Market Capitalization
The Total Dollar value of a companies outstanding common stock, Market Capitalization = Shares Outstanding x Current Stock Price
Large-Cap
$10,000,000,000 +, Low-Risk/Low-Reward
Mid-Cap
$10,000,000,000 - $2,000,000,000, Medium-Risk/Medium-Reward
Small-Cap
$2,000,000,000 - $300,000,000, Higher-Risk/Higher Reward
Blue Chip
A nationally recognized, well-established and financially sound company. Blue chips generally sell high-quality, widely accepted products and services. Blue chip companies are known to weather downturns and operate profitably in the face of adverse econom
Enterprise Value (EV)
A measure of a company's value, often used as an alternative to straightforward market capitalization. Enterprise value is calculated as market cap plus debt, minority interest and preferred shares, minus total cash and cash equivalents. Think of enterpri
Majority Shareholder
A person or entity that owns more than 50% of a company's outstanding shares. The majority shareholders is often the founder of the company, or in the case of long-established businesses, the founder's descendants. By virtue of controlling more than half
Controlling Interest
When one shareholder or a group acting in kind holds a high enough percentage of ownership in a company to enact changes at the highest level. By definition, this figure is 50% of the outstanding shares or voting shares, plus one. However, controlling int
Non-Controlling Interest
An ownership stake in a corporation where the held position gives the investor no influence on how the company is run. The majority of investor positions are deemed to be a non-controlling interest because their ownership stake is so insignificant relativ
Minority Interest
A significant but non-controlling ownership of less than 50% of a company's voting shares by either an investor or another company. A non-current liability that can be found on a parent company's balance sheet that represents the proportion of its subsidi
Pro Forma
In the investing world, it describes a method of calculating financial results in order to emphasize either current or projected figures. Pro Forma financial statements could be designed to reflect a proposed change, such as a merger or acquisition, or to
Goodwill
An account that can be found in the assets portion of a company's balance sheet. Goodwill can often arise when one company is purchased by another company. In an acquisition, the amount paid for the company over the book value usually accounts for the tar
Consignment
When goods are delivered to another company with the understanding that payment for the goods is only made once the goods are sold. Consignment can cover just about any type of business. It is advantageous for the seller of consigned goods, because they d
Earnings
The amount of profit that a company produces during a specific period, which is usually defined as a quarter (three calendar months) or a year. Earnings typically refer to after-tax net income. Ultimately, a business's earnings are the main determinant of
Earnings Estimate
An analyst's estimate for a company's future quarterly or annual earnings. Future earnings estimates are arguably the most important input when attempting to value a firm. By placing estimates on the earnings of a firm for certain periods (quarterly, annu
Earnings Per Share
The portion of a company's profit allocated to each outstanding share of common stock. Earnings per share serves as an indicator of a company's profitability. Calculated as: (Net Income - Dividends on Preferred Stock)/Average Outstanding Shares. When calc
Proprietary Technology
A process, tool, system or similar item that is the property of a business or an individual that provides some sort of benefit or advantage to the owner. Companies that are able to develop useful proprietary technologies in-house are rewarded with a valua
Commodity
A basic good used in commerce that is interchangeable with other commodities of the same type. Commodities are most often used as inputs in the production of other goods or services. The quality of a given commodity may differ slightly, but it is essentia
Basis Grade
The minimum accepted standard that a deliverable commodity must meet to be used as the actual of a futures contract. Also known as "par grade" or "contract grade". Basis grade is important for futures investors for maintaining uniformity, since a given co
Bottom Line
Refers to a company's net earnings, net income or earnings per shares (EPS). Bottom line also refers to any actions that may increase/decrease net earnings or a company's overall profit. A company that is growing its net earnings or reducing its costs is
Pro-Forma Earnings
Projected earnings based on a set of assumptions and often used to present a business plan (in Latin pro forma means "fo the sake of form"). It also refers to earnings which exclude non-recurring items. Pro-forma earnings are not derived by standard GAAP
Generally Accepted Accounting Principles (GAAP)
The common set of accounting principles, standards and procedures that companies use to compile their financial statements. GAAP are a combination of authoritative standards (set by policy boards) and simply the commonly accepted ways of recording and rep
Futures
A financial contract obligating the buyer to purchase an asset (or the seller to sell an asset), such as a physical commodity or a financial instrument, at a predetermined future date and price. Futures contracts detail the quality and quantity of the und
Derivative
A security whose price is dependent upon or derived from one or more underlying assets. The derivative itself is merely a contract between two or more parties. Its value is determined by fluctuations in the underlying asset. The most common underlying ass
Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)
An indicator of a company's financial performance which is calculated in the following EBITDA calcualtion: EBITDA = Revenue - Expenses (excluding tax, interest, depreciation, and amortization). EBITDA is essentially net income with interest, taxes, deprec
Earnings Before Interest & Taxes (EBIT)
An indicator of a company's profitability, calculated as revenue minus expenses, excluding tax and interest. EBIT is also referred to as "operating earnings", "operating profit" and "operating income", as you can rearrange the formula to be calculated as
Cash Earnings Per Share (Cash EPS)
A measure of financial performance that looks at the cash flow generated by a company on a per share basis. This differs from basic earnings per share (EPS), which looks at the net income of the company on a per share basis. The higher a company's cash EP
Multiple
A term that measures some aspect of a company's financial well-being, determined by dividing one metric by another metric. The metric in the numerator is typically larger than the one in the denominator, because the top metric is usually supposed to be ma
Hedge Fund
An aggressively managed porfolio of investments that uses advanced investment strategies such as leveraged, long, short and derivative positions in both domestic and international markets with the goal of generating high returns (either in an absolute sen
Hedge Fund Manager
The individual who oversees and makes decisions about the investments in a hedge fund. Managing a hedge fund can be an attractive career option because of its potential to be extremely lucrative. To be successful, a hedge fund manager must consider how to
Dilution
A reduction in earnings per share of common stock that occurs through the issuance of additional shares or the conversion of convertible securities. Adding to the number of shares outstanding reduces the value of holdings of existing shareholders.
Diluted Earnings Per Share (Diluted EPS)
A performance metric used to gauge the quality of a company's earnings per share (EPS) if all convertible securities were exercised. Convertible securities refer to all outstanding convertible preferred shares, convertible debentures, stock options (prima
Price-Earnings Ratio - P/E Ratio
A valuation ratio of a company's current share price compared to its per-share earnings. Calculated as: Market Value per Share/Earnings per Share (EPS). EPS is usually from the last four quarters (trailing P/E), but sometimes it can be taken from the esti
Price/Earnings To Growth - PEG Ratio
A ratio used to determine a stock's value while taking into account earnings growth. The calculation is as follows: PEG = (P/E) / Anticipated Annual Earnings Per Share (EPS) growth. PEG is a widely used indicator of a stock's potential value. It is favore
Price-To-Book Ratio - P/B Ratio
A ratio used to compare a stock's market value to its book value. It is calculated by dividing the current closing price of the stock by the latest quarter's book value per share. Also known as the "price-equity ratio". A lower P/B ratio could mean that t
Private Placement
The sale of securities to a relatively small number of select investors as a way of raising capital. Investors involved in private placements are usually large banks, mutual funds, insurance companies and pension funds. Private placement is the opposite o
Accelerated Bookbuild
A form of offering in the equity capital markets. It involves offering share in a short time period, will little to no marketing. The bookbuild of the offering is done very quickly in one or two days. Underwriters may sometimes guarantee a minimum price a
Preferred Stock
A class of ownership in a corporation that has a higher claim on the assets and earnings than common stock. Preferred stock generally has a dividend that must be paid out before dividends to common stockholders and the shares usually do not have voting ri
Types of Preferred Stock
Callable, Convertible, Participating, and Cumulative Preferred Stock
Callable Preferred Stock
A type of preferred stock that carries the provision that the issuer has the right to call in the stock at a certain price and retire it. Also known as "redeemable preferred stock". You can think of preferred stock as a security somewhere in-between stock
Convertible Preferred Stock
Preferred stock that includes an option for the holder to convert the preferred shares into a fixed number of common shares, usually anytime after a predetermined date. Also known as "convertible preferred shares". Most convertible preferred stock is exch
Participating Preferred Stock
A type of preferred stock that gives the holder the right to receive dividends equal to the normally specified rate that preferred dividends receive as well as an additional dividend based on some predetermined condition. The additional dividend paid to p
Cumulative Preferred Stock
A type of preferred stock with a provision that stipulates that if any dividends have been omitted in the past, they must be paid out to preferred shareholders first, before common shareholders can receive dividends. A preferred stock will typically have
Venture Capital
Money provided by investors to startup firms and small businesses with perceived long-term growth potential. This is a very important source of funding for startups that do not have access to capital markets. It typically entails high risk for the investo
Business Valuation
The process of determining the economic value of a business or company. Business valuation can be used to determine the fair value of a business for a variety of reasons, including sale value, establishing partner ownership and divorce proceedings. Often
Net Present Value (NPV)
Present Value (PV) of the Cash Flows discounted at WACC (there are exceptions).
