Glossary

Plain-English definitions for every metric the InvestSkill frameworks emit. Each entry gives the formula, a rough “good vs. bad” range, and which skill surfaces it. Ranges are rules of thumb, not absolute rules — context (industry, growth stage, rates) always matters.

Jump to: A · B · C · D · E · F · G · I · L · M · N · O · P · Q · R · S · T · U · V · W · Y

A

Accruals Ratio (Sloan)

How much of reported earnings is accounting judgment rather than cash. Cash-flow version: (Net Income − (Operating CF + Investing CF)) ÷ Average Net Operating Assets; the quick version is (Net Income − Operating CF) ÷ Average Total Assets. Sloan (1996) found that high-accrual firms went on to underperform.

Good / bad: between −10% and +10% normal · +10% to +20% elevated — explain it · > +20% red flag. Strongly negative usually means heavy investment, not trouble.
Surfaced by: forensic-accounting, stock-eval. See Lesson 2 → Accrual vs. cash accounting.

Alpha

Return earned above what the market (or a benchmark) would predict for a given level of risk. Positive alpha = skill or edge; zero alpha = you just matched the market.

Surfaced by: portfolio-review.

Altman Z-Score

Bankruptcy-risk score combining five weighted ratios (working capital, retained earnings, EBIT, equity, sales — all relative to assets).

Good / bad: > 3.0 safe · 1.8–3.0 grey zone · < 1.8 distress.
Surfaced by: financial-report-analyst, result-validator.

Anchoring

The bias of judging a stock by a reference price — usually what you paid — instead of what it is worth today. Antidote: “would I buy it at this price today?”

Good / bad: A behavioral trap, not a metric. The written thesis and its triggers are the cure.
Surfaced by: thesis-tracker, position-ladder, learning-coach.

Asset Turnover

How efficiently a company converts assets into revenue. Revenue ÷ Total Assets.

Good / bad: higher is better, but it’s industry-specific (retail runs high, utilities low).
Surfaced by: fundamental-analysis.

Assignment / Early Exercise

Being assigned means an option you sold has been exercised against you: a short call delivers your shares at the strike, a short put makes you buy them. US equity options are American-style, so it can happen on any day before expiration — most often at expiration, or the day before an ex-dividend date when a short call’s remaining time value is less than the dividend.

Good / bad: Not a mishap — it is the outcome you agreed to. Plan for it on every in-the-money short option.
Surfaced by: options-analysis, tax-lens. See Lesson 15 → Covered calls.

ATR (Average True Range)

The average daily trading range over N days (usually 14), where each day’s true range is the largest of high − low, |high − previous close| and |low − previous close|. How far the stock actually moves, in dollars.

Good / bad: A ruler, not a verdict. position-ladder spaces rungs at 1.0–1.5 × ATR(14) and wants ATR of roughly 1.5–5% of price; rungs tighter than ~0.5 × ATR all fill on one day’s noise.
Surfaced by: technical-analysis, position-ladder.

AUM (Assets Under Management)

Total market value of the assets a fund holds. For an ETF, the first liquidity and viability check.

Good / bad: > $1B comfortable · $100M–1B fine · < $100M closure risk and wider spreads.
Surfaced by: etf-analysis.

B

Beat and Drop

A stock that beats consensus on the headline numbers yet falls after the print — because expectations were higher than consensus, guidance was cut, or the beat was low quality.

Good / bad: Common in stocks that ran into earnings. The guide, not the print, moves the stock.
Surfaced by: earnings-preview, earnings-call-analysis.

Beneish M-Score

An eight-variable model (receivables, gross-margin, asset-quality, sales-growth, depreciation, SG&A, accruals and leverage indices) that scores how closely a company’s statements resemble those of past earnings manipulators. Annual data, non-financial companies only.

Good / bad: > −1.78 likely-manipulator zone (Beneish’s cutoff) · −2.22 to −1.78 grey zone · < −2.22 unlikely. A screen, not a verdict — a genuine fast grower can trip it on sales growth alone.
Surfaced by: forensic-accounting (computes it), bear-case, financial-report-analyst, stock-eval.

Beta (β)

How much a stock moves relative to the market. β = 1 moves with the market; β > 1 is more volatile; β < 1 is calmer; negative β moves opposite.

