Glossary · 25 terms
Fundamental Analysis
All fundamental analysis terms in the EquitiesAmerica.com glossary — plain-English definitions for American investors.
Balance Sheet(statement of financial position)
The balance sheet is a financial statement that shows a company's assets, liabilities, and shareholders' equity at a specific point in time, providing a snapshot of what the company owns, what it owes, and the residual interest of its owners.
Book Value(net asset value)
Book value is the net asset value of a company as recorded on its balance sheet — total assets minus total liabilities — and represents the theoretical amount shareholders would receive if the company were liquidated at accounting values.
Cash Flow Statement(statement of cash flows)
The cash flow statement is one of the three core financial statements, showing all actual cash inflows and outflows over a reporting period, organized into operating, investing, and financing activities.
Current Ratio(current ratio)
The current ratio measures a company's ability to meet its short-term obligations using its short-term assets, and is a primary indicator of near-term liquidity health.
Debt-to-Equity Ratio(D/E ratio)
The debt-to-equity ratio (D/E) compares a company's total debt obligations to its shareholders' equity, measuring the degree to which a company is financing its operations through borrowing versus owner funds.
Discounted Cash Flow(DCF)
Discounted cash flow (DCF) is a valuation method that estimates the present value of an investment by projecting its future cash flows and discounting them back to today using an appropriate rate of return.
Dividend Yield(dividend yield)
Dividend yield measures the annual dividend payment as a percentage of the current stock price, showing how much income an investor receives for each dollar invested in a dividend-paying stock.
Earnings Per Share(EPS)
Earnings per share (EPS) represents a company's net profit allocated to each outstanding share of common stock, and serves as the primary building block for most equity valuation metrics.
EBITDA(EBITDA)
EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization, and is widely used as a proxy for operating cash flow and a key input in leveraged buyout (LBO) and M&A valuation.
Enterprise Value(EV)
Enterprise value (EV) represents the theoretical total cost to acquire a business — including both equity and debt obligations, net of cash — and is used as a capital-structure-neutral measure of company size and value.
Free Cash Flow(FCF)
Free cash flow (FCF) is the cash a company generates after paying for operating expenses and capital expenditures, representing the true cash available to return to shareholders, pay down debt, or fund acquisitions.
Gross Margin(gross profit margin)
Gross margin measures the percentage of revenue retained after subtracting the direct costs of producing goods or services, and reflects a company's pricing power and production efficiency.
Intrinsic Value(true value)
Intrinsic value is the true underlying worth of a business based on its future cash flow potential, and represents the price a rational, fully informed buyer would pay for the entire company — regardless of its current market price.
Net Income(net profit)
Net income is the profit remaining after all expenses — cost of goods sold, operating expenses, interest, taxes, and other charges — have been deducted from revenue, and represents the official 'bottom line' of the income statement.
Operating Margin(operating profit margin)
Operating margin measures the percentage of revenue remaining after all operating expenses — including cost of goods sold, selling, general and administrative costs, and R&D — have been paid, capturing the profitability of the core business before interest and taxes.
Payout Ratio(dividend payout ratio)
The payout ratio measures the proportion of a company's earnings paid out as dividends, indicating how much of profits are returned to shareholders versus retained for reinvestment in the business.
PEG Ratio(PEG ratio)
The PEG ratio adjusts the price-to-earnings ratio for expected earnings growth, helping investors determine whether a high-P/E stock is truly overvalued or simply priced to reflect superior growth prospects.
Price-to-Book Ratio(P/B ratio)
The price-to-book ratio (P/B) compares a company's market capitalization to its book value (net assets), offering a measure of how much investors are paying above — or below — the accounting value of the firm's assets.
Price-to-Earnings Ratio(P/E ratio)
The price-to-earnings ratio (P/E) measures how much investors are willing to pay for each dollar of a company's earnings, and is one of the most widely used valuation metrics in fundamental analysis.
Price-to-Sales Ratio(P/S ratio)
The price-to-sales ratio (P/S) compares a company's market capitalization to its annual revenue, providing a valuation yardstick particularly useful for companies that are not yet profitable.
Quick Ratio(acid-test ratio)
The quick ratio (also called the acid-test ratio) measures a company's ability to meet short-term liabilities using only its most liquid assets — cash, marketable securities, and receivables — excluding inventory.
Return on Equity(ROE)
Return on equity (ROE) measures how efficiently a company generates profit from its shareholders' equity, and is one of Warren Buffett's favorite indicators of business quality.
Return on Invested Capital(ROIC)
Return on invested capital (ROIC) measures how effectively a company generates profit from all the capital deployed in its business — both equity and debt — and is widely regarded as the gold standard for assessing business quality.
Revenue(net revenue)
Revenue is the total income a company earns from its primary business activities — selling products, providing services, or a combination of both — before any expenses are deducted.
Working Capital(net working capital)
Working capital is the difference between a company's current assets and current liabilities, representing the short-term liquidity buffer available to fund day-to-day operations.