Dictionary - Investing Fundamentals
# A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

52-Week High

The 52-week high refers to the highest market price of a given security over a 52-week (one year) period. If you observe the market prices for a given security during a specific period of time, there will be a price that is the highest price over that time period. Read more

52-Week Low

The 52-week low refers to the lowest market price of a security over a 52-week (one year) time span. If you observe the market prices for a given security during a specific period of time, there will be a price that is lower than all others. Read more

Abnormal Earnings Valuation

Also called the residual income model, the abnormal earnings valuation model is a method for predicting stock prices. In this theory, every stock is worth the company's book value per share if investors expect the company to earn a "normal" rate of return in the future. Read more

Abnormal Rate of Return

Abnormal rate of return, also known as "alpha" or "excess return," is the fraction of a security's or portfolio's return not explained by the rate of return of the market.Rather, it is produced from the expertise of the investor or portfolio manager, and is one of the most common measures of risk-adjusted performance. Read more

Abnormal Return

Abnormal return, also known as "alpha" or "excess return," is the fraction of a security's or portfolio's return not explained by the rate of return of the market.Instead, it is a result of the expertise of the investor. Read more

Accounting Rate of Return (ARR)

The accounting rate of return (ARR) is a simple estimate of a project's or investment's profitability that subtracts money invested from returns without regard to interest accrual or applicable taxes. Also called the "simple rate of return," the accounting rate of return (ARR) allows companies to evaluate the basic viability and profitability of a project based on projected revenue less any money invested. Read more

Acid-Test Ratio

The acid-test ratio is a measure of how well a company can meet its short-term financial liabilities.  Also known as the quick ratio, the acid-test ratio can be calculated as follows: Acid-Test Ratio = (Cash + Marketable Securities + Accounts Receivable) / Current Liabilities A common alternative formula is: Acid-Test Ratio = (Current assets – Inventory) / Current Liabilities The  acid-test ratio  is a more conservative version of another well-known liquidity metric -- the current ratio.Although the two are similar, the Acid-Test ratio provides a more rigorous assessment of a company's ability to pay its current liabilities. Read more

Acquisition

An acquisition is the purchase of all or a portion of a corporate asset or target company. An acquisition is commonly mistaken with a merger – which occurs when the purchaser and the target both cease to exist and instead form a new, combined company.  When a target company is acquired by another company, the target company ceases to exist in a legal sense and becomes part of the purchasing company. Read more

Acquisition Premium

An acquisition premium is the difference between the actual price paid to acquire a company and the estimated real value of the acquired company before the acquisition.It is often recorded as "goodwill" on the balance sheet. Read more

Activity Ratio

An activity ratio is a metric which determines the ability of a company to convert its balance sheet accounts into revenue. Activity ratios assess how effectively a company is able to generate revenue in the form of cash and sales based on its asset, liability and capital share accounts. Read more

Actual Return

Actual return refers to the nominal return made on an investment during a given period.  The actual return on an investment is the actual amount of money gained or lost during a period of time (e.g.a quarter or year) relative to the investment's initial value. Read more

Alpha

Alpha, also known as "excess return" or "abnormal rate of return," is one of the most widely used measures of risk-adjusted performance.The number shows how much better or worse a fund performed relative to a benchmark. Read more

Altman's Z-Score

Altman's Z-score is a financial statistic that is used to measure the probability of bankruptcy. Altman's Z-score is used to determine the likelihood of a company going bankrupt. Read more

Arbitrage Pricing Theory (APT)

Arbitrage pricing theory (APT) is a well-known method of estimating the price of an asset.The theory assumes an asset's return is dependent on various macroeconomic, market and security-specific factors. Read more

Arithmetic Mean

The arithmetic mean is the average of a series of numbers. The formula for calculating the arithmetic mean is: Arithmetic mean = (X1 + X2 + X3 + ... Read more

Arithmetic Mean Average

The arithmetic mean average is the average of a series of numbers. The formula for calculating the arithmetic mean average is: Arithmetic mean average = (X1 + X2 + X3 + ... Read more

