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
Financial accounting refers to the type of accounting concerned with reporting financial information to the firm’s shareholders and creditors. This information is provided through the financial statements and supplementary information prepared in accordance with relevant accounting standards. For companies which are domiciled or have issued securities in the U.S., the accounting standards are U.S. Generally
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The income statement, also known as the profit and loss statement, is a financial statement which conveys basic information regarding business operations over a given period. A company’s business operations consist primarily of revenues and expenses. A company’s revenues constitute sales of goods or services, while expenses are costs associated with the generation of revenues.
The cash flow statement is a financial statement which presents the company’s cash receipts and disbursements over a stated period. The net cash flow corresponds to the change in the cash balance on the balance sheet over the period. The cash flow statement has three sections: cash flow from operating activities, cash flow from investing
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Generally Accepted Accounting Principles, otherwise knows as U.S. GAAP, or just GAAP, are rules governing the financial reporting of firms which issue financial securities in the United States. The rules and guidelines which constitute GAAP are promulgated by the Financial Accounting Standards Board (FASB), a rule-setting body operating under the authority of the Securities and
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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
