Fundamentals Flashcards

All 110 terms in this deck

The full list, for reference and search.

Accounts Payable

Accounts payable is the mirror image of receivables: money the company owes its suppliers for goods and services it has received but not yet paid for.

Accounts Receivable

Accounts receivable is the money customers owe a company for goods or services already delivered but not yet paid for.

Alpha

Alpha is the excess return an investment or portfolio generates relative to its benchmark, after adjusting for the risk taken (typically measured by beta) to get there.

Altman Z-Score

The Altman Z-Score is a bankruptcy-prediction model that combines five financial ratios into a single distress gauge.

Analyst Rating

An analyst rating is a sell-side research firm's summary opinion on a stock, usually on a buy/hold/sell scale or a house variant like overweight/equal-weight/underweight or outperform/neutral/underperform.

Annual Report

An annual report is a company's yearly summary of its financial performance and operations, sent to shareholders, typically including a letter from the CEO, financial statements, and a discussion of the business's results and outlook.

Authorized Shares

Authorized shares are the maximum number of shares a company's corporate charter permits it to issue, set by the board and shareholders and only changeable by amending that charter.

Balance Sheet

The balance sheet is the financial statement showing what a company owns (assets), what it owes (liabilities), and the difference (shareholders' equity) at a single point in time.

Basis Point (bps)

A basis point is one one-hundredth of a percentage point (0.01%), used throughout finance to describe small changes in interest rates, yields, and fees without the ambiguity that can come from saying "percent of a percent." 100 basis points equal 1 percentage point.

Beneish M-Score

The Beneish M-Score estimates the probability that a company is manipulating its reported earnings, using eight year-over-year ratios that tend to distort when the books are being stretched.

Book Value

Book value is a company's total assets minus total liabilities — the accounting net worth that belongs to shareholders, identical to shareholders' equity on the balance sheet.

Buyback Yield

Buyback yield is the percentage of a company's market cap it spent on net share repurchases over the past year — the buyback counterpart to dividend yield.

Buyout

A buyout is the purchase of a controlling interest in a company, often taking it entirely private in the process.

Capital Expenditures (CapEx)

Capital expenditures are the cash a company spends buying or upgrading long-lived assets: factories, stores, servers, drilling rigs.

Cash Conversion Cycle

The cash conversion cycle measures how many days a dollar spends trapped in operations between paying suppliers and collecting from customers: CCC = DIO + DSO - DPO.

Cash Flow Statement

The cash flow statement tracks the actual cash moving in and out of a company over a period, sorted into three sections: operating, investing, and financing activities.

Cash Ratio

The cash ratio is the strictest liquidity test on the balance sheet: cash and cash equivalents divided by current liabilities, ignoring receivables and inventory entirely.

Cost of Goods Sold (COGS)

Cost of goods sold is the direct cost of producing whatever the company sells: raw materials, factory labor, freight in, manufacturing overhead.

Current Ratio

Divide current assets by current liabilities and you get the current ratio, the standard test of whether a company can cover the obligations due within the next year.

Cyclical Stock

A cyclical stock belongs to a company whose earnings rise and fall closely with the broader economic cycle, common in industries like autos, homebuilding, airlines, and industrials.

Days Inventory Outstanding (DIO)

Days inventory outstanding answers one question: how long does product sit before it sells?

Days Payable Outstanding (DPO)

Days payable outstanding is the flip side of DSO: the average number of days a company takes to pay its own suppliers.

Days Sales Outstanding (DSO)

Days sales outstanding is the average number of days a company waits to collect payment after making a sale: DSO = (accounts receivable / revenue) x 365.

Debt-to-EBITDA

Debt-to-EBITDA states leverage in years: how many years of pre-interest, pre-tax, pre-depreciation earnings it would take to pay off the debt load.

Debt-to-Equity Ratio

A debt-to-equity ratio of 1.0 means a company finances itself with exactly as much borrowed money as owner money: total debt divided by shareholders' equity, both straight off the balance sheet.

Defensive Stock

A defensive stock belongs to a company whose products or services see relatively stable demand regardless of the economic cycle, common in sectors like utilities, consumer staples, and healthcare.

Deferred Revenue

Deferred revenue is cash a company has collected for products or services it has not yet delivered.