Asset Turnover Ratio

The asset turnover ratio is a measure of how efficiently a company's assets generate revenue.It measures the number of dollars of revenue generated by one dollar of the company's assets.  The formula for the asset turnover ratio is: Revenue / Average Total Assets Let's look at an example using the following hypothetical information for Company ABC: Revenue is found on the income statement, and total assets are found on the balance sheet.  Using the asset turnover ratio formula and the information above, we can calculate that Company ABC's asset turnover ratio this year was: $1,500,000 / [($975,000 + $1,140,000)/2]  = 1.418 This means that for every dollar of Company ABC's assets, Company ABC generated $1.42 in revenue. Read more

Baby Berkshire

A Baby Berkshire is a Class B share of Berkshire Hathaway (NYSE: BRK-B).The term also refers to the act of creating a portfolio of the same companies that Berkshire Hathaway invests in and then buying and selling proportionately when Berkshire Hathaway buys and sells. Read more

Back-End Ratio

Banks use the back-end ratio to determine whether a mortgage applicant is a good credit risk. The formula for the back-end ratio, generally, is: Back-End Ratio = (All monthly loan payments + requested loan’s monthly principal and interest payment + monthly property taxes on proposed real estate + monthly homeowners insurance premium)/Gross monthly income For example, let’s assume John Doe wants to get a $500,000 mortgage that comes with a principal and interest payment of $2,400. Read more

Bagel Land

"Bagel land" is a slang term that describes where investments go when their prices approach zero. For example, let's assume that Company XYZ's stock falls from $10 per share to $0.50 per share due to a series of internal scandals and product failures. Read more

Bank Efficiency Ratio

A bank efficiency ratio is a measure of a bank's overhead as a percentage of its revenue. The formula varies, but the most common one is: Bank Efficiency Ratio = Expenses* / Revenue *not including interest expense For example, if Bank XYZ's costs (excluding interest expense) totaled $5,000,000 and its revenues totaled $10,000,000, then using the formula above, we can calculate that Bank XYZ's efficiency ratio is $5,000,000 / $10,000,000 = 50%. Read more

Beta

Beta is a measure of a stock's volatility relative to the overall market.It is most often calculated using a stock's movements relative to the S&P 500 Index over the trailing 12-month period. Read more

Book-to-Bill Ratio

A company's book-to-bill ratio measures the company's number of outstanding orders as compared with the number of shipped or fulfilled orders.The book-to-bill ratio is a valuable tool for measuring the strength of the technology sector. Read more

CAGR - Compound Annual Growth Rate

Compound Annual Growth Rate (or CAGR) is a widely used measure of growth.It is used to evaluate anything that can fluctuate in value, such as assets and investments. Read more

Callable Common Stock

Callable common stock is an equity stake in a company where either the issuer or a third party has the right, but not the obligation, to repurchase the stock at a specific price after a certain date. Let's assume you own 100 shares of Company XYZ callable common stock. Read more

Callable Preferred Stock

Issuers of callable preferred stock have the right (but not the obligation) to repurchase the stock at a specific price after a certain date. For example, consider Company XYZ preferred stock issued in 2000, paying a 10% rate, maturing in 2020, and callable in 2010 at 102% of par. Read more

Capital Asset Pricing Model (CAPM)

The capital asset pricing model (CAPM) is used to calculate the required rate of return for any risky asset.Your required rate of return is the increase in value you should expect to see based on the inherent risk level of the asset. Read more

Cash Flow Return on Investment

The cash flow return on investment (CFROI) measures a company's cash return on invested assets.It is determined by dividing a company's gross cash flow by its gross investment. Read more

Cash Flow to Capital Expenditures

Cash flow to capital expenditures is the ratio of a company's cash from operations to its capital expenditures for acquiring or upgrading assets, such as buildings or equipment, required to improve or maintain business operations. It is an important measure used by analysts to determine a company's ability to fund operations. Read more

Consensus Estimate

A consensus estimate is a shared prediction of a company's quarterly or annual earnings per share. Securities analysts are tasked with the job of making earnings estimates for the companies they cover. Read more

