Stock Investing Glossary
Unlock the language of finance! This comprehensive glossary defines essential stock market terms and metrics used across Stock Investor IQ, empowering your fundamental analysis and investment decisions.
Explore Glossary Sections
I. Balance Sheet Metrics
- Total Assets
- The sum total of all resources owned or controlled by a company (cash, inventory, equipment, property, etc.) that have economic value. Appears on the balance sheet.
- Total Liabilities
- The total amount of debt and obligations owed by a company to creditors, suppliers, and others. Represents external claims on the company's assets.
- Shareholders’ Equity
- Often called Book Value. Calculated as Total Assets minus Total Liabilities. Represents the net value of the company attributable to its owners (shareholders).
- Invested Capital
- The total capital invested in a company's core operations from both debt and equity sources. Commonly calculated as Total Assets minus non-interest-bearing current liabilities (NIBCLs) minus excess cash. Essential for calculating ROIC.
- Capital Employed
- Represents the total long-term capital financing a company's operations. Often calculated as Total Assets minus Current Liabilities. Used in calculating ROCE.
- Net Working Capital
- A measure of short-term operational liquidity. Often defined as (Current Assets - Cash) - (Current Liabilities - Short-Term Debt). Indicates capital needed for daily operations.
- Excess Cash
- Cash held by a company above the amount required for immediate operational needs. Excluded from Invested Capital as it doesn't actively generate operating returns.
II. Earnings & Profitability Metrics
- Revenue
- Total income generated from a company's primary business activities (sales) before deducting expenses. Also known as Sales or Turnover.
- Gross Profit
- Revenue minus Cost of Goods Sold (COGS). Profit remaining after accounting for the direct costs of producing goods or services sold.
- Gross Profit Margin
- (Gross Profit / Revenue) x 100%. Measures profitability from core production/acquisition activities and pricing power. Higher is generally better.
- Operating Income
- Profit from core business operations before interest and taxes. Calculated as Gross Profit minus operating expenses (SG&A, R&D). Often synonymous with EBIT.
- Operating Profit Margin
- (Operating Income / Revenue) x 100%. Shows the efficiency of core operations, including managing overhead and operating costs.
- Net Income
- The company's final profit after all expenses (COGS, operating expenses, interest, taxes) are deducted from revenue. The "bottom line."
- Net Profit Margin
- (Net Income / Revenue) x 100%. Indicates overall profitability after all costs.
- Earnings Before Interest and Taxes (EBIT)
- A measure of operating profitability, excluding the effects of financing and taxes. Useful for comparing operational performance across companies.
- Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)
- EBIT plus Depreciation & Amortization. Often used as a proxy for cash flow, but should be used cautiously as it omits CapEx and working capital changes.
- Net Operating Profit After Tax (NOPAT)
- EBIT x (1 - Effective Tax Rate). Represents the after-tax profit from core operations assuming no debt. Key input for ROIC.
III. Cash Flow Metrics
- Operating Cash Flow (OCF)
- Cash generated from day-to-day business operations, starting from net income and adjusting for non-cash items and working capital changes.
- Free Cash Flow (FCF)
- OCF minus Capital Expenditures (CapEx). The cash left over after maintaining and expanding the asset base, available for debt repayment, dividends, buybacks, etc. A crucial metric for valuation. Check our Cash Cow Screener.
- Owner’s Earnings
- A concept similar to FCF, often calculated as OCF minus *Maintenance* CapEx (CapEx needed just to sustain current operations). Represents cash truly available to owners.
- Free Cash Flow Margin
- (FCF / Revenue) x 100%. Measures how much of each sales dollar turns into free cash flow.
- Free Cash Flow Yield
- (FCF per Share / Stock Price) x 100%. Shows the FCF return relative to the stock's market price. Higher yield can indicate better value.
- Cash Conversion Ratio
- FCF / Net Income. Measures how effectively profits are converted to free cash flow. Consistently high ratios (>= 80-100%) indicate high earnings quality.
IV. Returns & Efficiency Metrics
- Return on Equity (ROE)
- Net Income / Average Shareholders’ Equity. Measures return generated on shareholder investments (book value). Can be distorted by high debt.
- Return on Assets (ROA)
- Net Income / Average Total Assets. Shows return generated relative to the company's total asset base.
- Return on Invested Capital (ROIC)
- NOPAT / Average Invested Capital. Measures return on capital used in core operations. Widely considered a key indicator of business quality and management effectiveness. See Understanding Return on Capital.
- Return on Capital Employed (ROCE)
- EBIT / Average Capital Employed. Measures profitability relative to total long-term funding. Favored by some investors like Terry Smith. See our Quality Stock Screener.
