# Appendix A - Key Financial Terms & Definitions&#x20;

**Collateral:** Assets pledged by borrowers to secure a loan. MZF PROTOCOL tracks collateral values dynamically using off-chain and on-chain data.

**Debt-to-Cash Flow (DCF) Ratio:** DCF = (Short-Term + Long-Term Debt) / (EBITDA − CapEx − Taxes − ∆Working Capital). Assesses a borrower’s ability to repay debt from cash flow. A lower DCF ratio is preferred.

**Loan Pricing Formula:** Loan Interest Rate = Funding Cost + (PD × LGD) + Operational Cost + Capital Allocation Cost + Profit Margin. Used to fairly price loans based on risk and operating costs.

**Loan-to-Value (LTV) Ratio:** LTV = (Loan Amount) / (Collateral Value). A metric used to assess the risk of under-collateralisation. Lower LTV indicates higher security for the lender.

**Loss Given Default (LGD):** The proportion of the loan expected to be lost if a borrower defaults, after accounting for recoverable collateral.

**Mezzanine Finance:** A hybrid form of financing combining debt and equity features. Typically used in property development or venture funding, it sits between senior debt and equity in the capital stack — offering higher returns in exchange for higher risk.

**Probability of Default (PD):** The estimated likelihood that a borrower will default on their obligations within a specific time frame.

**Reserve Pool:** A protocol-managed insurance buffer, funded by tokens, to absorb loan losses and provide platform liquidity.

**Staking Yield:** The reward earned by locking tokens in the protocol. MZF PROTOCOL offers tiered staking yields based on lock-up duration, with rewards drawn from a pre-allocated token pool — not from investment profits.

**Subordination:** The order in which creditors are paid in the event of default. Mezzanine debt is subordinate to senior loans but senior to equity.
