Stock Market Glossary
Comprehensive A-Z guide to stock market terms, financial ratios, and investing concepts. Master the language of investing with clear definitions and real-world examples.
A
Alpha
The excess return of an investment relative to the return of a benchmark index. Positive alpha indicates outperformance, negative alpha indicates underperformance.
Example: If a fund returns 12% while the S&P 500 returns 10%, it has an alpha of +2%.
Annual Report (10-K)
A comprehensive report filed annually by public companies with the SEC, including financial statements, management discussion, and risk factors.
Example: Review the 10-K to understand a company's full financial picture and future risks.
Asset
Anything of value owned by a company or individual. Includes cash, inventory, property, equipment, and investments.
Example: Apple's main assets include cash reserves, manufacturing equipment, and intellectual property.
B
Bear Market
A market condition where prices fall 20% or more from recent highs, often accompanied by widespread pessimism.
Example: The 2022 tech bear market saw NASDAQ fall over 30% from its peak.
Beta (β)
A measure of a stock's volatility relative to the overall market. Beta > 1 means more volatile, < 1 means less volatile than market.
Example: A stock with beta 1.5 typically moves 50% more than the market in either direction.
Blue Chip Stock
Shares of large, well-established companies with a history of reliable performance and often dividend payments.
Example: Companies like Coca-Cola, Johnson & Johnson, and Microsoft are considered blue chips.
Book Value
The net asset value of a company calculated as total assets minus intangible assets and liabilities. Represents accounting value.
Example: If a company has $500M in assets and $200M in liabilities, book value is $300M.
Book Value Per Share
Book value divided by number of outstanding shares. Used in P/B ratio calculations.
Example: Book value of $300M ÷ 10M shares = $30 book value per share.
Bull Market
A market condition characterized by rising prices and investor optimism, typically a 20%+ rise from recent lows.
Example: The 2010-2020 bull market saw the S&P 500 rise over 300%.
C
Capital Gains
Profit realized from selling an asset for more than the purchase price. Can be short-term (<1 year) or long-term (>1 year).
Example: Buy stock at $50, sell at $75 = $25 capital gain per share.
D
Debt-to-Equity Ratio
Financial ratio comparing total debt to shareholder equity. Indicates financial leverage and risk. Formula: Total Debt ÷ Shareholder Equity.
Example: A ratio of 0.5 means $50 of debt for every $100 of equity - generally conservative.
Dividend
A portion of company profits paid out to shareholders, usually quarterly. Provides income in addition to potential capital gains.
Example: A stock trading at $100 with $4 annual dividend has a 4% dividend yield.
Dividend Aristocrat
S&P 500 company that has increased dividend payments for at least 25 consecutive years, indicating financial stability.
Example: Coca-Cola is a Dividend Aristocrat with 60+ years of dividend increases.
Dividend Yield
Annual dividend per share divided by stock price, expressed as a percentage. Shows income return. Formula: (Annual Dividend ÷ Stock Price) × 100.
Example: $4 dividend ÷ $100 stock price = 4% dividend yield.
E
Earnings Per Share (EPS)
Company's net profit divided by number of outstanding shares. Key metric for profitability. Formula: Net Income ÷ Shares Outstanding.
Example: $100M profit ÷ 10M shares = $10 EPS.
Earnings Growth Rate
The annualized percentage increase in a company's EPS over time. Critical input for PEG ratio calculations.
Example: EPS growing from $2.00 to $2.40 represents 20% earnings growth.
EBITDA
Earnings Before Interest, Taxes, Depreciation, and Amortization. Measures operating performance without accounting decisions.
Example: Used to compare profitability between companies with different capital structures.
ETF (Exchange-Traded Fund)
Investment fund that trades on stock exchanges, typically tracking an index, sector, or commodity. Offers diversification.
Example: SPY ETF tracks the S&P 500, providing instant exposure to 500 large US companies.
F
Free Cash Flow
Cash generated by operations minus capital expenditures. Shows how much cash is available for dividends, buybacks, and growth.
Example: Operating cash flow $200M - capex $50M = $150M free cash flow.
Forward P/E
P/E ratio calculated using estimated future earnings (next 12 months). More speculative than trailing P/E.
Example: Current price $100 ÷ estimated next year EPS $6 = forward P/E of 16.7.
G
Gross Margin
Percentage of revenue remaining after subtracting cost of goods sold. Indicates pricing power. Formula: (Revenue - COGS) ÷ Revenue × 100.
Example: Software companies often have 80%+ gross margins due to low variable costs.
Growth Stock
Company stock expected to grow earnings faster than the market average, typically with high P/E ratios and no dividends.
Example: Tech companies like Nvidia and Tesla are classic growth stocks.
I
Index Fund
Mutual fund or ETF designed to match the performance of a specific market index, offering broad diversification at low cost.
Example: Vanguard S&P 500 Index Fund tracks the 500 largest US companies.
IPO (Initial Public Offering)
The first sale of stock by a private company to the public, transitioning from private to public ownership.
Example: Facebook went public in 2012 at $38 per share in its IPO.
L
Liability
Financial obligations or debts that a company owes. Includes loans, accounts payable, and future pension obligations.
Example: A $10M bank loan is a liability on the balance sheet.
Limit Order
An order to buy or sell stock at a specific price or better, guaranteeing price but not execution.
Example: Set a limit order to buy at $50; you'll never pay more than $50 if it executes.
Liquidity
How easily an asset can be converted to cash without affecting price. High trading volume indicates high liquidity.
Example: Apple stock is highly liquid - millions of shares trade daily without price impact.
M
Market Capitalization
Total market value of a company's outstanding shares. Formula: Share Price × Total Shares Outstanding.