Good / bad: not good or bad — it sizes risk. High beta amplifies both gains and losses.
Surfaced by: dcf-valuation (feeds WACC), technical-analysis, portfolio-review.

Bid-Ask Spread

The gap between the highest price a buyer will pay and the lowest a seller will accept. A round-trip cost you pay on every trade.

Good / bad: ≤ 0.05% of price for a liquid large cap or broad ETF · > 0.25% thin — use limit orders.
Surfaced by: etf-analysis, technical-analysis.

Book Value

Net assets on the balance sheet: Total Assets − Total Liabilities. The accounting “breakup” value of equity.

Surfaced by: stock-valuation, fundamental-analysis.

Burn Rate

How fast a company spends cash in excess of revenue, usually for pre-profit firms. Paired with runway (months of cash left).

Good / bad: lower burn + longer runway is safer. Negative free cash flow with short runway is a red flag.
Surfaced by: financial-report-analyst.

Business Cycle Phases

The four rough stages an economy moves through: early (recovery, rates low, curve steep), mid (solid but moderating growth), late (tight capacity, rising inflation, curve flat or inverted) and recession (output falling, the Fed cutting). Different sectors have tended to lead in each.

Good / bad: A historical tendency, dated only in hindsight — use it to check your exposure, not to rotate on a schedule.
Surfaced by: economics-analysis, sector-analysis, risk-stress-test. See Lesson 14 → The business cycle.

C

CAGR (Compound Annual Growth Rate)

The smoothed annual growth rate over a multi-year period. (End ÷ Start)^(1/years) − 1.

Surfaced by: dividend-analysis, fundamental-analysis.

Call Option

The right, not the obligation, to buy 100 shares at the strike price until expiration. The buyer pays a premium; the seller (writer) collects it and must deliver the shares if assigned.

Good / bad: A long call can lose only its premium; a short call without the shares (naked) has no ceiling on its loss.
Surfaced by: options-analysis. See Lesson 15 → Calls, puts, and the contract.

Cash-Secured Put

Selling a put while holding the cash to buy the shares if assigned — a limit buy below the market that pays you a premium while you wait. Effective cost if assigned = strike − premium.

Good / bad: Sensible only on a stock you want at the strike, with the cash really there (no margin). If the stock runs away you keep a small premium and miss the move.
Surfaced by: options-analysis. See Lesson 15 → Cash-secured puts.

Consensus Estimate

The average of published analyst forecasts for revenue, EPS, or guidance. The bar a company is measured against on earnings day.

Good / bad: Not good or bad — the question is whether the price already assumes more than consensus.
Surfaced by: earnings-preview, stock-valuation.

Correlation

How closely two holdings move together, from −1 to +1. Diversification only works when correlations are low — and they rise toward 1 in a crash.

Good / bad: < 0.5 between core holdings is real diversification · > 0.8 is the same bet twice.
Surfaced by: portfolio-review, risk-stress-test.

Covenant

A condition in a loan agreement or bond indenture the borrower must keep — typically a maximum leverage (debt / EBITDA) or minimum interest-coverage test, measured on the agreement’s own, usually generous, EBITDA definition. A breach lets lenders accelerate repayment or reprice the debt.

Good / bad: Headroom below 15% is tight; a waiver or amendment in the last two years is a flag. Most investment-grade bonds carry none.
Surfaced by: credit-check, financial-report-analyst, dividend-analysis, forensic-accounting.

Covered Call

Selling one call against every 100 shares you own: premium now, in exchange for selling at the strike if the stock is above it. Converts part of your upside into income; break-even falls by the premium.

Good / bad: Suits a stock you would be content to sell at the strike, ideally when IV rank is high. Watch ex-dividend dates (early assignment) and the holding-period rules before writing on a large gain.
Surfaced by: options-analysis, catalyst-calendar. See Lesson 15 → Covered calls.

CPI (Consumer Price Index)

The Bureau of Labor Statistics’ monthly measure of out-of-pocket prices paid by urban consumers, released around mid-month at 8:30 am ET; core CPI excludes food and energy. It peaked at about 9.1% year over year in June 2022.

Good / bad: The market’s inflation number — first out, so it moves yields on the day. It usually runs a few tenths above PCE, and the Fed’s 2% target is defined on PCE, not CPI.
Surfaced by: economics-analysis, catalyst-calendar, fact-check. See Lesson 14 → Inflation.