Conversion Ratio

A conversion ratio is the number of one security given for another security (usually a convertible security). For example, convertible preferred stock is preferred stock that holders can exchange for common stock at a set price after a certain date. Read more

Convertible Preferred Stock

Convertible preferred stock is preferred stock that holders can exchange for common stock at a set price after a certain date. Let's assume you purchase 100 shares of XYZ Company convertible preferred stock on June 1, 2006. Read more

Cost of Equity

Cost of equity refers to a shareholder's required rate of return on an equity investment.It is the rate of return that could have been earned by putting the same money into a different investment with equal risk. Read more

Coverage Ratio

A coverage ratio divides a company's income or cash flow by a certain expense in order to determine financial solvency. Some of the most common coverage ratios include the fixed-charge coverage ratio, debt service coverage ratio, times interest earned (TIE), and the interest coverage ratio. Read more

Current Ratio

The current ratio is the ratio of current assets to current liabilities. The current ratio is a commonly used liquidity ratio that measures a company's ability to pay its current liabilities with its current assets. Read more

Debt Ratio

A debt ratio is simply a company's total debt divided by its total assets.  Debt Ratio = Total Debt / Total Assets For example, if Company XYZ had $10 million of debt on its balance sheet and $15 million of assets, then Company XYZ's debt ratio is:Debt Ratio = $10,000,000 / $15,000,000 = 0.67 or 67%This means that for every dollar of Company XYZ assets, Company XYZ had $0.67 of debt.A ratio above 1.0 indicates that the company has more debt than assets. Read more

Debt Service Coverage Ratio

A company's debt service coverage ratio (DSCR) refers to its ability to meet periodic obligations on outstanding liabilities with respect to its net operating revenue. The debt service coverage ratio (DSCR) measures how effectively a company's operations-generated income is able to cover outstanding debt payments. Read more

Debt-to-Equity Ratio (D/E)

The debt-to-equity ratio (D/E) is an essential formula in corporate finance.It’s used to measure leverage (or the amount of debt a company has) compared to its shareholder equity. Read more

Dilution

Dilution is a reduction in proportional ownership caused when a company issues additional shares. Let's assume you own 100,000 shares of XYZ Company. Read more

Discounted Cash Flow (DCF) Analysis

Discounted cash flow (DCF) analysis is the process of calculating the present value of an investment's future cash flows in order to arrive at a current fair value estimate for the investment. The formula for discounted cash flow analysis is: DCF = CF1/(1+r)1 + CF2/(1+r)2 + CF3/(1+r)3 ...+ CFn/(1+r)n Where: CF1 = cash flow in period 1 CF2 = cash flow in period 2 CF3 = cash flow in period 3 CFn = cash flow in period n r = discount rate (also referred to as the required rate of return) To determine a fair value estimate for a stock, first project the amount of operating cash flow the company is likely to produce in the years ahead. Read more

Dividend Discount Model (DDM)

The dividend discount model (DDM) is a method for assessing the present value of a stock based on the growth rate of dividends. The dividend discount model (DDM) seeks to estimate the current value of a given stock on the basis of the spread between projected dividend growth and the associated discount rate. Read more

Dividend Payout Ratio

The dividend payout ratio measures the percentage of a company's net income that is given to shareholders in the form of dividends. The dividend payout ratio is a relatively simple calculation: Total Annual Dividends Per Share / Diluted Earnings Per Share For example, let's assume that Company XYZ distributed four regular quarterly dividend payments of $0.25 each, for a total annual dividend payment of $1.00 per share. Read more

DuPont Analysis

DuPont analysis examines the return on equity (ROE) analyzing profit margin, total asset turnover, and financial leverage.It was created by the DuPont Corporation in the 1920s. Read more

DuPont Identity

The DuPont identity breaks down return on equity (ROE) into its components -- profit margin, total asset turnover, and financial leverage -- so that each one can be examined in depth. The DuPont identity is also referred to as DuPont analysis. Read more

Earnings Estimate

An earnings estimate is an estimate of a company's future quarterly or annual profits by a market analyst. Earnings estimates are created by analysts who work for investment research companies. Read more