Depreciation & Amortization (D&A)

Depreciation and amortization spread the cost of a long-lived asset across the years it gets used, instead of expensing it all at purchase.

Dilution

Dilution is the reduction in each existing shareholder's ownership percentage — and claim on earnings — when a company issues new shares.

Discounted Cash Flow (DCF)

A discounted cash flow valuation prices a business as the sum of all the cash it will ever generate, with each future dollar shrunk back to present value at a discount rate.

Dividend

A dividend is a cash payment a company makes to shareholders out of its profits, typically quarterly in the US and quoted per share.

Dividend Yield

Dividend yield is the annual dividend per share divided by the share price — the cash return you earn just for holding the stock, before any price change.

Earnings Beat

An earnings beat is a reported result that comes in above the consensus analyst estimate, most commonly measured on EPS.

Earnings Miss

An earnings miss is a reported result below the consensus analyst estimate, on EPS, revenue, or both.

Earnings Per Share (EPS)

Earnings per share is net income divided by the number of shares outstanding — the slice of annual profit attached to each individual share.

Earnings Power Value (EPV)

Earnings power value prices a business on one deliberately brutal assumption: current earnings, properly normalized, continue forever with zero growth.

Earnings Season

Earnings season is the four-to-six-week stretch after each calendar quarter ends when most public companies report results, kicking off in mid-January, mid-April, mid-July, and mid-October.

Earnings Yield

Earnings yield flips the P/E ratio upside down: earnings per share divided by price, expressed as a percentage.

EBIT

EBIT is earnings before interest and taxes: profit measured after all operating costs, including depreciation and amortization, but before the effects of debt and tax jurisdictions.

EBITDA

EBITDA is earnings before interest, taxes, depreciation, and amortization — operating profitability measured before financing costs, tax rates, and non-cash asset charges.

Effective Tax Rate

The 21% U.S. statutory corporate rate is not what most companies actually pay — the effective tax rate is: income tax expense divided by pretax income, as reported.

Enterprise Value (EV)

Enterprise value is the theoretical takeover price of a whole business: market cap plus total debt minus cash and equivalents.

EV/EBITDA

EV/EBITDA compares enterprise value — market cap plus net debt — to earnings before interest, taxes, depreciation, and amortization, valuing the whole business rather than just its equity.

Fiscal Year

A fiscal year is the 12-month period a company uses for financial reporting and budgeting, which does not have to match the calendar year.

Float (Public Float)

A company's float is the number of shares actually available for public trading, calculated as total shares outstanding minus shares held by insiders, large strategic holders, and other restricted or closely-held stakes.

Form 10-K

A Form 10-K is the audited annual report every US public company must file with the SEC, covering a full fiscal year of financial statements, risk factors, and management commentary.

Form 10-Q

A Form 10-Q is the quarterly version of the 10-K: financial statements and updated disclosures filed with the SEC for each of the first three fiscal quarters, due within 40 days of quarter end for large accelerated and accelerated filers and 45 days for smaller companies.

Form 13F

A Form 13F is the quarterly SEC filing where institutional investment managers with at least $100 million in qualifying US securities disclose their long equity holdings, due within 45 days of quarter end.

Form 4

A Form 4 is the SEC filing corporate insiders must submit within two business days of buying or selling their company's stock.

Form 8-K

A Form 8-K is the SEC filing companies use to disclose material events between scheduled reports, generally due within four business days of the event.

Forward P/E

Forward P/E prices a stock against earnings that have not happened yet: current share price divided by consensus estimated EPS for the next twelve months or next fiscal year.

Free Cash Flow (FCF)

Free cash flow is the cash a business generates from operations minus capital expenditures — the money actually left over after running and maintaining the business.

Free Cash Flow Yield

A 5% free cash flow yield means every $100 of market value is backed by $5 of annual free cash flow: FCF divided by market cap, the inverse of price-to-free-cash-flow.

Fundamental Analysis

Fundamental analysis evaluates a security's intrinsic value by studying the underlying business: financial statements, revenue and earnings trends, competitive position, management quality, and the broader industry and economy it operates in.

Funds From Operations (FFO)

Funds from operations is the REIT industry's earnings measure: net income with real estate depreciation added back and gains or losses from property sales stripped out.