Credit Spread

The extra yield a corporate bond pays over a Treasury of the same maturity, usually quoted as an option-adjusted spread in basis points. The credit market’s price for default risk.

Good / bad: Investment grade < 100 bp normal · > 150 bp stress. High yield < 350 bp normal · > 500 bp distress · > 800 bp crisis. Spreads widening while stocks hold steady is a warning.
Surfaced by: economics-analysis, credit-check, sector-analysis, portfolio-review. See Lesson 14 → Credit.

Current Ratio

Short-term liquidity: Current Assets ÷ Current Liabilities. Can the company cover the next 12 months of bills?

Good / bad: > 1.5 comfortable · 1.0–1.5 adequate · < 1.0 potential strain.
Surfaced by: fundamental-analysis, financial-report-analyst.

D

Days-to-Cover (Short Interest Ratio)

Days of normal trading volume it would take short sellers to buy back (cover) all shorted shares. Shares Short ÷ Average Daily Volume.

Good / bad: higher = more squeeze fuel. > 5 days is notable; > 10 is high.
Surfaced by: short-interest.

DCF (Discounted Cash Flow)

Valuation method that projects future free cash flows and discounts them back to today’s value using a discount rate (WACC). The output is an intrinsic value per share.

Surfaced by: dcf-valuation, stock-valuation. See Concepts → How intrinsic value works.

Debt-to-Equity (D/E)

Leverage: Total Debt ÷ Shareholders' Equity. How much the company funds itself with debt vs. owner capital.

Good / bad: < 1.0 conservative · 1.0–2.0 moderate · > 2.0 leveraged (industry-dependent — banks and utilities run high).
Surfaced by: fundamental-analysis, dividend-analysis.

Delta

How much an option’s price moves for a $1 move in the stock: 0 to 1 for calls, 0 to −1 for puts, about ±0.5 at the money. Doubles as a hedge ratio (a 0.27-delta call behaves like ~27 shares) and a rough probability of finishing in the money.

Good / bad: Count option exposure in shares — delta × 100 × contracts — against your position limits.
Surfaced by: options-analysis. See Lesson 15 → The Greeks.

Disposition Effect

The tendency to sell winners too early and hold losers too long, because realizing a loss hurts more than realizing a gain feels good.

Good / bad: The most expensive bias for individual investors. Pre-committed exit rules are the antidote.
Surfaced by: thesis-tracker, position-ladder, learning-coach.

Dividend Coverage Ratio

How many times earnings (or free cash flow) cover the dividend. EPS ÷ Dividend per Share, or the FCF version.

Good / bad: > 2x healthy · 1.5–2x adequate · < 1.2x fragile.
Surfaced by: dividend-analysis.

Dividend Payout Ratio

Share of earnings paid out as dividends. Dividends ÷ Net Income.

Good / bad: < 60% generally sustainable · 60–80% watch · > 100% paying more than it earns (yield-trap warning).
Surfaced by: dividend-analysis.

Dividend Yield

Annual dividend as a percent of price. Annual Dividend ÷ Price.

Good / bad: a very high yield (e.g., > 7%) is often a warning, not a gift — the market may expect a cut. See yield trap.
Surfaced by: dividend-analysis.

Drawdown / Max Drawdown

The fall from a peak to the following trough, as a percentage. Max drawdown is the worst such fall over a period — the number that decides whether you can hold on.

Good / bad: Know it before you own it: a 50% drawdown needs a 100% gain to recover.
Surfaced by: risk-stress-test, portfolio-review.

Dual Mandate

The Federal Reserve’s two goals, set by Congress: maximum employment and stable prices — defined since 2012 as 2% inflation over the longer run, measured by the PCE index. When the two conflict, markets spend months guessing which risk the Fed will tolerate.

Surfaced by: economics-analysis. See Lesson 14 → What the Fed is trying to do.

Dual-Class Shares

A structure in which one share class — usually the founders’ — carries more votes per share than the class the public buys: control without a majority of the economic ownership.

Good / bad: It protects good long-term founders and entrenches poor ones; outside shareholders cannot vote management out. A governance risk flag, not a disqualifier.
Surfaced by: bear-case, compare.

E

EBITDA

Earnings Before Interest, Taxes, Depreciation & Amortization — a proxy for operating cash generation that strips out capital structure and accounting choices.