Earnings Yield

The earnings yield is the ratio of a company's last twelve months (LTM) of earnings per share (EPS) to its stock price.It is the inverse of the price-to-earnings (P/E) ratio. Read more

Efficiency Ratio

An efficiency ratio is a measure of a bank's overhead as a percentage of its revenue. The formula varies, but the most common one is: Efficiency Ratio = Expenses* / Revenue *not including interest expense For example, if Bank XYZ's costs (excluding interest expense) totaled $5,000,000 and its revenues totaled $10,000,000, then using the formula above, we can calculate that Bank XYZ's efficiency ratio is $5,000,000 / $10,000,000 = 50%. Read more

Equity Multiplier

The equity multiplier is a ratio used to determine the financial leverage of a company.  The formula for the equity multiplier is: Equity Multiplier = Total Assets / Total Stockholders' Equity If company ABC has total assets of 20 units and total stockholders' equity of 4 units, its equity multiplier is 5 (20/4).Alternatively, company XYZ has total assets of 10 units and total stockholders' equity of 5 units, its equity multiplier is 2 (10/5). Read more

Equity Risk Premium

The equity risk premium is the difference between the rate of return of a risk-free investment and the geometric mean return of an individual stock over the same time period.Since all investments carry varying degrees of risk, the equity risk premium is a measure of the cost of that risk. Read more

Event Risk

Event risk is the risk of a negative impact on a company's financial position as a result of an unexpected event like a natural disaster, industrial accident or hostile takeover. Occasionally companies face events that unexpectedly impact their ability to operate or their ability to make debt payments. Read more

Fair Value

Fair value is an estimate of a security's worth on the open market.There is no one way to calculate the fair value for a security, but calculations typically take into account future growth rates, profit margins, and risk factors, among other items.  Let's assume Company XYZ stock currently sells for $20 per share. Read more

Falling Knife

A falling knife describes a stock which has experienced a rapid decline in value in a short amount of time.Just like a falling knife, you don't want to catch these companies on their way down. Read more

Free Asset Ratio (FAR)

Free asset ratio refers to the net assets of an insurance company as a percentage of its total assets.  Free assets are the same as net assets, that is, assets that are not obligated to insurance policies. The formula for calculating FAR is: FAR = (Total Assets – Secured Assets) / Total Assets An insurance company must maintain certain financial reserves on hand to cover its obligations to its policyholders. Read more

Goodwill-to-Assets Ratio

The goodwill-to-assets ratio describes the percentage of a firm's total assets that can be explained by the amount of goodwill on the balance sheet.  The formula for the goodwill-to-assets ratio is: Goodwill to Assets = Goodwill / Total Assets For example, let's assume Company XYZ has $5,000,000 of goodwill on its balance sheet.Its total assets are $20,000,000. Read more

Gross Profit Margin

Gross profit margin is a measure of a company’s profitability, calculated as the gross profit as a percentage of revenue.Gross profit is the amount remaining after deducting the cost of goods sold (COGS) or direct costs of earning revenue from revenue. Read more

Interest Coverage Ratio

The interest coverage ratio, also known as times interest earned, is a measure of how well a company can meet its interest-payment obligations. The interest coverage ratio is also referred to as the times interest earned ratio. Read more

Intrinsic Value

Intrinsic value has two primary connotations in the finance world.In the options-trading world, the term refers to the difference between the option's strike price and the market value of the underlying security. Read more

Joint Probability

Joint probability is the likelihood of more than one event occurring at the same time. he joint probability for two events, A and B, is expressed mathematically as P(A,B). Read more

Key Ratio

A key ratio is any financial ratio that is especially important, prevalent, or necessary in analyzing a company's performance in relation to other companies, the industry or the market. Key ratios calculate various pieces of financial data in relation to one another. Read more

Large Cap

Generally speaking, large cap companies have at least $8 billion of market capitalization. Market capitalization refers to the value of a company's outstanding shares. Read more

