Investing Terms Explained

New to investing? Start with the fundamentals below. Number-based metrics (P/E, P/B, ROE, etc.) are explained using real Apple and Coca-Cola data so you can see the difference, not just the definition. Not investment advice.

Fundamentals (12)

• What is the P/S ratio? — Market cap relative to revenue — useful when a company doesn't have positive earnings yet.
• What does a going-concern flag mean? — The single strongest red flag an auditor can raise about a company's ability to keep operating.
• What are 10-K, 10-Q, and 8-K filings? — The three SEC filings that carry almost everything on this site.
• What is SEC EDGAR? — The free, official database this entire site is built on.
• How does this site's Health Score work? — The single number this site uses to rank companies, and what actually goes into it.
• Value, growth, and dividend stocks — what's the difference? — Three common ways investors informally group stocks by how they expect to make money from them.
• Sector vs. industry — how this site classifies companies — Two levels of the same classification this site uses, from broad to specific.
• What is a moving average? — A smoothed line that filters out day-to-day noise to show the underlying price trend.
• What is diversification, really? — Why spreading money across different holdings reduces risk — and why it doesn't eliminate it.
• What is survivorship bias (and why the backtest on this site flags it)? — The single biggest trap in almost any home-made stock backtest — including, partly, this site's own.
• What does "equal-weight" mean in a backtest? — One of two common ways to combine multiple stocks into a single portfolio return.
• What is CAGR, and how should you read one from a backtest? — The standard way multi-year returns get compressed into a single, comparable annual number.

Metrics, explained with real numbers (7)

• What is the P/E ratio? — The most common way to check whether a stock is cheap or expensive relative to its profit.
• What is the P/B ratio? — How many times a company's net worth (book value) its shares trade for.
• What is ROE (Return on Equity)? — How efficiently a company turns shareholders' own money into profit.
• What is operating margin? — How much of every revenue dollar is left as profit from actually running the business.
• What is the debt ratio? — How much a company owes relative to what shareholders actually own.
• What is dividend yield? — How much cash a company pays shareholders each year, relative to the share price.
• What is market cap? — The total price tag of a company if you bought every outstanding share.