Caution: ignores real capital costs; “EBITDA is not cash flow.”
Surfaced by: stock-valuation, fundamental-analysis.

Net income attributable to each share. Net Income ÷ Shares Outstanding. “Diluted EPS” includes options/convertibles.

Surfaced by: nearly every fundamental skill.

Estate Tax (Non-Resident)

US federal estate tax on US-situs assets — US-domiciled stocks and ETFs — held by a non-resident alien at death, above an exemption of only $60,000, at rates up to 40%, unless an estate-tax treaty applies.

Good / bad: Treasuries, bank deposits, and non-US-domiciled funds (e.g. Irish UCITS) are outside the net. Not tax advice.
Surfaced by: tax-lens --non-us.

EV (Enterprise Value)

The whole-company price a buyer pays: Market Cap + Total Debt − Cash. Used instead of market cap so debt-heavy and cash-rich firms compare fairly.

Surfaced by: stock-valuation.

EV/EBITDA

Enterprise value relative to operating earnings — a capital-structure-neutral valuation multiple.

Good / bad: < 10x often cheap · 10–15x fair · > 15x rich (sector-dependent).
Surfaced by: stock-valuation.

Ex-Dividend Date

The first day a stock trades without the right to the next dividend. Buy before it to receive the payment; the price typically drops by roughly the dividend on that day.

Good / bad: Matters for the qualified-dividend holding-period test and for timing sales.
Surfaced by: dividend-analysis, tax-lens, catalyst-calendar.

Expense Ratio

A fund’s annual fee as a percentage of assets, deducted from returns automatically. Annual fund costs ÷ Average assets.

Good / bad: ≤ 0.10% for a broad index fund · 0.20–0.50% for specialty · > 0.75% needs a reason.
Surfaced by: etf-analysis.

F

FCF (Free Cash Flow)

Cash left after operating expenses and capital spending. Operating Cash Flow − CapEx. The cash an owner could actually take out.

Good / bad: consistently positive and growing is the gold standard. Negative FCF needs a growth story to justify it.
Surfaced by: dcf-valuation, fundamental-analysis, dividend-analysis.

FCF Yield

Free cash flow relative to market cap. FCF ÷ Market Cap. The cash-return version of an earnings yield.

Good / bad: > 5% attractive · 3–5% fair · < 3% expensive.
Surfaced by: stock-valuation.

Federal Funds Rate

The overnight rate banks charge each other, set by the FOMC as a target range — 5.25–5.50% from July 2023 until the first cut in September 2024. It anchors short-term rates and, through them, the risk-free rate in every valuation.

Good / bad: The market prices the path (fed funds futures), so it is the surprise versus that path, not the level, that moves stocks.
Surfaced by: economics-analysis. See Lesson 14 → What the Fed is trying to do.

FOMC & Dot Plot

The Federal Open Market Committee — twelve voting members — sets the federal funds rate at eight scheduled meetings a year: statement at 2:00 pm ET, press conference at 2:30 pm, minutes three weeks later. The dot plot, in the Summary of Economic Projections at the March, June, September and December meetings, shows where each participant thinks the rate should be at each year-end.

Good / bad: The dots are forecasts, not commitments. The gap between the median dot and futures pricing is what moves on meeting day.
Surfaced by: catalyst-calendar, options-analysis, thesis-tracker. See Lesson 14 → FOMC mechanics.

Form 13F

The quarterly SEC filing in which institutional managers with more than $100 million in US equities list their long holdings, due up to 45 days after quarter-end.

Good / bad: Holdings can be about four months old when you read them, and shorts and most hedges are invisible — confirmation, not a trading signal.
Surfaced by: institutional-ownership, short-interest, fact-check. See Lesson 5 → Sentiment and smart-money positioning.

Form 4

The SEC filing an insider (officer, director, or > 10% holder) must make within two business days of buying or selling the company’s stock.

Good / bad: Open-market purchases (code P) are the informative ones; sales are often 10b5-1 plan executions or for taxes and diversification. Several insiders buying at once is the strongest signal.
Surfaced by: insider-trading, forensic-accounting, financial-report-analyst, fact-check. See Lesson 5 → Sentiment and smart-money positioning.