GAAP vs Non-GAAP

GAAP earnings follow Generally Accepted Accounting Principles, the standardized US rulebook auditors sign off on; non-GAAP (or "adjusted") earnings are the company's own recut that excludes items management deems non-representative, most commonly stock-based compensation, restructuring charges, and amortization of acquired intangibles.

Goodwill

Goodwill is the premium an acquirer pays above the fair value of a target's identifiable net assets, parked on the balance sheet as an intangible asset.

Gross Margin

Gross margin is gross profit as a percentage of revenue: (revenue - cost of goods sold) / revenue.

Gross Profit

Revenue minus cost of goods sold equals gross profit: the dollars left after paying for the product itself, before any operating cost.

Guidance

Guidance is management's own forecast for upcoming revenue, earnings, or margins, usually issued with quarterly results.

Hostile Takeover

A hostile takeover is an acquisition attempt made directly to a target company's shareholders, over the objection of its board of directors, typically through a tender offer (a public offer to buy shares directly from shareholders) or a proxy fight (trying to replace the board with directors who will approve the deal).

Income Statement

The income statement is the financial report showing a company's revenue, costs, and resulting profit over a period — a quarter or a year.

Insider Trading

Insider trading covers two very different things: the legal buying and selling of company stock by its own officers, directors, and large holders, disclosed on Form 4 within two business days, and the illegal act of trading on material nonpublic information (MNPI), whether by an insider or anyone they tip.

Institutional Ownership

Institutional ownership is the percentage of a company's shares held by institutions: mutual funds, hedge funds, pensions, banks, and insurers, tallied mostly from quarterly 13F filings.

Intangible Assets

Intangible assets are the non-physical assets on a balance sheet: patents, trademarks, licenses, customer relationships, acquired software, and goodwill.

Interest Coverage Ratio

Interest coverage divides EBIT by interest expense to answer a blunt question: can the company pay the interest on its debt out of operating profit?

Inventory Turnover

Inventory turnover counts how many times a company sells through its entire stock in a year: cost of goods sold divided by average inventory.

Leveraged Buyout (LBO)

A leveraged buyout is an acquisition financed mostly with borrowed money, using the target company's own assets and future cash flows as collateral for the debt.

Market Cap

Market capitalization is the total market value of a company's equity: share price times shares outstanding.

Merger & Acquisition (M&A)

A merger combines two companies into one new or surviving entity, typically between roughly equal parties; an acquisition is one company buying and absorbing another, typically a larger company purchasing a smaller one.

Minority Interest

When a company owns more than 50% of a subsidiary but less than 100%, accounting rules force it to consolidate 100% of that subsidiary's revenue and profit into its own statements — minority interest, formally non-controlling interest (NCI), is the slice of those consolidated results that actually belongs to the subsidiary's outside shareholders.

Net Income

Net income is the profit left after every expense — cost of goods, operating costs, interest, and taxes — has been subtracted from revenue.

Net Interest Margin (NIM)

Net interest margin is a bank's core profit spread: interest earned on loans and securities minus interest paid on deposits and borrowings, divided by average earning assets.

Net Margin

Net margin is net income as a percentage of revenue — the share of every sales dollar that survives all the way to the bottom line after every cost, including interest and taxes.

Operating Cash Flow

Operating cash flow is the cash a company's core business actually generated during the period, reported in the first section of the cash flow statement.

Operating Income

Operating income is the profit a company earns from actually running its business: revenue minus COGS minus operating expenses, before interest and taxes.

Operating Leverage

Operating leverage is the multiplier that fixed costs place between revenue growth and profit growth.

Operating Margin

Operating margin is operating income divided by revenue — the percentage of sales left after both cost of goods sold and operating expenses (R&D, sales and marketing, administration), but before interest and taxes.

Owner Earnings

Owner earnings is Warren Buffett's definition of what a business truly earns for its owners: reported net income, plus depreciation, amortization, and other non-cash charges, minus the capital spending required to maintain the company's competitive position.

P/E Ratio

The price-to-earnings ratio is a stock's share price divided by its earnings per share — the number of dollars the market pays for each dollar of annual profit.

Payout Ratio

The payout ratio is the share of earnings a company pays out as dividends: dividends per share divided by earnings per share.

PEG Ratio

The PEG ratio divides a stock's P/E by its expected earnings growth rate, scaling the multiple to the growth that is supposed to justify it.

