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
The Sarbanes-Oxley Act is legislation passed in July of 2002 which addressed flaws in the governance of U.S. publicly traded corporations. The legislation is named after the bill’s key sponsors, former Democratic Senator Paul Sarbanes and former Republican Congressman Michael Oxley. The legislation was passed in response to a wave of corporate scandals that occurred […]
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Other comprehensive income refers to income, expenses, gains, or losses which under U.S. GAAP are excluded from the income statement. Rather, these transactions are accounted for directly into shareholder’s equity. The purpose of the other comprehensive income account is to separate certain transactions which may cause unnecessary volatility in a company’s earnings and distort the
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Permanent accounts are accounts whose balances carry over from one accounting period to another. Permanent accounts are shown on the balance sheet. In other words, permanent accounts are asset, liability, and equity accounts. Permanent accounts convey information about a company’s financial position. Temporary accounts are accounts whose balances begin an accounting period at zero. Temporary
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Revenue recognition refers to the accounting rules that govern the amount of revenue which a company can recognize in a given period. Under U.S. GAAP, the general principal for recognizing revenue is to record revenues when they are earned – i.e., when the services have been performed or the goods have been provided to customers.
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Petty cash refers to a currency fund companies use for small purchases. The petty cash fund is a convenient way for companies to account for incidental expenditures. Because the petty cash fund can be highly susceptible to theft, companies generally designate an employee to oversee the fund. The employee responsible for the petty cash fund
Prepaid expenses are payments made for expenses which have not yet been consumed. Because prepaid expenses reflect goods or services which are owed to the company, prepaid expenses are recognized as assets. Prepaid expenses are generally recognized as current assets, since most prepaid expenses are consumed within one year. However, some expenses may be prepaid
Preferred stock is a class of stock that has preference over common stock in respect to dividends and liquidation proceeds. Preferred stock generally pays a fixed percentage of par value. The four most common types of preferred stock are cumulative preferred stock, non-cumulative preferred stock, participating preferred stock, and convertible preferred stock. With cumulative preferred
Paid-in capital refers to the amount of monetary capital that shareholders have contributed to the company. Paid-in capital is one of the two main sources of shareholders’ equity. The other source of shareholders’ equity is retained earnings. When individuals or companies contribute monetary capital to a corporation, they are issued stock shares in the corporation
Other revenue is a classification for revenue produced from sources outside of the company’s normal operations. Other revenue is disclosed as a separate line item on a company’s profit and loss statement. The items which constitute other revenue depend on the nature of the business. For example, a retailer will likely not consider interest income
Owners’ equity is the portion of a company’s balance sheet which represents the shareholders’ claim on the assets of the business. Owner’s equity is calculated by subtracting liabilities from assets. The three basic components of owners’ equity are (1) capital contributed from shareholders, (2) retained earnings, and (3) treasury stock. Capital contributed from shareholders is