Example: $100 stock price × 1B shares = $100B market cap (large-cap company).
Market Order
An order to buy or sell immediately at the current market price, guaranteeing execution but not price.
Example: Market order to buy 100 shares executes instantly at best available price.
O
Operating Margin
Operating income divided by revenue, showing profitability of core business operations. Formula: Operating Income ÷ Revenue × 100.
Example: 20% operating margin means company keeps $20 of every $100 in revenue as operating profit.
P
P/B Ratio (Price-to-Book)
Stock price divided by book value per share. Compares market value to accounting value. Formula: Stock Price ÷ Book Value Per Share.
Example: P/B below 1.0 means buying assets at a discount to book value - value investors' favorite metric.
P/E Ratio (Price-to-Earnings)
Stock price divided by earnings per share. Shows how much investors pay for each dollar of earnings. Formula: Stock Price ÷ EPS.
Example: P/E of 20 means paying $20 for every $1 of annual earnings - industry comparison is key.
P/S Ratio (Price-to-Sales)
Market cap divided by total revenue. Used for unprofitable companies. Formula: Market Cap ÷ Annual Revenue.
Example: P/S of 5 means market values company at 5× annual revenue - common for high-growth tech.
Payout Ratio
Percentage of earnings paid as dividends. Shows dividend sustainability. Formula: Dividends Per Share ÷ EPS × 100.
Example: Payout ratio of 60% means company pays 60% of earnings as dividends - sustainable level.
PEG Ratio (Price/Earnings-to-Growth)
P/E ratio divided by earnings growth rate. Adjusts valuation for growth. Formula: P/E Ratio ÷ Growth Rate.
Example: P/E 25 ÷ 20% growth = PEG 1.25. PEG below 1.0 indicates undervalued growth stock.
PEGY Ratio (PEG + Yield)
Enhanced PEG that adds dividend yield to growth rate. Better for dividend stocks. Formula: P/E ÷ (Growth Rate + Dividend Yield).
Example: P/E 18 ÷ (10% growth + 4% yield) = PEGY 1.29. Lower is better - total return focus.
Portfolio
A collection of investments held by an individual or institution, designed to achieve specific financial goals.
Example: A balanced portfolio might contain 60% stocks, 30% bonds, 10% cash.
Profit Margin
Net income divided by revenue. Shows how much profit company keeps from each dollar of sales. Formula: Net Income ÷ Revenue × 100.
Example: Software companies often achieve 25%+ profit margins due to scalability.
Q
Quarterly Report (10-Q)
Comprehensive financial report filed quarterly by public companies, including unaudited financial statements and MD&A.
Example: Review 10-Qs to track company performance between annual reports.
R
Return on Assets (ROA)
Net income divided by total assets. Shows how efficiently company uses assets. Formula: Net Income ÷ Total Assets × 100.
Example: ROA of 10% means company generates $10 profit per $100 of assets.
Return on Equity (ROE)
Net income divided by shareholder equity. Shows how efficiently company uses equity capital. Formula: Net Income ÷ Shareholder Equity × 100.
Example: ROE of 20% is excellent - company generates $20 profit per $100 of equity.
Revenue
Total income generated from business operations before expenses. Also called "sales" or "top line."
Example: Apple's annual revenue exceeds $380 billion from iPhone, Mac, services, etc.
S
Sector
A group of stocks in the same industry or business category. 11 GICS sectors: Technology, Healthcare, Financials, etc.
Example: Apple and Microsoft are both in the Technology sector.
Shareholder Equity
Assets minus liabilities. Represents net value belonging to shareholders. Foundation of book value.
Example: $500M assets - $200M liabilities = $300M shareholder equity.
Short Selling
Betting a stock price will decline by borrowing and selling shares, then buying back later at lower price.
Example: Borrow stock at $100, sell it, buy back at $80, return shares = $20 profit per share.
Stock Split
Increasing number of shares while proportionally decreasing price per share. Doesn't change total value.
Example: 2-for-1 split: 100 shares at $100 becomes 200 shares at $50 - same $10,000 value.
T
Tangible Book Value
Book value minus intangible assets like goodwill and patents. More conservative measure of asset value.
Example: Book value $300M - intangibles $50M = $250M tangible book value.
Technical Analysis
Method of forecasting price movements by analyzing historical price and volume patterns using charts.
Example: Identifying support/resistance levels, trend lines, and chart patterns.
Total Return
Investment return including both capital gains and dividends/interest. Complete picture of performance.
Example: Stock up 8% + 3% dividend = 11% total return for the year.
Trailing P/E
P/E ratio calculated using past 12 months of actual earnings (historical data).
Example: Current price $100 ÷ last 12 months EPS $5 = trailing P/E of 20.
V
Value Stock
Stock trading below intrinsic value based on fundamentals, often with low P/E, high dividend yield, and stable earnings.
Example: Banks, utilities, and consumer staples are typically value stocks.
Volatility
The degree of price fluctuation in a security. High volatility means large price swings, measured by standard deviation.
Example: Tech stocks tend to have higher volatility than utility stocks.
Volume
Number of shares traded during a specific period. High volume indicates strong interest and liquidity.
Example: Apple averages 50+ million shares traded daily - excellent liquidity.
W
Working Capital
Current assets minus current liabilities. Measures short-term financial health and operational efficiency.
Example: Positive working capital means company can cover short-term obligations.
Y
Yield
Return on investment expressed as a percentage. Can refer to dividend yield, bond yield, or earnings yield.
Example: Dividend yield = annual dividend ÷ stock price. Earnings yield = EPS ÷ stock price.