Investing terms can often feel confusing, especially for beginners. This glossary is designed to give you clear, simple definitions of the most important concepts in fundamental investing so you can understand how markets work and make better financial decisions.
Fundamental investing focuses on analyzing businesses based on their financial performance, competitive advantage, and long-term value. To do that effectively, you need to understand the language investors use—from basic terms like assets and cash flow to more advanced concepts like return on invested capital (ROIC) and discounted cash flow (DCF).
In this investing glossary, each term is explained in plain language with a focus on real-world understanding—not technical jargon. Whenever possible, definitions are connected to broader investing concepts so you can see how each idea fits into the bigger picture.
You’ll learn key terms related to:
Financial statements and accounting concepts
Business analysis and valuation methods
Stock market fundamentals and investment strategies
Risk, return, and long-term decision-making
If you’re just getting started, this glossary is the perfect place to build your foundation. If you’re already learning, it will help reinforce and clarify the concepts that matter most.
Start with our complete guide: What Is Fundamental Investing
Then explore deeper topics in Investing Basics and Business Analysis
The balance sheet, also called the statement of financial position, is a financial statement which shows the company’s assets, liabilities, and owner’s equity at a point in time. The balance sheet must balance. That is, the total of assets must equal the sum of liabilities and equity. One way to think of the balance sheet […]
An accounting journal is a form where financial transactions are initially recorded before moving through the accounting cycle. Entries are made chronologically and in accordance with the rules of double-entry bookkeeping. The accounting journal contains five columns: transaction number, date, account affected, and debit and credit columns. Consistent with the rules of double-entry bookkeeping, the
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The accounting equation states that assets = liabilities + owner’s equity. Or to put it another way, a company’s economic resources must equal the value of the financial claims against those resources. The accounting equation is a central feature of the double-entry system. We can think of the accounting equation like a scale whose two
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With accrual basis accounting, a firm recognizes revenues when a sale occurs regardless of when the firm receives payment for the sale. Likewise, a firm recognizes expenses when it incurs the expense, regardless of when the firm sends payments to its vendors. The accrual method has two advantages over the cash method. First, the accrual
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Cash basis accounting refers to an accounting system where the firm recognizes sales when it receives cash from customers and recognizes expenses when it pays cash to vendors. Thus, with cash basis accounting, income more closely approximates the firm’s operating cash flow. The Internal Revenue Service (IRS) allows firms under a certain size to report
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A firm’s cost of capital represents the cost to the firm of accessing debt and equity capital. Business decision makers use the cost of capital as a minimum “hurdle rate” when determining if a project or investment will yield value to the firm. The cost of capital is also called the weighted-average cost of capital
Double-entry bookkeeping is a process of recording business transactions in which each transaction affects two or more accounts. The double-entry system was popularized by an Italian friar named Luca Pacioli. In 1494, Pacioli published a mathematics book which contained a section describing the double-entry system. This section, titled Particularis de computis et scripturis (details of
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When it comes to allocating capital, most investors have limited resources and, therefore, must choose among competing alternatives. Investors make these choices with reference to their opportunity cost. An investor’s opportunity cost represents the return on the investor’s next best alternative. In other words, the opportunity cost is the return which the investor foregoes by
