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
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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An economic moat is a durable competitive advantage that helps a business protect its profits from competitors over time. The term compares a strong business to a castle with a moat around it. Just as a moat protects a castle from attackers, an economic moat protects a company from competitors trying to take its customers,
Margin of safety is the difference between an investment’s estimated intrinsic value and its current market price. In fundamental investing, margin of safety gives investors room for error. Because no valuation estimate is perfect, investors often prefer to buy a stock only when the market price is meaningfully below their estimate of what the business
A DCF model, short for discounted cash flow model, is a financial model used to estimate the value of a business, stock, project, or investment based on the present value of its expected future cash flows. In fundamental investing, a DCF model is commonly used to estimate a company’s intrinsic value. The model forecasts how
Discounted cash flow, often called DCF, is a valuation method used to estimate what an investment is worth based on the present value of its expected future cash flows. In fundamental investing, a discounted cash flow analysis helps investors estimate the intrinsic value of a business. The basic idea is that a company is worth
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Intrinsic value is an estimate of what an investment is truly worth based on its underlying fundamentals, rather than its current market price. For a stock, intrinsic value is usually calculated by analyzing a company’s future cash flows, earnings power, assets, growth potential, competitive advantage, and risk. Investors compare intrinsic value to the stock’s market
What Is Compounding? Compounding refers to the growth in the value of an investment when the return is being reinvested. Compound growth is exponential rather than linear. This means that the value of a compounded investment becomes disproportionally larger as time passes. This concept is a core part of fundamental investing. Example of Compounding Suppose
What Is Discounting? Discounting refers to calculating the present value of a future sum. Discounting is the inverse operation to compounding. This concept is a core part of fundamental investing. Discounting and Compounding For example, suppose we invest $1,000 into an account that earns 10% per year for five years. We can find the value
What Is the Time Value of Money? Time value of money is a concept in finance that states that money received in the future is worth less than money received in the present. The difference in value between current and future money is due to the interest that could be earned on the present amount.
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