Weighted Average Cost of Capital (WACC)
A calculation of a firm's cost of capital in which each category of capital is proportionately weighted. All capital sources -- common stock, preferred stock, bonds and any other long-term debt -- are included in a WACC calculation. All else equal, the WA
Project Finance
Defined by the International Project Finance Association (IPFA) as the following: The financing of long-term infrastructure, industrial projects and public services upon a non-recourse or limited recourse financial structure where project debt and equity
Debt Financing
When a firm raises money for working capital or capital expenditures by selling bonds, bills, or notes to individual and/or institutional investors. In return for lending the money, the individuals or institutions become creditors and receive a promise th
Equity Financing
The act of raising money for company activities by selling common or preferred stock to individual or institutional investors. In return for the money paid, shareholders receive ownership interests in the corporation. Also known as "share capital". This i
Capital Structure
A mix of a company's long-term debt, specific short-term debt, common equity and preferred equity. The capital structure is how a firm finances its overall operations and growth by using different sources of funds. Debt comes in the form of bond issues or
Due Diligence (DD)
1. An investigation or audit of a potential investment. Due diligence serves to confirm all material facts in regard to a sale. Offers to purchase an asset are usually dependent on the results of due diligence analysis. This includes reviewing all financi
Valution
The process of determining the current worth of an asset or company. There are many techniques that can be used to determine value, some are subjective and others are objective. For example, an analyst valuing a company may look at the company's managemen
Pre-Money Valuation
A slang phrase that refers to the value of a company's stock before it goes public. The term is often by venture capitalists. Also known as "pre-money." For example let's say Jim's Fabless Donut Shop is thinking of going public. If management and venture
Post-Money Valuation
A company's value after outside financing and/or capital injections are added to its balance sheet. Post-money valuation refers to a company's valuation after funds, such as investments from venture capitalists or angel investors have been added to the ba
Debt/Equity Ratio
A measure of a company's financial leverage calculated by dividing its total liabilities by stockholders' equity. It indicates what proportion of equity and debt the company is using to finance its assets. Debt/Equity Ratio = Total Liabilities / Sharehold
Mezzanine Financing
A hybrid of debt and equity financing that is typically used to finance the expansion of existing companies. Mezzanine financing is basically debt capital that gives the lender the rights to convert to an ownership or equity interests in the company if th
Subordinated Debt
A loan (or security) that ranks below other loans (or securities) with regard to claims on assets or earnings. Also known as a "junior security" or "subordinated loan". In the case of default, creditors with subordinated debt wouldn't get paid out until a
Unsubordinated Debt
A loan or security that ranks above other loans or securities with regard to claims on assets or earnings. Also known as a senior security. In the case of default, creditors with unsubordinated debt would get paid out in full before the junior debt holder
Leverage
1. The use of various financial instruments or borrowed capital, such as margin, to increase the potential return of an investment. Leverage can be created through options, futures, margin and other financial instruments. For example, say you have $1,000
Intrinsic Value
1. The actual value of a company or an asset based on an underlying perception of its true value including all aspects of the business, in terms of both tangible and intangible factors. This value may or may not be the same as the current market value. Va
Extrinsic Value
The difference between an option's market price and its intrinsic value. In theory, options should not trade above their intrinsic value due to the time value associated with options pricing. Extrinsic value is also the portion of an item's worth that is
Financial Analysis
The process of evaluating businesses, projects, budgets and other finance-related entities to determine their suitability for investment. Typically, financial analysis is used to analyze whether an entity is stable, solvent, liquid, or profitable enough t
Qualitative Analysis
Securities analysis that uses subjective judgment based on nonquantifiable information, such as management expertise, industry cycles, strength of research and development, and labor relations. This type of analysis technique is different than the quantit
Quantitative Analysis
A business or financial analysis technique that seeks to understand behavior by using complex mathematical and statistical modeling, measurement and research. By assigning a numerical value to variables, quantitative analysts try to replicate reality math