Form 8-K

The “current report” a company files within four business days of a material event — earnings releases (Item 2.02, with the non-GAAP reconciliation as Exhibit 99.1), material agreements such as new debt (1.01), auditor changes (4.01), non-reliance on past financials (4.02), and officer departures (5.02).

Good / bad: Item 4.01 and 4.02 filings are red flags. Read the exhibit, not the headline.
Surfaced by: fact-check, forensic-accounting, credit-check, earnings-call-analysis, 10k-digest.

G

GAAP vs. Non-GAAP

GAAP earnings follow US accounting rules; non-GAAP (“adjusted”) earnings are management’s version, usually excluding stock-based compensation, amortisation of acquired intangibles and “one-time” charges. The company must reconcile the two, typically in its 8-K earnings exhibit.

Good / bad: Gap % = (Non-GAAP − GAAP net income) ÷ |GAAP net income|. Under 10% and stable is clean; a gap widening three periods running, or “one-time” charges that recur most years, is a flag.
Surfaced by: forensic-accounting, financial-report-analyst, fact-check, bear-case.

Gamma

How fast an option’s delta changes as the stock moves — the option’s acceleration. Highest at the money close to expiration.

Good / bad: High gamma means exposure swings fastest, in both directions; short options near expiry carry the most of it, and dealer hedging of it can fuel squeezes.
Surfaced by: options-analysis, short-interest. See Lesson 15 → The Greeks.

Goodwill & Impairment

Goodwill is the amount paid in an acquisition above the fair value of the net assets acquired; it sits on the balance sheet and is tested for impairment at least annually. An impairment writes it down — a non-cash charge that admits the company overpaid.

Good / bad: Goodwill above 30% of total assets without a clear acquisition rationale deserves scrutiny; repeated impairments mark a serial overpayer.
Surfaced by: financial-report-analyst, dividend-analysis, stock-eval.

Greeks (Options)

Sensitivities of an option’s price: Delta (vs. underlying price), Gamma (rate of delta change), Theta (time decay), Vega (vs. volatility), Rho (vs. interest rates). The first four have their own entries: Delta, Gamma, Theta, Vega.

Surfaced by: options-analysis. See Lesson 15 → The Greeks.

Gross Margin

Profit after the direct cost of goods. (Revenue − COGS) ÷ Revenue. A first read on pricing power.

Good / bad: higher and stable signals a moat; falling margins signal competition.
Surfaced by: fundamental-analysis, competitor-analysis.

Guidance

Management’s own forecast for the coming quarter or year, given with the earnings release. The stock reacts more to the guide than to the reported quarter.

Good / bad: “Beat and raise” is the bullish case; “beat and lower” is the classic beat-and-drop.
Surfaced by: earnings-preview, earnings-call-analysis.

I

Implied Move

The size of the earnings-day move the options market is pricing: roughly the at-the-money straddle price ÷ stock price for the first expiry after the print. Magnitude only — it says nothing about direction.

Good / bad: Compare with the realized median move of past prints: implied ÷ realized > 1.2 means the event is expensively insured.
Surfaced by: earnings-preview, options-analysis.

Implied Volatility (IV)

The market’s expected future volatility, baked into option prices. Higher IV = pricier options = bigger expected swings.

Surfaced by: options-analysis.

Initial Jobless Claims

The weekly count of first-time unemployment-insurance filings, released Thursdays at 8:30 am ET. The most timely labour-market gauge, and one of the LEI’s components.

Good / bad: Watch the four-week average: a sustained rise from the low matters; a single spike from a storm or holiday does not.
Surfaced by: economics-analysis. See Lesson 14 → Leading indicators.

Interest Coverage Ratio

How easily operating earnings pay interest. EBIT ÷ Interest Expense (EBITDA ÷ interest is the looser variant).

Good / bad: > 5x safe · 2–5x adequate · < 1.5x danger. credit-check scores EBIT / interest > 15x as strongest and < 1.5x, or three years of decline, as weakest — the trend matters as much as the level.
Surfaced by: credit-check, financial-report-analyst, dividend-analysis, stock-eval.

Intrinsic & Time Value

The two parts of every option premium. Intrinsic value is what the option is worth if exercised now — call: stock − strike; put: strike − stock; never below zero (not the same as a DCF’s intrinsic value). Time value is the rest — the price of the chance it gains before expiry — and decays to zero at expiration.