Margin of Safety

Margin of safety is the amount by which a company's shares are trading below their intrinsic value. The formula for margin of safety is: Margin of Safety = 1 - Stock's Current Price / Stock's Intrinsic Value Let's look at an example. Read more

Market Conversion Price

The market conversion price is the price at which a convertible security is exchanged for common stock. Convertible securities (for example, convertible bonds and convertible preferred stocks) allow holders to exchange them for shares of the issuing company's common stock. Read more

Multiple

A multiple is a relative valuation metric used to estimate the value of a stock. Let's look at an example to illustrate the concept. Read more

Net Interest Margin (NIM)

Net interest margin is the ratio of net interest income to invested assets.  Net interest margin is also known as "net yield on interest-earning assets."  The formula for net interest margin is: Net Interest Margin = (Interest Received - Interest Paid) / Average Invested Assets Net interest margin is always expressed as a percentage.Let's look at an example: Assume John borrows $1,000,000 and uses it to buy bonds of Company XYZ. Read more

Net Profits Interest

Net profits interest is the proportion of net profits paid out to a particular investor, according to his or her percentage stake in the company.  Net profits interest is most often used in reference to oil and gas contracts in which the property owners lease the property to a developer or producer in return for a percentage of the proceeds.Let's say that John owns an oil field and wants to lease it to Company ABC, which will then get the oil out. Read more

Null Hypothesis

The null hypothesis (H0) suggests that there is no statistical significance in a given set of observations.This implies that any kind of deviation or importance you see in a data set is only the result of chance.  This is considered to be true until analytical evidence proves it wrong and replaces it with a different, alternative hypothesis (H1). Read more

Operating Cash Flow Ratio

The operating cash flow ratio is cash from operating activities as a percentage of current liabilities in a given period.  Operating cash flow ratio is generally calculated using the following formula: Operating Cash Flow Ratio = Operating Cash Flow / Current Liabilities  The operating cash flow ratio is not the same as the operating cash flow margin or the net income margin, which includes transactions that did not involve actual transfers of money (depreciation is common example of a noncash expense that is included in net income calculations but not in operating cash flow).The operating cash flow ratio is also not the same as EBITDA or free cash flow. Read more

Operating Expense Ratio (OER)

The operating expense ratio (OER) is equal to a company's operating expenses divided by its revenues.The measure is very common in real estate analysis, whereby analysts are measuring the costs to operate a piece of property versus the income it generates.  OER = Operating Expenses / Revenues Let's assume Company XYZ's operating expenses in 2019 were $2,000,000 and its revenues were $10,000,000. Read more

Operating Leverage

Operating leverage is the ratio of a company's fixed costs to its variable costs.  Here is the formula for operating leverage: Operating Leverage = [Quantity x (Price - Variable Cost per Unit)] / Quantity x (Price - Variable Cost per Unit) - Fixed Operating Cost To see how operating leverage works, let's assume Company XYZ sold 1,000,000 widgets for $12 each.It has $10,000,000 of fixed costs (equipment, salaried personnel, etc.). Read more

Operating Ratio

Operating ratio is the ratio of operating expenses to net sales.Operating ratio is also a common term in the insurance business, where it refers to an issuer's profit from underwriting and investment activities. Read more

Orphan Stocks

Orphan stocks is a colloquial term for stocks that analysts and investors seem to disregard. Orphan stocks are stocks that investors and analysts tend to ignore. Read more

Paper Loss

Paper loss refers to the amount that would be lost on a security if it were sold. Also called a book loss, a paper loss is the not-yet-realized amount lost on a security based on the spread between its current market price and its original purchase price. Read more

Paper Profit

Paper profit refers to the amount you would gain on a security if it were sold. Also called book profit, paper profit is the not-yet-realized amount gained on a security based on the spread between its current market price and its original purchase price. Read more

Passive Loss

A passive loss is a financial loss from rental property, limited partnership or other activities in which the investor is not materially involved. When an investor buys shares in a rental property, for example, in which he or she is not actively involved in the operations, it is considered a passive investment. Read more

