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 cost principle is an accounting principle which states that an asset, liability, or equity should be recorded on a company’s book at the original acquisition cost. The cost principle is an example of the concept of conservatism inherent in financial accounting. Thus, assets may be written-down, but reporting standards (in the U.S.) does not […]
The direct write-off method refers to the expensing of a receivable when the firm deems the receivable uncollectible. The direct method involves two steps. First, the company has sufficient reason to believe that a past-due receivable will not be collected. Second, the company must make an accounting entry for the bad debt expense. An important
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A business combination occurs when two or more business entities combine into a single reporting entity. Under U.S. GAAP, a combination occurs between an acquirer and an acquiree(s). The acquirer is the firm acquiring while the acquiree is the firm being acquired. These two designations can be misleading, as they are distinct from the size
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Consolidated financial statements are the combined financial statements of a company which has one or more subsidiaries. Under U.S. GAAP, a company which has control over the subsidiary must fully combine the subsidiary’s financial statements with the parent company’s financial statements. Control is usually achieved when the parent company owns at least 50% of the
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A bond is a debt instrument which represents a loan to the issuer. Bonds generally pay periodic interest payments to the bond holder. Bonds are generally issued for a finite period. The end of the bond’s term is known as the maturity date. At the maturity date the issuer must pay the bond holder the
A bond indenture is a contract between a bond issuer and a bondholder. The bond indenture specifies the terms of the bond, such as the bond’s maturity date, coupon amount, and payment frequency. The bond indenture also identifies any assets used as collateral for the bond issuance. Bonds can be structured with various features, which
Cost of goods sold (COGS) is the direct cost of selling an item. For a retail business, cost of goods sold represents the inventory acquisition cost. For a manufacturing business, cost of goods sold is the direct costs of manufacturing the item. Cost of goods sold is also called cost of sales or cost of
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A common size statement presents financial statement items as a percentage of a total. Common size statements are commonly used for the income statement and the balance sheet. A common size income statement presents each item on the income statement as a percentage of sales. A common size balance sheet presents each item on the
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Bad debt expense is an expense account which represents accounts receivable the firm expects to go uncollected. An accounts receivable is created when a firm sells a good or service and allows the customer to pay for the good or service at a future date. Some customers, however, are likely to default on their obligations.
Allowance for doubtful accounts is a contra account that adjusts accounts receivable for the expected amount of uncollectible accounts. The allowance for doubtful accounts contra account is associated with the allowance method, which is one of two ways for accounting for uncollectible receivables. The other method is the direct write-off method, in which bad accounts
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