportunity.

Cash Flows
The term cash ow refers to the net amount of cash and cash equivalents transferred in
and out of a company. Cash received represents in ows, while money spent represents
out ows.

Free Cash Flow

It's the residual cash ow that's left over after all of the project's requirements have been
satis ed, and the implications accounted for. It's the cash ow that can be distributed to
the nancial claimants of the company, debt and equity.

= ( − − #) ( − ) +
− −
# - EBIT ( Earnings before interest and taxes)

Free Cash Flow to Equity

It's the residual cash ow left over after all of the project's requirements have been
satis ed, implications accounted for, and all debt nancing has been ful lled.

Present Value 
The present value of a sum FV received in t periods discounted at a rate of interest r is
given by

=
( + )

The present value of a future stream of cash ows made at time t for a rate of return
R for n time intervals is given by

∑( + )
=
=

Return on Assets (ROA)

It is a measure of how much pro t a business is generating from its capital. If a company's
ROA is 7.5%, this means that the company earns seven and a half cents per dollar in
assets.

© Consulting & Analytics Club, IIT Guwahati

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Annuity and Perpetuity

An annuity is a nite stream of cash ows of identical magnitude and equal spacing in
time.

= ( − ( + )− ) for constant annual payment CF.

A perpetuity is an endless annuity.

A growing annuity is a nite stream of cash ows that grow at a constant rate and are
evenly spaced through time.

− ( ( + ))
+
= − for constant growth rate g.

A growing perpetuity is an in nite stream of cash ows that grow at a constant rate and
are evenly spaced through time.

=
−

Discount Rate/ Rate of Return

Factors like in ation and taxes in uence r, i.e. the rate of return/discount rate. In the case
of in ation, where the in ation rate is given by I, the in ation-adjusted resultant rate of
+
return, say RR, can be calculated as = − .
+

In the case of taxes, if the rate of taxation is t, then the resultant rate of return is RR = R
(1 - t).

Net Present Value

NPV is simply the difference between the present value of cash in ows and out ows. It is
a metric used to determine whether an investment is pro table. Investments with
negative NPVs are avoided. The formulae remain the same as PV's; however, we take the
net cash in ow-out ow or the free cash ow in this case.

Net Present Value Rule

The NPV Rule recommends making only investments with a positive net present value.
© Consulting & Analytics Club, IIT Guwahati
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 Internal Rate of Return (IRR) 

The internal rate of return is the discount rate, which would equal the NPV to zero. It
helps to identify the annual growth rate. A high IRR is desirable for investment.

Net Pro t Margin 

It is the ratio of net pro ts to the revenue expressed as a percentage. It represents how
much of each dollar collected in revenue translates into a pro t.

= ×

Break Even Point 

In accounting, it refers to the production quantity where the total production revenue
compensates for production costs.

Return on Investment (ROI) 

ROI indicates the total growth of an investment over a period of time. The ROI is the net
pro t expressed as a percentage of the initial investment. 

− −
= ×

Compounded Annual Growth Rate(CAGR) 

Given the amount invested today and its expected value in the future, CAGR is the rate
of interest at which the investment will have to be compounded to give the expected
future value.

[ ]
( /)
−

Pro tability Index

The pro tability index is an index that attempts to identify the relationship between the
costs and bene ts of a proposed project through the use of a ratio calculated as:

A ratio of 1.0 is logically the lowest acceptable measure on the index, as any value lower
than 1.0 would indicate that the project's PV is less than the initial investment. As values
on the pro tability index increase, so does the nancial attractiveness of the proposed
project.

Initial Investment
The initial investment  is the amount required to start a business or a project. It is also
called initial investment outlay or simply initial outlay. It equals capital expenditures plus
© Consulting & Analytics Club, IIT Guwahati
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 working capital requirement plus after-tax proceeds from assets disposed off or available
for use elsewhere.

APR vs EAR

APR, or the Annual Percentage Rate, measures the simple interest earned in a year.

The EAR (effective annual rate) measures the actual amount of interest earned or paid in
a year. We use the periodic interest rate as R in all our calculations.

= , where k is the number of compounding periods in a year.

( )
= + −

=( + ) −

Capital Asset Pricing Model (CAPM)

The market rate of return is the return the company could receive by investing in a well-
diversi ed portfolio of stocks. The discount rate can be calculated as:
= + β( − ), where is the discount rate,
is the risk-free rate of return,
is the market rate of return, and
β is the calculated market risk of an investment.

Bounce Rate
The bounce rate is the percentage of people who come to the landing page and leave
without browsing further or clicking elsewhere on the company's website.

Key Performance Indicator (KPI)

KPIs provide targets for teams to shoot for, milestones to gauge progress, and insights
that help people across the organisation make better decisions.

Business Process Reengineering (BPR)

It includes reviewing a client's business processes, eliminating unneeded or 'non-value-
added' tasks, and implementing a leaner, more ef cient strategy.

———————————————————————————————————————
All information in this guide is accurate and complete to the best of our knowledge. Any data, de nitions
or inspirations have been acknowledged wherever possible. Any redistribution or reproduction of the
contents is prohibited without prior written permission from Consulting & Analytics Club, IIT Guwahati.

Curated by the Undergraduate Consulting Team at IIT Guwahati.

© Consulting & Analytics Club, IIT Guwahati

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