Payout Ratio

The payout ratio, also known as the dividend payout ratio, is the percentage of a company's earnings paid out to investors as cash dividends. At the end of a specified period, companies will sometimes pay out dividends for every share owned. Read more

Premium to Net Asset Value (NAV)

Premium to net asset value (NAV) refers to a situation where shares of a closed-end stock fund are trading at a price higher than the fund's net asset value per share.For example, a fund could be described as "trading 5% premium to NAV." Premium to NAV (and "discount to NAV") is most often used to describe the price per share of closed-end stock funds. Read more

Present Value (PV)

Present value describes how much a future sum of money is worth today.  The formula for present value is: PV = CF/(1+r)n Where: CF = cash flow in future period r = the periodic rate of return or interest (also called the discount rate or the required rate of return) n = number of periods Let's look at an example.Assume that you would like to put money in an account today to make sure your child has enough money in 10 years to buy a car. Read more

Price Efficiency

Price efficiency simply refers to whether the price of a security incorporates all the available information about the security. For example, assume that Company XYZ is a public company trading at $15 per share. Read more

Price Multiple

A price multiple is a ratio that combines some measure of a company's performance and the company's stock price. In general, a price multiple ratio looks like this: Price multiple = Price / Performance Metric For example, Company XYZ has revenue of $20,000,000 per year. Read more

Price-Earnings Relative

The price-earnings relative is a comparison of a stock's P/E ratio to the cumulative P/E ratio of a related market index. The price-earnings relative considers the P/E of a given stock relative to the P/E ratio for a comparable market index, such as the Dow Jones or S&P 500. Read more

Price-to-Book Ratio (P/B)

The price-to-book ratio measures a company's market price in relation to its book value.The ratio denotes how much equity investors are paying for each dollar in net assets. Read more

Price-to-Cash Flow Ratio (P/CF)

The price-to-cash flow ratio (P/CF) is used to evaluate the price of a company's stock as compared to the amount of cash flow it generates. The formula for the price-to-cash flow ratio is: Price-to-Cash Flow Ratio = Price per share / (Cash flow / Shares outstanding) For example, let's assume that Company XYZ has a share price of $3 and has 10,000,000 shares outstanding. Read more

Price-to-Earnings Ratio (P/E)

The price-to-earnings ratio (P/E) is a valuation method used to compare a company’s current share price to its per-share earnings. The market value per share is the current trading price for one share in a company, a relatively straightforward definition. Read more

Price-to-Free Cash Flow Ratio (P/FCF)

The price-to-free cash flow ratio (P/FCF) is a valuation method used to compare a company’s current share price to its per-share free cash flow. The formula for the price-to-free cash flow ratio is: Price to Free Cash Flow = Market Capitalization / Free Cash Flow For example, let's assume that Company XYZ has 10,000,000 shares outstanding, which are trading at $3 per share. Read more

Price-to-Innovation-Adjusted Earnings Ratio

The price-to-innovation-adjusted earnings ratio is used to evaluate the price of a company's stock as compared to its earnings when adjusted for the amount the company spends on R&D. The formula for price-to-innovation-adjusted earnings is: Price-to-Innovation-Adjusted Earnings = Price per share / (EPS + R&D per share) For example, let's assume that Company XYZ, a company that designs and manufactures medical devices, earned $10,000,000 in profits last year. Read more

Price-to-Research Ratio

The price-to-research ratio is used to evaluate the price of a company's stock as compared to its ability to generate future profits from new products. The formula for the price-to-research ratio is: Price-to-Research Ratio = Market Capitalization / R&D Expense For example, let's assume that Company XYZ spent $5,000,000 on R&D last year. Read more

Price-to-Sales Ratio (P/S)

The price-to-sales ratio helps determine a stock’s relative valuation.The formula to calculate the P/S ratio is: P/S Ratio = Price Per Share / Annual Net Sales Per Share Let's assume Company XYZ reports net sales of $5,000,000 and it currently has 500,000 shares outstanding. Read more

Price-to-Tangible Book Value Ratio

The price-to-tangible book value ratio measures a company's market price in relation to its tangible book value.The ratio denotes how much investors are paying for each dollar of physical assets. Read more

