GLOSSARY

Stock Market Terms

Essential investing terminology explained in plain language. From fair value to free cash flow, understand the concepts that drive stock valuation.

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A

Analyst Consensus

Aggregated price targets from Wall Street analysts, representing the average professional estimate of a stock's future value.

B

Book Value

Total assets minus total liabilities, representing the net asset value of a company on its balance sheet.

D

Discounted Cash Flow (DCF)

A valuation method that projects future cash flows and discounts them to present value using an appropriate discount rate.

Dividend Yield

Annual dividend payment divided by stock price, expressed as a percentage of return from dividends alone.

E

Earnings Per Share (EPS)

Net income divided by shares outstanding, representing the profit allocated to each share of common stock.

EBITDA

Earnings Before Interest, Taxes, Depreciation, and Amortization, measuring operating profitability independent of capital structure.

F

Fair Value

The estimated intrinsic worth of a stock based on fundamental analysis rather than its current market price.

Free Cash Flow (FCF)

Cash generated by operations minus capital expenditures, representing cash available to shareholders and debt holders.

G

Graham Number

Benjamin Graham's formula combining P/E and P/B into a single valuation metric to identify undervalued stocks.

I

Intrinsic Value

The true underlying worth of a company based on fundamental analysis, independent of market sentiment.

M

Margin of Safety

The difference between a stock's intrinsic value and its market price, providing a cushion against analysis errors.

Market Capitalization

The total market value of a company's outstanding shares, calculated as stock price times shares outstanding.

O

Overvalued

A stock trading significantly above its calculated fair value, where investors pay a premium relative to fundamentals.

P

Price-to-Book Ratio (P/B)

Stock price divided by book value per share, comparing market valuation to net asset value on the balance sheet.

Price-to-Earnings Ratio (P/E)

Stock price divided by earnings per share, indicating how much investors pay for each dollar of earnings.

R

Relative Valuation

Comparing a stock's valuation multiples against sector peers to determine if it is cheap or expensive relative to similar companies.

Return on Equity (ROE)

Net income divided by shareholder equity, measuring how efficiently a company generates profit from shareholder investments.

T

Terminal Value

The estimated value of a business beyond the explicit DCF projection period, capturing all future cash flows in perpetuity.

U

Undervalued

A stock trading significantly below its calculated fair value, potentially offering a buying opportunity with margin of safety.

W

WACC

Weighted Average Cost of Capital, the discount rate used in DCF analysis reflecting the blended cost of debt and equity financing.