Good / bad: Time value is largest at the money. A buyer pays it and needs a big enough, fast enough move; a seller collects it.
Surfaced by: options-analysis. See Lesson 15 → Calls, puts, and the contract.

Investment Policy Statement (IPS)

A one-page written contract with yourself: goal, horizon, target allocation with bands, contribution schedule, rebalancing rule, position limits, and the list of things you will not do.

Good / bad: Exists and is reviewed on a date — or does not exist. portfolio-review grades a portfolio against it.
Surfaced by: portfolio-review, thesis-tracker.

ISM PMI

The Institute for Supply Management’s monthly purchasing-managers survey — manufacturing on the first business day, services shortly after — reported as a diffusion index.

Good / bad: > 50 expansion · < 50 contraction; the new-orders component leads the headline. Manufacturing PMI sat below 50 for most of late 2022–2024 without a recession following.
Surfaced by: economics-analysis. See Lesson 14 → Leading indicators.

IV Crush

The sharp drop in implied volatility once an anticipated event — usually earnings — is out, because the uncertainty the options were pricing has been resolved. Front-month IV often falls 30–50% the next day.

Good / bad: A long option loses about vega × the IV drop even with the stock unchanged — why buying calls into earnings can lose money on a correct “beat” call.
Surfaced by: options-analysis, catalyst-calendar. See Lesson 15 → Implied volatility.

IV Rank / IV Percentile

Where current implied volatility sits versus its own past year (0–100). Tells you if options are “expensive” or “cheap” relative to their own history.

Good / bad: high IV rank favors selling premium; low favors buying it.
Surfaced by: options-analysis.

L

LEI (Leading Economic Index)

The Conference Board’s monthly composite of ten forward-looking series — manufacturing hours, jobless claims, orders, building permits, the yield curve, credit, stock prices and consumer expectations.

Good / bad: Three or more consecutive monthly declines, or a year-over-year fall of more than 4%, has historically lined up with recessions — yet it fell for about two years from 2022 with no recession following.
Surfaced by: economics-analysis. See Lesson 14 → Leading indicators.

Limit Order

An order to buy or sell only at a stated price or better. The default order type for an investor: it caps what you pay and cannot fill 2% away in a thin market.

Good / bad: Use limit orders; reserve market orders for the most liquid names during regular hours, if at all.
Surfaced by: position-ladder (rungs are resting limit orders).

Lock-up Expiry

The date — usually 90 to 180 days after an IPO — when insiders and early investors are first allowed to sell. A known, datable overhang of supply.

Good / bad: The larger the share of the float becoming eligible, the larger the risk; check how the stock behaved in the 2–4 weeks around past expiries.
Surfaced by: catalyst-calendar, bear-case, compare, thesis-tracker.

M

MACD (Moving Average Convergence Divergence)

A momentum indicator: the 12-day EMA minus the 26-day EMA, plotted with a 9-day EMA of that line as the signal line; the histogram is the gap between the two.

Good / bad: A cross above the signal line is bullish momentum, below is bearish; a divergence from price is the more useful read. Like every moving average, it lags.
Surfaced by: technical-analysis, chart-master. See Lesson 5 → Technical analysis basics.

Margin of Safety

The discount between a stock’s price and its estimated intrinsic value. The buffer that protects you if your estimate is wrong.

Good / bad: value investors often want 20–40%+ before buying.
Surfaced by: dcf-valuation, stock-eval. See Concepts → Margin of safety.

Market Order

An order to buy or sell immediately at the best available price. Fast, but the fill price is whatever the book offers — costly on illiquid tickers, at the open, or in extended hours.

Good / bad: Avoid unless the stock is deeply liquid and the market is open. See Limit Order.
Surfaced by: —

Maturity Wall

When a company’s debt falls due, set against the cash, undrawn committed revolver and free cash flow available to repay it. Also: refinancing wall.

Good / bad: Window coverage = (Cash + Undrawn revolver + Cumulative FCF) ÷ Maturities: > 2.0× self-funded · 1.0–2.0× manageable · 0.5–1.0× refinancing-dependent · < 0.5× a wall.
Surfaced by: credit-check, bear-case, catalyst-calendar, financial-report-analyst. See Lesson 14 → Credit.

Moat

A durable competitive advantage that protects long-term profits — brand, network effects, switching costs, scale, or patents.