Technical Analysis
A method of evaluating securities by analyzing statistics generated by market activity, such as past prices and volume. Technical analysts do not attempt to measure a security's intrinsic value, but instead use charts and other tools to identify patterns
Fundamental Analysis
A method of evaluating a security that entails attempting to measure its intrinsic value by examining related economic, financial and other qualitative and quantitative factors. Fundamental analysts attempt to study everything that can affect the security
Levered Free Cash Flow
The amount of cash that is left over for stockholders after interest on company debt has been paid out. Levered free cash flow plays an integral role in a business because cash can be used to pay dividends, pay for expansion or take on more debt for growt
Unlevered Free Cash Flow - UFCF
A company's cash flow before interest payments are taken into account. Unlevered free cash flow can be reported in a company's financial statements, and shows how much cash is on hand to pay for operations before other financial obligations are taken into
Out of The Money - OTM
A call option with a strike price that is higher than the market price of the underlying asset, or a put option with a strike price that is lower than the market price of the underlying asset. An out of the money option has no intrinsic value, but only po
At The Money
A situation where an option's strike price is identical to the price of the underlying security. Both call and put options will be simultaneously "at the money". For example, if XYZ stock is trading at 75, then XYZ 75 call option is at the money and so is
In The Money
1. For a call option, when the option's strike price is below the market price of the underlying asset. 2. For a put option, when the strike price is above the market price of the underlying asset. Being in the money does not mean you will profit, it just
Working Capital
A measure of both a company's efficiency and its short-term financial health. The working capital ratio is calculated as: Working Capital = Current Assets - Current Liabilities. Positive working capital means that the company is able to pay off its short-
Free Cash Flow (FCF)
A measure of financial performance calculated as operating cash flow minus capital expenditures. Free cash flow (FCF) represents the cash that a company is able to generate after laying out the money required to maintain or expand its asset base. Free cas
Fixed Income
A type of investing or budgeting style for which real return rates or periodic income is received at regular intervals at reasonably predictable levels. Fixed-income budgeters and investors are often one and the same - typically retired individuals who re
Swaps
Traditionally, the exchange of one security for another to change the maturity (bonds), quality of issues (stocks or bonds), or because investment objectives have changed. Recently, swaps have grown to include currency swaps and interest rate swaps. If fi
Swap Spread
1. The difference between the negotiated and fixed rate of a swap. The spread is determined by characteristics of market supply and worthiness. 2. The difference between the swap rate and the lending rate offered through other investment vehicles with com
Speculator
A person who trades derivatives, commodities, bonds, equities, or currencies with a higher-than-average risk in return for a higher-than-average profit potential. Speculators take large risks, especially with respect to anticipating future price movements
Risk Management
The process of identification, analysis and either acceptance or mitigation of uncertainty in investment decision-making. Essentially, risk management occurs anytime an investor or fund manager analyzes and attempts to quantify the potential for losses in
Trendline
A line that is drawn over pivot highs or under pivot lows to show the prevailing direction of price. Trendlines are a visual representation of support and resistance in any time frame. Trendlines are used to show direction and speed of price. Trendlines a
Uptrend Line
An uptrend line has a positive slope and is formed by connecting two or more low points. The second low must be higher than the first for the line to have a positive slope. Uptrend lines act as support and indicate that net-demand (demand less supply) is
Downtrend Line
A downtrend line has a negative slope and is formed by connecting two or more high points. The second high must be lower than the first for the line to have a negative slope. Downtrend lines act as resistance, and indicate that net-supply (supply less dem
Bid-Ask Spread
The amount by which the ask price exceeds the bid. This is essentially the difference in price between the highest price that a buyer is willing to pay for an asset and the lowest price for which a seller is willing to sell it. For example, if the bid pri
Dividend Yield
A financial ratio that shows how much a company pays out in dividends each year relative to its share price. In the absence of any capital gains, the dividend yield is the return on investment for a stock. Dividend yield is calculated as follows: Annual D
