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
Operating income refers to the income derived from the firm’s normal business activities. Operating income excludes interest expense, since interest expense is a financing cost rather than an operating cost. Operating income also excludes taxes, and any expenses or income derived from non-operating sources. Operating income differs from net income in that net income is
A company’s operating cycle is the number of days, on average, between the acquisition (or production) of inventory and the eventual sale of that inventory. A company’s operating cycle is the sum of two metrics: days sales in inventory and days sales outstanding. Days sales in inventory (DSI) indicates the average number of days to
Net income refers to a company’s revenues less all expenses. Net income is also called net profit. A company generates a net profit when its revenues are greater than its expenses. A company generates a net loss when its expenses are greater than its revenues. Net income differs from gross income in that gross income
Liquidity refers to the ability to convert assets to cash without significant impairment. An asset which can be sold quickly without impairment is said to be highly liquid. An asset which cannot be sold quickly, or which can only be sold quickly at a significant discount to the asset’s fair value, is said to be
A limited liability company (LLC) is an entity formed under state statute which provides limited liability to its owners. Laws governing LLCs vary from state to state. LLC owners are called members. These members can be individuals or other entities. Many LLCs designate a manager – either an individual or an entity – to oversee
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Liabilities are obligations the company has to provide goods, services, or payment to third parties. Liabilities appear on the balance sheet under the ‘liabilities and equity’ section. Liabilities are recorded at the amounts at which the liabilities are expected to be settled. Often, these settlement amounts must be estimated. Liabilities are classified as current or
Operating leverage is a measure of the amount of fixed costs relative to a company’s total cost structure. Fixed costs are those costs which do not fluctuate proportionally with sales. In contrast, variable costs are those costs which do fluctuate with sales. The company’s total cost structure is the sum of fixed and variable costs. Operating
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Financial leverage refers to the amount of borrowed money (debt) a company uses to finance its assets. Debt is referred to as financial leverage because it acts as a fulcrum, magnifying the amount of gains or losses on an equity investment. For example, suppose that a real estate development company invests $10 million into a
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The double-declining balance method is an accelerated method of depreciation in which depreciation is recognized at twice the rate recognized under the straight-line method. The double-declining balance method is one of two most common methods of accelerated depreciation. The other accelerated method is the sum of the years’ digits method. Unlike straight-line depreciation, which recognizes
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Gross profit refers to a company’s sales, net of discounts, returns, and allowances, minus the direct costs of selling goods and services. The composition of direct costs will vary depending on the type of business. Retailing and wholesaling companies, for example, sell inventory in essentially the same form in which they purchased the inventory. The
