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
Fundamental analysis is the process investors use to evaluate an investment by studying its financial statements, business quality, cash flow, valuation, competitive position, and risk. In stock investing, fundamental analysis helps investors estimate what a business is worth and decide whether the current market price is attractive. It focuses on the economic reality of the […]
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Working capital is the difference between a company’s current assets and current liabilities. Working capital is calculated by subtracting current liabilities from current assets. Working capital is a liquidity measure in that it indicates the amount of resources available to satisfy short-term obligations. Financial managers and investors often distinguish between total working capital and operating
Unearned revenue is a current liability account that represents money collected from customers before goods have been delivered or services have been performed. When a company receives payment from customers for goods or services not yet delivered, the company will initially record the payment on the balance sheet as a current liability. The payment is
Treasury stock represents stock shares that a company had issued and then later repurchased. Treasury stock reduces the number of shares a company has outstanding. Companies often repurchase outstanding shares for three primary reasons. First, a company’s management may believe that the shares are undervalued and thus represent a good investment. Second, a company that
A subsidiary company is a company that is majority owned by another entity. The entity which owns the subsidiary company is called the parent company. A subsidiary may be wholly owned or partially owned. A wholly owned subsidiary is a subsidiary company where all of the outstanding shares are owned by the parent company. A
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Straight-line depreciation is a method for calculating yearly depreciation expense for a long-lived fixed asset where an equal amount of depreciation is recognized each year of the asset’s useful life. To calculate straight-line depreciation, we need three pieces of information. First, we need to know the asset’s cost. Second, we need an estimate of the
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The specific identification method is a method of accounting for inventory and cost of sales where the exact item is matched to the sale. The specific identification method can be used when companies sell high priced items that can be easily identified and tracked. For example, the specific identification method would be appropriate for firms
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Solvency refers to a company’s ability to satisfy its financial liabilities with existing resources. A company is considered solvent when its assets and cash flows are sufficient to service its liabilities. A company is considered insolvent when its assets and cash flows are insufficient to service its liabilities. Solvency is not the same as liquidity.
The Securities and Exchange Commission (SEC) is a federal agency with regulatory jurisdiction over the issuance and trading of financial securities. After the 1929 stock market crash, Congress established a committee to investigate the causes of the crash. This committee, which later became associated with its lead counsel, Ferdinand Pecora, uncovered a number of abuses
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Retained earnings represent the cumulative net profits a company has retained in the business. For any given period, retained earnings equal the period’s net income minus any dividends paid to shareholders in the period. Cumulatively, retained earnings equal the beginning balance of retained earnings plus the period’s net income minus any dividends paid over the