Piotroski F-Score

The Piotroski F-Score grades a company 0 to 9, awarding one point for each fundamental test it passes across profitability, leverage, and efficiency.

Poison Pill

A poison pill is a defensive tactic a company's board adopts to make a hostile takeover prohibitively expensive or dilutive, most commonly a shareholder rights plan that lets existing shareholders (other than the hostile acquirer) buy additional shares at a steep discount once someone crosses an ownership threshold, diluting the would-be acquirer's stake.

Price Target

A price target is an analyst's projected price for a stock, usually on a 12-month horizon, published alongside a rating.

Price-to-Book Ratio (P/B)

Price-to-book compares a stock's price to its book value per share — the accounting net worth on the balance sheet.

Price-to-Free-Cash-Flow

Price-to-free-cash-flow divides market cap by annual free cash flow — the multiple paid for each dollar of cash the business actually throws off after capex.

Price-to-Sales Ratio (P/S)

Price-to-sales is market cap divided by annual revenue — how many dollars of market value the company carries per dollar of sales.

Price-to-Tangible-Book

Bank analysts quote valuations in price-to-tangible-book: share price divided by tangible book value per share.

Proxy Statement

A proxy statement (SEC form DEF 14A) is the document companies send shareholders before the annual meeting, laying out board nominees, executive pay, auditor ratification, and any shareholder proposals up for a vote.

Quick Ratio

The quick ratio is the current ratio with inventory thrown out: (current assets - inventory) / current liabilities.

Receivables Turnover

Revenue divided by average accounts receivable gives receivables turnover: how many times per year a company converts its outstanding invoices into cash.

Retained Earnings

Every dollar of profit a company has ever earned and not paid out as a dividend accumulates in retained earnings.

Return on Assets (ROA)

Return on assets is net income divided by total assets — profit generated per dollar of everything the company controls, regardless of whether it was funded by shareholders or lenders.

Return on Capital Employed (ROCE)

Return on capital employed is ROIC's pre-tax cousin: EBIT divided by capital employed, where capital employed is total assets minus current liabilities.

Return on Equity (ROE)

Return on equity is net income divided by shareholders' equity — the annual profit generated per dollar of the owners' capital in the business.

Return on Invested Capital (ROIC)

Return on invested capital measures the after-tax operating profit a company earns on every dollar tied up in the business: NOPAT (net operating profit after tax) divided by invested capital, meaning the sum of debt and equity actually deployed in operations.

Revenue

Revenue is the total money a company brings in from selling its products or services before any costs are subtracted.

Rights Offering

A rights offering gives existing shareholders the right to buy additional shares, usually at a discount to the current market price, in proportion to their existing ownership stake.

Shareholder Yield

Shareholder yield adds up every channel a company uses to return capital — dividends, net buybacks, and net debt paydown — and expresses the total as a percentage of market cap.

Shares Outstanding

Shares outstanding is the total number of a company's shares currently held by all investors — insiders, institutions, and the public combined.

Sloan Ratio

The Sloan ratio measures how much of a company's reported income is accruals — accounting entries — rather than actual cash, computed as (net income - operating cash flow - investing cash flow) / total assets.

Spin-off

A spin-off is when a company separates part of its business into a new, independently traded public company, typically distributing shares of the new entity to existing shareholders of the parent.

Stock-Based Compensation (SBC)

Stock-based compensation is pay delivered in equity — options and restricted stock units — instead of cash.

Tangible Book Value

Tangible book value strips goodwill and intangible assets out of shareholders' equity, leaving the net worth backed by assets you could point at: cash, securities, receivables, inventory, property.

Treasury Stock

Shares a company has repurchased and holds on its own books — that is treasury stock.

Upgrade / Downgrade

An upgrade or downgrade is an analyst changing a stock's rating, up (hold to buy) or down (buy to hold), typically with a price target change attached.

WACC (Weighted Average Cost of Capital)

WACC is the blended rate a company pays for its capital, weighting the cost of equity and the after-tax cost of debt by their share of the capital structure.

Warrant

A warrant gives the holder the right, but not the obligation, to buy a company's stock at a set strike price before a set expiration date, similar to a call option.

Working Capital

Working capital is current assets minus current liabilities — the cushion between what a company can turn into cash within a year and what it owes within a year.