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Fundamentals

Earnings, valuation and the financial health of a business.

• Activist investorAn investor who buys a large stake and pushes a company to change strategy, management or capital use.
• Analyst price targetA Wall Street analyst's estimate of where a stock could trade in the next 12 months.
• ARR (Annual Recurring Revenue)The yearly value of a company's active subscription contracts.
• ATM offering (at-the-market)A program where a company sells new shares gradually into the open market at current prices.
• Balance sheetA snapshot of what a company owns, what it owes and what is left for shareholders.
• Beat and raiseWhen a company beats current-quarter estimates and also raises its future guidance.
• Book valueA company's assets minus its liabilities, as recorded on the balance sheet.
• Capital expenditure (capex)Money a company spends to buy or upgrade long-term assets such as equipment and facilities.
• Cash burnHow fast an unprofitable company is spending its cash.
• Cash flow statementA report of the cash a company actually brings in and pays out.
• CatalystA specific event that can change how the market values a stock.
• Churn rateThe share of customers or revenue lost over a period.
• Convertible noteA loan that can be turned into shares of the company at a set price.
• Cyclical stockA stock whose earnings rise and fall with the economic cycle.
• Debt-to-equity ratioA company's debt compared with its shareholders' equity.
• Defensive stockA stock in a business people need in any economy, such as food, utilities or health care.
• DilutionA fall in each owner's share of a company when it issues new shares.
• Discounted cash flow (DCF)A valuation method that adds up a business's expected future cash flows, shrunk back to today's value.
• Earnings reportA company's quarterly results, usually with a call where management discusses them.
• Earnings yieldEarnings per share divided by price: the inverse of the P/E ratio.
• EBITDAEarnings before interest, taxes, depreciation and amortization.
• Economic moatA lasting advantage that keeps competitors from copying a business.
• Enterprise value (EV)A company's total value including its debt, net of its cash.
• EPS (Earnings per share)A company's profit divided by its number of shares.
• FCF yieldFree cash flow divided by a company's market value.
• Forward P/EA P/E ratio that uses expected future earnings instead of past earnings.
• Free cash flow (FCF)The cash left after a company runs its business and pays for equipment.
• Fundamental analysisJudging a company's value from its business, financials and industry.
• GAAP vs non-GAAPGAAP follows standard US accounting rules; non-GAAP adjusts those results.
• GoodwillThe amount paid for an acquisition above the fair value of the assets it brought in.
• Gross marginThe share of revenue left after the direct cost of producing what was sold.
• GuidanceManagement's forecast for future revenue and earnings.
• Income statementA report of revenue, costs and profit over a period.
• Interest coverage ratioHow many times a company's operating profit covers its interest payments.
• Margin of safetyBuying at a price well below your estimate of a stock's value, to cushion errors.
• Mergers and acquisitions (M&A)Deals in which one company buys or combines with another.
• Net incomeA company's profit after all costs, interest and taxes.
• Net marginThe share of revenue that ends up as profit.
• Net revenue retention (NRR)How much revenue a company keeps and grows from its existing customers.
• Operating marginThe share of revenue left after operating expenses, before interest and tax.
• PaaS and IaaSTwo cloud service models that sit below SaaS: platforms for building software, and rented computing infrastructure.
• Payout ratioThe share of earnings a company pays out as dividends.
• P/B ratio (price-to-book)A stock's price compared with its book value per share.
• PDUFA dateThe date by which the FDA aims to decide on a drug application.
• P/E ratio (price-to-earnings)A stock's price divided by its earnings per share.
• PEG ratioThe P/E ratio divided by expected earnings growth.
• Phase 3 trialThe last stage of clinical testing before a drug is submitted for approval.
• P/S ratio (price-to-sales)A company's market cap divided by its yearly revenue.
• RevenueThe total sales a company generates before any expenses.
• ROE (Return on equity)Profit as a percentage of the money shareholders have invested.
• ROIC (Return on invested capital)How much profit a company earns on every dollar put into the business.
• Rule of 40A software rule of thumb: revenue growth rate plus profit margin should be at least 40%.
• SaaS (Software as a Service)Software sold on a subscription and delivered over the internet.
• Share buybackA company using its cash to repurchase its own shares.
• Spin-offWhen a company separates a division into its own, independently traded company.
• TAM (Total Addressable Market)The total revenue opportunity if a company won every possible customer in its market.
• TurnaroundA struggling company trying to recover through new management, cost cuts or a new strategy.
• Value trapA stock that looks cheap but is cheap for good reason, because the business is declining.
• Working capitalCurrent assets minus current liabilities: the short-term cushion a company has.
• YoY growth (year over year)A comparison of a result with the same period one year earlier.

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