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
Free cash flow yield is a valuation metric that compares a company’s free cash flow to its stock price or market value. Free cash flow yield shows how much cash a company generates for each dollar investors pay for the stock. In fundamental investing, it helps investors evaluate whether a stock is cheap or expensive
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Earnings yield is a valuation metric that compares a company’s earnings to its stock price. Earnings yield shows how much earnings a company generates for each dollar investors pay for the stock. It is the inverse of the price-to-earnings ratio (P/E Ratio). In fundamental investing, earnings yield helps investors compare a stock’s earnings power to
Normalized earnings are a company’s earnings adjusted to remove unusual, temporary, or non-recurring items so investors can better estimate the company’s sustainable profit level. In fundamental investing, normalized earnings help investors look past short-term noise and understand what a business might earn under normal operating conditions. This is especially useful when a company’s reported earnings
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Earnings power is a company’s ability to generate sustainable profits over time based on its business model, competitive position, assets, and normal operating performance. In fundamental investing, earnings power helps investors look past short-term results and estimate what a business can reasonably earn under normal conditions. This is useful because a company’s reported earnings may
Owner earnings is an estimate of the cash a business can generate for its owners after accounting for the spending needed to maintain its competitive position and operating capacity. In fundamental investing, owner earnings is often used as a more practical measure of business value than accounting earnings. It focuses on the cash that could
Terminal value is the estimated value of a business beyond the explicit forecast period in a valuation model. In a discounted cash flow (DCF) model, investors usually forecast a company’s free cash flow for a specific number of years, such as 5 or 10 years. Terminal value estimates what the business may be worth after
Weighted average cost of capital, often called WACC, is the average rate of return a company must earn to satisfy the investors who provide its capital. A company’s capital usually comes from a mix of debt and equity. Debt investors expect interest payments, while equity investors expect returns through stock price appreciation, dividends, or business
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Capitalization rate, often called cap rate, is a valuation and return metric that compares an asset’s income to its value or price. In real estate, capitalization rate is commonly used to estimate the return on an income-producing property. In stock investing, the same concept can be used to value a stable income stream, such as
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Return on invested capital, often called ROIC, is a profitability metric that measures how efficiently a company uses its invested capital to generate operating profit. In fundamental investing, ROIC helps investors understand whether a business is creating value with the money invested in its operations. A company with a high ROIC may be able to
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Competitive advantage is a condition or capability that allows a business to perform better than its competitors. A company may have a competitive advantage if it can charge higher prices, produce at lower costs, keep customers longer, sell a better product, or earn stronger returns than other businesses in the same industry. In fundamental investing,
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