Fundamental Analysis

Money a company owes to suppliers and vendors for goods or services received but not yet paid for, recorded as a current liability on the balance sheet.

Money owed to a company by its customers for goods or services delivered on credit, recorded as a current asset on the balance sheet.

A financial ratio measuring how efficiently a company collects payments from customers, calculated by dividing net credit sales by average accounts receivable.

A financial analysis that determines whether a merger or acquisition will increase (accretive) or decrease (dilutive) the acquirer's earnings per share.

A formula combining five financial ratios to predict the probability of a company going bankrupt within two years, with scores below 1.8 indicating high risk.

The process of gradually expensing the cost of an intangible asset over its useful life, or the scheduled repayment of loan principal over time.

A comprehensive document published yearly by public companies containing financial statements, management discussion, and business performance review required by regulators.

An efficiency ratio measuring how effectively a company uses its total assets to generate revenue, calculated as revenue divided by average total assets.

A financial statement showing a company's assets, liabilities, and shareholders' equity at a specific point in time, following the equation Assets = Liabilities + Equity.

The net asset value of a company as shown on its balance sheet, calculated as total assets minus total liabilities.

Shareholders' equity divided by shares outstanding—representing the net asset value per share if the company were liquidated.

The percentage of a company's market capitalization returned to shareholders through share repurchases over a given period.

A financial ratio measuring the percentage of revenue a company spends on capital expenditures, indicating capital intensity.

Funds spent by a company to acquire, upgrade, or maintain physical assets like property, buildings, equipment, or technology.

The number of days it takes a company to convert its investments in inventory and other resources into cash from sales.

A financial statement showing the actual cash inflows and outflows from operating, investing, and financing activities during a period.

A liquidity ratio comparing a company's cash and cash equivalents to its current liabilities, measuring its ability to pay short-term obligations with cash alone.

A valuation method that compares a company's financial metrics to similar publicly traded companies to estimate its fair value.

The direct costs attributable to producing the goods or services a company sells, including materials and direct labor.

A liquidity ratio measuring a company's ability to pay short-term obligations by comparing current assets to current liabilities.

The average number of days it takes a company to collect payment after a sale, measuring accounts receivable efficiency.

A ratio measuring a company's ability to service its debt by comparing operating income to total debt service (principal + interest).

A financial leverage ratio comparing a company's total debt to its shareholders' equity, indicating how much the company is financed by debt versus owned funds.

The systematic allocation of an asset's cost over its useful life, reflecting the gradual consumption of its economic value.

Earnings per share calculated assuming all convertible securities, options, and warrants are exercised, showing the worst-case per-share earnings.

A valuation method that estimates the present value of an investment based on its expected future cash flows, discounted to reflect the time value of money.

A valuation method that calculates a stock's intrinsic value based on the present value of its expected future dividends.

The percentage of a company's net income paid out to shareholders as dividends, indicating how much profit is distributed vs. retained.

A framework that decomposes return on equity (ROE) into three components: profit margin, asset turnover, and financial leverage.

A quarterly conference call where a company's management discusses financial results, provides guidance, and answers analyst questions.

A measure of how sustainable, repeatable, and cash-backed a company's reported earnings are, distinguishing real profitability from accounting artifacts.

The inverse of the P/E ratio, showing earnings per share as a percentage of stock price, useful for comparing stocks to bonds.

A profitability measure showing a company's operating earnings before the impact of capital structure and tax decisions.

A widely used profitability metric that strips out financing, tax, and non-cash capital costs to approximate operating cash generation.

A measure of a company's true economic profit after deducting the full cost of capital, including equity cost, from operating profit.

The total value of a company including market cap, debt, and cash, representing the true acquisition cost.

A valuation multiple comparing enterprise value to earnings before interest, taxes, depreciation, and amortization—useful for comparing companies with different capital structures.

Enterprise value divided by EBITDA—a debt-neutral valuation multiple widely used for comparing companies and in M&A analysis.

A valuation multiple comparing a company's total enterprise value to its revenue, used primarily for unprofitable or early-stage companies.

The estimated price at which an asset would trade in an orderly transaction between knowledgeable, willing parties.

The use of borrowed money to amplify returns on equity, measured by ratios like Debt/Equity or the equity multiplier.

Long-term tangible assets like property, plant, and equipment used in operations and not intended for sale within the normal business cycle.

The cash a company generates from operations after accounting for capital expenditures, representing money available for dividends, debt repayment, or reinvestment.

A valuation metric that compares a company's free cash flow per share to its market price, indicating how much cash the business generates relative to its price.

An intangible balance sheet asset representing the premium paid above the fair value of net assets in a business acquisition.

A valuation formula created by Benjamin Graham estimating the maximum fair price for a stock based on its EPS and book value per share.

Revenue minus cost of goods sold, expressed as a percentage—measuring the profit retained after direct production costs.

A financial statement showing a company's revenues, expenses, and profits over a specific period, also known as the profit and loss statement.

