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
Reinvestment rate is the percentage of a company’s operating profit that is reinvested back into the business to support future growth. It helps investors understand how much of current profit is being committed to: A common fundamental-analysis relationship is: Where: Reinvestment rate becomes especially powerful when paired with Return on Invested Capital (ROIC) or Incremental
Incremental Return on Capital measures how much additional operating profit a company generates from additional capital invested in the business. It helps investors answer a critical question: “How productive is the company’s newest capital?” A simplified formula is: A more refined version may use: where NOPAT is Net Operating Profit After Tax. Incremental Return on
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Unit economics measures the revenue, costs, and profit generated by a single unit of a business. The “unit” depends on the business model. It might be: Unit economics helps investors determine whether a company creates value each time it acquires a customer, sells a product, or completes a transaction. The core idea is: For subscription
Receivables turnover is a financial ratio that measures how efficiently a company collects money owed by customers. It compares credit sales with the company’s average accounts receivable balance. A common formula is: A higher receivables turnover ratio generally indicates that customers pay more quickly, while a lower ratio may indicate slower collections, looser credit terms,
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Inventory turnover is a financial ratio that measures how efficiently a company sells and replaces its inventory over a given period. It shows how many times a business cycles through its average inventory during the year. A common formula is: Where: Higher inventory turnover generally indicates that inventory is selling more quickly, while lower turnover
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Asset turnover is a financial ratio that measures how efficiently a company uses its assets to generate revenue. A common formula is: The ratio shows how many dollars of revenue a company generates for each dollar invested in assets. For example, an asset turnover ratio of 1.5 means the company generates approximately $1.50 of revenue
Invested capital is the amount of capital committed to a company’s core operating business by shareholders and creditors. It is commonly used to measure how much capital a business has invested in operations in order to generate operating profit and cash flow. A simplified formulation is: Another common approach is: Invested capital is especially important
Return on Capital Employed (ROCE) is a profitability ratio that measures how efficiently a company generates operating profit from the long-term capital used in the business. A common formula is: Where: ROCE helps investors evaluate whether a company is using its debt and equity capital productively. Why ROCE Matters ROCE helps answer: “How much operating
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Capital employed is the amount of long-term capital a business uses to operate and generate profits. It generally represents the capital invested in the company through: Capital employed is commonly used in profitability analysis, especially when calculating Return on Capital Employed (ROCE). A common formula is: Another common formulation is: The exact calculation can vary
Default risk is the risk that a borrower or debt issuer will fail to make required interest or principal payments according to the terms of a debt agreement. Default risk is a core component of credit risk. It applies to obligations such as: The higher the perceived probability of default, the more compensation investors generally