Price/Earnings-to-Growth and Dividend Yield Ratio (PEGY)

The price/earnings-to-growth and dividend yield ratio (PEGY) demonstrates how much the market is willing to pay for earnings growth and dividend yield.By incorporating dividend yield, the PEGY ratio accounts for a companies' inclination (or disinclination) to pay out dividends. Read more

Price/Earnings-to-Growth Ratio (PEG)

The PEG ratio is a derivative of the P/E ratio that takes into account future growth in earnings.  The formula for the PEG ratio is: PEG Ratio = Price-to-Earnings (P/E) Ratio / Annual Earnings Per Share Growth The PEG ratio uses the basic format of the P/E ratio for a numerator and then divides by the potential growth for the stock.The two ratios may seem to be very similar but you can see the obvious difference with a calculation. Read more

Pro Rata

Pro rata refers to the proportional distribution of a sum across a number of units. A Latin term meaning "in proportion," pro rata is a method of allocating fractional amounts of something equally among all parts of a whole. Read more

Put/Call Ratio

The put/call ratio is a popular sentiment indicator based upon the trading volumes of put options compared to call options.The ratio attempts to gauge the prevailing level of bullishness or bearishness in the market. Read more

Quartile

A quartile is one of four equal parts. For example, if we were to look at all of the closing prices for Company XYZ stock for every day in the last year, the top 25% of those prices would represent the upper quartile of the data. Read more

Quick Ratio

The quick ratio (also known as the acid-test ratio) offers insight into how well a company can meet its short-term obligations.As in chemistry, an acid test provides fast results. Read more

Quintiles

A quintile is one of five equal parts. For example, if we were to look at all of the closing prices for Company XYZ stock for every day in the last year, the top 20% of those prices would represent the upper quintile of the data. Read more

Ratio Analysis

Ratio analysis is the exercise of calculating various pieces of financial data in relation to one another. There are dozens of financial ratios out there. Read more

Residual Income Model

Also called the abnormal earnings valuation model, the residual income model is a method for predicting stock prices. In this theory, every stock is worth the company's book value per share if investors expect the company to earn a "normal" rate of return in the future. Read more

Retracement

A retracement is a temporary reversal in the movement of a stock's price.  Let's say the stock of company XYZ increased 20% over the course of a day.Anyone who has ever looked at a trend line knows that the price is unlikely to rise continuously throughout the course of the day. Read more

Retracement

A retracement is a temporary reversal in the movement of a stock's price.  Let's say the stock of company XYZ increased 20% over the course of a day.Anyone who has ever looked at a trend line knows that the price is unlikely to rise continuously throughout the course of the day. Read more

Return on Capital (ROC)

Return on capital is a profitability ratio.It measures the return that an investment generates for capital contributors, i.e. Read more

Return on Invested Capital (ROIC)

Return on invested capital (ROIC) is a profitability ratio.It measures the return that an investment generates for those who have provided capital, i.e. Read more

Return on Total Capital

Return on total capital is a profitability ratio.It is a measure of the return an investment generates for those who contribute capital, i.e. Read more

Revenue per Available Room (RevPAR)

Revenue per available room, or RevPAR for short, is a ratio commonly used to measure financial performance in the hospitality industry.The metric, which is a function of both room rates and occupancy, is one of the most important gauges of health among hotel operators. Read more

Sales per Share

The term sales per share represents the portion of a company's revenue that is allocated to each share of common stock.The figure can be calculated simply by dividing sales earned in a given reporting period (usually quarterly or annually) by the total number of shares outstanding during the same term. Read more

Sales to Cash Flow Ratio

The sales to cash flow ratio measures the level of a company's sales against its total cash flow. Expressed on a per-share basis, the sales to cash flow ratio is calculated by dividing a company's sales volume per share in a given period by its per-share cash flow. Read more

Sharpe Ratio

The Sharpe ratio is measure of risk.It is named after Stanford professor and Nobel laureate William F. Read more

Short Interest Ratio

A short interest ratio is the number of shares or units of a security that have been sold short and not yet covered or repurchased.It is typically expressed as a percentage of the average daily trading volume. Read more

