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 double-declining balance method is an accelerated method of depreciation in which depreciation is recognized at twice the rate recognized under the straight-line method. The double-declining balance method is one of two most common methods of accelerated depreciation. The other accelerated method is the sum of the years’ digits method. Unlike straight-line depreciation, which recognizes […]
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Gross profit refers to a company’s sales, net of discounts, returns, and allowances, minus the direct costs of selling goods and services. The composition of direct costs will vary depending on the type of business. Retailing and wholesaling companies, for example, sell inventory in essentially the same form in which they purchased the inventory. The
Free cash flow is the amount of operating cash flow which remains after subtracting capital expenditures. Free cash flow is a measure of a company’s residual cash profits. However, free cash flow differs from profit on the income statement in several respects. First, free cash flow incorporates the cash flow effects of increases in operating
Goodwill is an intangible asset which arises from an acquisition and represents the positive difference between the purchase price and the fair market value of the acquiree’s identifiable assets. Under U.S. GAAP, goodwill accounting can differ depending on whether the company is privately held or publicly owned – i.e., has its shares listed on a
The last-in, first-out (LIFO) method is an inventory valuation method which assumes that the most recent inventory purchases are sold first. The LIFO method is one of three inventory valuation methods. The other two methods are the first-in, first-out (FIFO) method and the average cost method. The LIFO and FIFO methods are inventory flow assumptions.
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A fixed asset is a tangible economic resource which is expected to provide economic benefits to the firm beyond the greater of one year or an accounting cycle. Fixed assets are intended for use in the production of goods or services. In other words, fixed assets are not intended for resale but are rather used
A deferral is a delay in the recognition of a revenue or expense transaction. Deferred revenue is revenue which is not yet earned. Deferred revenue creates a performance obligation to the company – i.e., the company is obligated to provide the goods or services for which the payment was made. As such, deferred revenue is
Carrying value refers to the balance sheet value of an asset. For tangible assets, the carrying value is the asset’s acquisition price less accumulated depreciation and any impairments. For intangible assets, the carrying value is the asset’s acquisition price less amortization and any impairments. An asset’s carrying value can differ substantially from the asset’s market
The first-in, first-out (FIFO) inventory method is a method for valuing inventory which assumes that the oldest purchases are the first units sold. The FIFO method is one of three inventory valuation methods, the other two being the last-in, first-out method (LIFO) and the weighted-average inventory method. The FIFO and LIFO methods are referred to
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The Federal Insurance Contributions Act (FICA) tax is a payroll tax which is withheld from employee wages and matched by the employer. The FICA tax is composed of a Social Security tax and a Medicare tax. The Social Security Administration caps the amount of gross income subject to the Social Security tax. However, there is