- Cash Return on Invested Capital (CROIC)
- FCF / Average Invested Capital. A cash-flow based version of ROIC.
- Return on Invested Capital – Owner's Earnings (ROIC-OE)
- Owner’s Earnings / Average Invested Capital. Focuses on owner-specific cash returns relative to invested capital.
V. Valuation Ratios
- Price-to-Earnings (P/E) Ratio
- Stock Price / EPS. Indicates market valuation relative to earnings. Must be compared within industry and against growth prospects.
- P/E Ratio – R&D Adjusted
- A P/E variation treating R&D as an investment. Capitalizes R&D and amortizes it to potentially normalize earnings for innovative companies. Used in our Multibagger Screener.
- Price-to-Sales (P/S) Ratio
- Stock Price / Revenue per Share. Useful for valuing companies without stable profits, but ignores profitability.
- Price-to-Book (P/B) Ratio
- Stock Price / Book Value (Shareholders’ Equity) per Share. Compares market price to accounting net worth. Relevant for asset-heavy businesses.
- Price-to-Free Cash Flow (P/FCF) Ratio
- Stock Price / FCF per Share. Compares market price to free cash flow generation. Often preferred over P/E for valuing mature, cash-generative companies.
- Acquirer’s Multiple
- Enterprise Value (EV) / Operating Income (or EBIT). EV = Market Cap + Total Debt - Cash. A valuation metric simulating a company buyout, focusing on operating earnings relative to total acquisition cost.
VI. Dividends & Per Share Metrics
- Earnings Per Share (EPS)
- Net Income (less preferred dividends) / Weighted Average Common Shares Outstanding. Profit attributed to each share.
- Dividend Yield
- (Annual DPS / Stock Price) x 100%. The income return from dividends. Important for our Dividend Stock Screener.
- Payout Ratio (Earnings)
- Annual DPS / EPS. Proportion of earnings paid as dividends. High ratios may indicate less room for dividend growth or reinvestment.
- Payout Ratio (Free Cash Flow)
- Annual DPS / FCF per Share. Proportion of free cash flow paid as dividends. A key measure of dividend sustainability.
- Revenue Per Share
- Total Revenue / Weighted Average Shares Outstanding.
- Net Income Per Share
- Same as EPS.
- Free Cash Flow Per Share
- Total FCF / Weighted Average Shares Outstanding.
- Owner's Earnings Per Share
- Total Owner’s Earnings / Weighted Average Shares Outstanding.
- Dividend Per Share (DPS)
- Total Dividends Paid / Weighted Average Shares Outstanding.
VII. Growth & Volatility Metrics
- Compound Annual Growth Rate (CAGR)
- The mean annual growth rate over a specified period, assuming compounding. Smooths volatility for metrics like Revenue, EPS, FCF.
- Annualized Growth Rate
- Similar to CAGR, representing the equivalent yearly growth rate over a period.
- Revenue Growth
- Percentage change in Revenue over a period (e.g., YoY, 5-yr CAGR). Indicates sales expansion.
- Net Income Growth
- Percentage change in Net Income over a period. Reflects profitability growth.
- Free Cash Flow Growth
- Percentage change in FCF over a period. Shows growth in cash generation ability.
- Equity Growth
- Percentage change in Shareholders’ Equity (Book Value) over a period. Shows growth in net assets.
- Buyback Yield
- Return generated for shareholders via share repurchases, calculated from the reduction in shares outstanding relative to market cap.
- Total Shareholder Return (TSR)
- Total return including stock price appreciation (capital gains) and dividends over a period.
VIII. Statistics & Variability Metrics
- Coefficient of Variation (CV)
- Standard Deviation / Mean. Measures relative variability or consistency. Lower CV for growth rates suggests more stable performance.
- Correlation Coefficient (R-squared)
- Statistical measure (R²) indicating the strength of a linear trend (e.g., growth vs. time). Closer to 1 means a stronger linear relationship.
IX. DCF & Valuation Concepts
- Discount Rate
- The rate used to calculate the present value of future cash flows in a DCF model. Represents required return, incorporating time value of money and risk.
- Terminal Value (TV)
- Estimated value of a company's cash flows beyond the explicit forecast period in DCF analysis. Represents the bulk of the value for long-lasting companies.
- Terminal Value Multiplier
- A valuation multiple (like P/E or P/FCF) applied to a final year metric to estimate Terminal Value.
- Reverse DCF
- Valuation method starting with the current stock price to determine the implied growth rate needed to justify it. See our Reverse DCF Calculator.
- Implied Growth Rate
- The growth rate derived from Reverse DCF analysis that equates the present value of future cash flows to the current market price.
- Convergence (in DCF Calculations)
- Indicates if an iterative calculation (like finding the implied growth rate) successfully reached a stable solution.