Short Interest Theory

Short interest theory suggests that a high level of short interest indicates an imminent rise in the price of a stock. Short interest theory posits that a high number of outstanding short positions on a stock predicts that a rise in the stock's price is likely to occur in the near future. Read more

Speculation Index

The speculation index measures the volume of trades on the American Stock Exchange (AMEX) versus trade volume on the New York Stock Exchange (NYSE). The AMEX tends to list riskier stocks issued by smaller companies that are starting up or are trying to grow. Read more

Street Expectation

The street expectation is the commonly-held estimate of a company's future performance by market analysts. Market analysts consider economic conditions, consumer sentiment, research and development, new products, competition, management efficiency and a whole host of other industry-specific factors to establish their expectation. Read more

Survivorship Bias

Survivorship bias occurs when companies that no longer exist -- due to bankruptcy, acquisition or any other reason -- are not accounted for when calculating investment returns.  For example, suppose an investor is researching returns on Portfolio XYZ over two consecutive years: 2006 and 2007.In 2006, the portfolio is comprised of Stock A, Bond B and Mutual Fund C. Read more

Tail Risk

Tail risk is the risk that an investment will change by more than three standard deviations from its mean. Standard deviation is a measure of how much an investment's returns can vary from its average return. Read more

Tax Gain/Loss Harvesting

Tax gain/loss harvesting is a strategy for reducing taxes. John Doe made two major investment transactions this year: 1. Read more

Tax Gain/Loss Harvesting

Tax gain/loss harvesting is a strategy for reducing taxes. John Doe made two major investment transactions this year: 1. Read more

Texas Ratio

The Texas ratio was developed by RBC Capital Markets' banking analyst Gerard Cassidy as a way to predict bank failures during the state's 1980s recession.The ratio is still widely-used throughout the banking industry. Read more

Timeliness

Timeliness is a ranking criterion of stocks based on the likely price performance of a stock over a short time period – usually less than 12 months. Stocks are ranked on a 1 - 5 scale, with one the highest achievable score. Read more

Torpedo Stock

A torpedo stock is a stock that rapidly loses market value and follows a downward trend without any sign of recovery. Torpedo stocks are named for the manner in which a ship descends, sinking into the sea following a torpedo attack on its hull. Read more

Toxic Waste

Toxic waste is an idiomatic expression referring to high-risk assets with reputedly low liquidity. Named in reference to the hazardous byproducts of industrial processes, toxic waste frequently describes the riskiest tranches of many collateralized mortgage obligation mortgage obligations (CMOs). Read more

Trading Below Cash

A company's stock "trades below cash" if its market capitalization is less than the difference between its cash holdings and its liabilities. Trading below cash can be illustrated by a company which holds $1m in cash reserves, has $500k in outstanding liabilities, and has a total market capitalization equal to $400k. Read more

Underperform

The term underperform refers to an analyst recommendation that a stock is expected to do slightly worse than the overall market return. Analysts regularly evaluate and project stock performance. Read more

Undervalued

Undervalued describes a security for which the market price is considered too low for its fundamentals.Some metrics used to evaluate whether a security is undervalued are P/E ratio, growth potential, balance sheet health, etc. Read more

Unrealized Gain

An unrealized gain represents the increase in the value of an asset that has not been sold.This concept is often called paper profit. Read more

Unrealized Loss

An unrealized loss is a paper loss from holding an asset that has lost value but has not yet been sold. Unrealized losses are losses in asset value, but not cash value. Read more

Wallpaper

Wallpaper is slang for a security with minimal to no market value. Once a security becomes worthless, its hard documentation (for example, its stock certificate) no longer has any practical function. Read more

Working Ratio

A company's working ratio measures its ability to cover its annual expenses. A company's working ratio indicates whether or not it is capable of at least breaking even by dividing its annual expenses by its annual revenues as shown: Working Ratio = Yearly Expenses – (Debt + Depreciation) / Yearly Gross Revenue A company with a ratio of 1 or less is capable of covering its expenses. Read more