The percentage of a company's shares owned by executives, directors, and other corporate insiders, indicating management's alignment with shareholders.

The percentage of a company's shares held by large institutional investors like mutual funds, pension funds, and hedge funds.

Non-physical assets with economic value, including patents, trademarks, copyrights, brand names, and customer relationships.

A measure of how easily a company can pay interest on its debt, calculated as EBIT divided by interest expense.

The calculated "true" value of an asset based on fundamental analysis, independent of its current market price.

A ratio measuring how many times a company sells and replaces its inventory during a period, indicating operational efficiency.

A financial model used by private equity to evaluate acquiring a company primarily with debt, projecting returns based on cash flow and debt paydown.

Financial obligations a company owes to outside parties, including debts, accounts payable, and other commitments that must be settled in the future.

The discount between a stock's intrinsic value and its market price, providing a buffer against errors in valuation.

A company's total profit after all expenses, taxes, and costs have been deducted from revenue—the "bottom line" of the income statement.

Net income as a percentage of revenue—the ultimate measure of profitability showing what percentage of each dollar becomes profit.

Adjusted earnings that remove one-time, non-recurring items to reveal a company's true sustainable earning power.

The cash generated from a company's core business operations, showing whether the business generates enough cash to maintain and grow its operations.

The degree to which a company uses fixed costs in its operations, amplifying both profit gains during revenue growth and losses during revenue declines.

Operating income as a percentage of revenue—measuring profitability from core business operations before interest and taxes.

Warren Buffett's preferred profitability measure: net income plus depreciation/amortization minus average annual maintenance capital expenditures.

Price/Earnings-to-Growth ratio adjusts P/E by earnings growth rate, helping identify undervalued growth stocks.

A 9-point scoring system that evaluates a company's financial strength based on profitability, leverage, liquidity, and operating efficiency.

A valuation method that values a company based on the prices paid in comparable M&A deals, reflecting real-world acquisition premiums.

A ratio comparing a stock's market value to its book value, used to identify potentially undervalued companies.

Stock price divided by operating cash flow per share—a valuation metric based on actual cash generation rather than accounting earnings.

A valuation metric comparing a company's stock price to its earnings per share, indicating how much investors pay per dollar of earnings.

A valuation ratio comparing a company's stock price to its revenue per share, useful for evaluating unprofitable or high-growth companies.

Hypothetical financial statements that project future results or show how financials would look under specific assumptions or after a transaction.

An SEC-mandated filing that provides unaudited financial statements and management discussion every three months for publicly traded companies.

A stringent liquidity measure that tests whether a company can pay its current obligations using only its most liquid assets, excluding inventory.

Costs incurred for developing new products, technologies, or processes that drive future revenue growth and competitive advantage.

A valuation method that values a company based on its ability to generate returns above its cost of equity, added to current book value.

The cumulative net income a company has kept and reinvested rather than distributing as dividends, representing internally generated equity.

A profitability ratio measuring how efficiently a company uses its total assets to generate earnings.

A profitability ratio that measures how effectively a company uses shareholder equity to generate profits, calculated as net income divided by shareholders' equity.

The return a company generates on all capital invested in its operations, measuring true value creation when compared to cost of capital.

The total amount of money a company earns from its business activities before any expenses are deducted, also called sales or top line.

The percentage increase in a company's sales over a specific period, measuring business expansion and market demand.

Official documents that publicly traded companies must submit to the Securities and Exchange Commission, providing mandatory financial disclosures to investors.

Operating costs not directly tied to production, including sales, marketing, management salaries, rent, and corporate overhead.

The percentage of revenue consumed by selling, general, and administrative expenses, measuring a company's overhead efficiency.

The reduction in existing shareholders' ownership percentage when a company issues new shares, decreasing per-share value metrics like EPS.

The residual value belonging to shareholders after all liabilities are subtracted from total assets, representing the net worth of a company.

The total number of shares that have been sold short but not yet covered, indicating bearish sentiment and potential squeeze risk.

A rapid price increase caused by short sellers being forced to buy shares to cover their positions, creating a self-reinforcing buying cascade.

Employee compensation paid in company stock options, restricted stock units (RSUs), or other equity instruments rather than cash.

A valuation method that values each business segment or asset separately and adds them together, often revealing hidden value in conglomerates.

A company's net asset value after excluding intangible assets like goodwill, patents, and brand value — the hard-asset floor value.

The estimated value of a business beyond the explicit forecast period in a DCF analysis, typically representing 60-80% of total enterprise value.

The sum of all short-term and long-term borrowings a company owes, including bonds, bank loans, and other interest-bearing obligations.

The blended cost of all capital sources (debt and equity) weighted by their proportion, representing the minimum return a company must earn.

The difference between a company's current assets and current liabilities, measuring short-term financial health and operational efficiency.

An accounting charge that reduces the book value of an asset when its fair market value falls below its carrying value on the balance sheet.