Capital Gains Yield
The price appreciation component of a security's (such as common stock) total return. For stock holdings, the capital gains yield will be the change in price divided by the original (purchase) price. Calculated as: Capital Gains Yield = (P1-P0)/P0. Where:
Compound Annual Growth Rate (CAGR)
The year-over-year growth rate of an investment over a specified period of time. The compound annual growth rate is calculated by taking the nth root of the total percentage growth rate, where n is the number of years in the period being considered. This
Annual Percentage Rate (APR)
The annual rate that is charged for borrowing (or made by investing), expressed as a single percentage number that represents the actual yearly cost of funds over the term of a loan. This includes any fees or additional costs associated with the transacti
Annual Percentage Yield (APY)
The effective annual rate of return taking into account the effect of compounding interest. APY = [(1+Periodic Rate)^Number of Periods] - 1. The resultant percentage number assumes that funds will remain in the investments vehicle for a full 365 days. The
Periodic Interest Rate
The interest rate charged on a loan or realized on an investment over a specific period of time. Most interest rates are quoted on an annual basis. If the interest on the loan or investment compounds more frequent than annually, the annual interest rate m
Unrealized Gain
A profit that exists on paper, resulting from any type of investment. An unrealized gain is a profitable position that has yet to be cashed in, such as a winning stock position that remains open. A gain becomes realized once the position is closed for a p
Realized Gain
A gain resulting from selling an asset at a price higher than the original purchase price. Realized gain occurs when an asset is disbursed at a level that exceeds its cost of book value. While an asset may be carried on a balance sheet at a level far abov
Unrealized Loss
A loss that results from holding onto an asset after it has decreased in price, rather than selling it and realizing the loss. An investor may prefer to let a loss go unrealized in the hope that the asset will eventually recover in price, thereby at least
Realized Loss
A loss is recognized when assets are sold for a price lower than the original purchase price. Realized loss occurs when an asset which was purchased at a level referred to as cost or book value is then disbursed for a value below its book value. Although
Divestiture
The partial or full disposal of an investment or asset through sale, exchange, closure or bankruptcy. Divestiture can be done slowly and systematically over a long period of time, or in large lots over a short time period. For a business, divestiture is t
Disposition
Getting rid of an asset or security through a direct sale or some other method. Quite often you will see insider report a "disposition" of a certain number of shares, this just means that they sold them.
Systematic Risk
The risk inherent to the entire market or entire market segment. Also known as "un-diversifiable risk" or "market risk". Interest rates, recession and wars all represent sources of systematic risk because they affect the entire market and cannot be avoide
Unsystematic Risk
Company or industry specific risk that is inherent in each investment. The amount of unsystematic risk can be reduced through appropriate diversification. Also known as "specific risk," "diversifiable risk" or "residual risk". For example, news that is sp
Spinoff
The creation of an independent company through the sale or distribution of new shares of an existing business/division of a parent company. A spinoff is a type of divestiture. Businesses wishing to 'streamline' their operations often sell less productive,
Split-Off
A means of reorganizing an existing corporate structure in which the stock of a business division, subsidiary or newly affiliated company is transferred to the stockholders of the parent company in exchange for stock in the latter. Split-offs often occur
Split-Up
A corporate action in which a single company splits into two ore more separately run companies. Shares of the original company are exchanged for shares in the new companies, with the exact distribution of shares depending on each situation. This is an eff
Carve-Out
Sometimes known as a partial spinoff, a carve out occurs when a parent company sells a minority (usually 20% or less) stake in a subsidiary for an IPO or rights offering. Also, when an established brick-and-mortar company hooks up with venture investors a
Hostile Takeover
The acquisition of one company (called the target company) by another (called the acquirer) that is accomplished not by coming to an agreement with the target company's management, but by going directly to the company's shareholders or fighting to replace
Hostile Takeover Bid
An attempt to take over a company without the approval of the company's board of directors. When vying for control of a publicly-traded firm, the acquirer attempting the hostile takeover may proceed to bypass board approval in one of two ways typically. F