Good / bad: wide > narrow > none. Shows up as persistently high ROIC and stable margins.
Surfaced by: competitor-analysis, stock-eval. See Concepts → Reading a moat.

Moneyness (ITM / ATM / OTM)

Where an option’s strike sits against the stock price. In the money: a call with the strike below the price, or a put with it above — it has intrinsic value. At the money: strike ≈ price. Out of the money: a call above, a put below — the premium is all time value.

Good / bad: Far out-of-the-money options are cheap because they usually expire worthless.
Surfaced by: options-analysis. See Lesson 15 → Calls, puts, and the contract.

N

Net Debt / EBITDA

Leverage measured in years of operating earnings: (Total Debt − Cash & ST Investments) ÷ EBITDA.

Good / bad: Net cash or < 1.0× strong · > 6.0× (or negative EBITDA) weakest in credit-check scoring; on its rating-band guide (gross debt / EBITDA) 2–3× is typical of BBB and 3–4× of BB. Use GAAP EBITDA — “adjusted” EBITDA can flatter it by a turn or more. Utilities and REITs run higher.
Surfaced by: credit-check, stock-eval, financial-report-analyst, dividend-analysis.

O

Open Interest

The number of option contracts outstanding at a strike and expiration — positions opened and not yet closed. Not the same as volume, which counts contracts traded today.

Good / bad: Hundreds of contracts or more is workable; a strike with open interest of a dozen may have no real buyer when you need one.
Surfaced by: options-analysis, short-interest, technical-analysis. See Lesson 15 → Liquidity.

Operating Leverage (DOL)

How much operating income swings for a given change in revenue, because fixed costs do not move with sales. DOL = % Change in Operating Income ÷ % Change in Revenue.

Good / bad: DOL above 3× amplifies both directions — great on the way up, painful in a downturn. Claimed operating leverage should show up as operating-margin expansion.
Surfaced by: stock-eval, financial-report-analyst, stock-valuation.

Overlap (Holdings Overlap)

The share of an ETF that duplicates what you already own, computed as Σ min(weight in ETF, weight in your portfolio) over shared holdings.

Good / bad: < 25% complementary · 25–60% partial · > 60% the same bet in a second wrapper.
Surfaced by: etf-analysis, portfolio-review.

P

P/B (Price-to-Book)

Price relative to accounting net worth. Price ÷ Book Value per Share.

Good / bad: most useful for asset-heavy/financial firms; < 1.0 can mean cheap or troubled.
Surfaced by: stock-valuation.

P/E (Price-to-Earnings)

Price per dollar of earnings. Price ÷ EPS. The most-quoted multiple; compare to the company’s own history and peers, not in isolation.

Good / bad: there is no universal “good” P/E — a 40x grower can be cheaper than a 10x decliner. Pair with growth (see PEG).
Surfaced by: stock-valuation, stock-eval.

P/S (Price-to-Sales)

Price per dollar of revenue. Market Cap ÷ Revenue. Useful for unprofitable or early-stage firms where P/E is meaningless.

Surfaced by: stock-valuation.

PCE / Core PCE

The Bureau of Economic Analysis’s Personal Consumption Expenditures price index, released near month-end. Broader than CPI — it includes spending made on households’ behalf — with shifting weights and a much smaller shelter share. The Fed’s 2% target is defined on PCE; core PCE (excluding food and energy) is its preferred guide to the trend.

Good / bad: Usually a few tenths below CPI. CPI moves the market first; core PCE tells you what the Fed will think.
Surfaced by: economics-analysis, catalyst-calendar. See Lesson 14 → Inflation.

PEG Ratio

P/E adjusted for growth. P/E ÷ Earnings Growth Rate (%). Puts fast and slow growers on the same footing.

Good / bad: ~1.0 fairly priced · < 1.0 potentially cheap · > 2.0 expensive.
Surfaced by: stock-valuation, stock-eval.

Piotroski F-Score

A 0–9 checklist of fundamental health across profitability, leverage/liquidity, and operating efficiency. Each “yes” scores a point.

Good / bad: 7–9 strong · 4–6 middling · 0–3 weak.
Surfaced by: stock-eval, fundamental-analysis.

Porter’s Five Forces

A framework rating industry attractiveness across five pressures: competitive rivalry, supplier power, buyer power, threat of substitutes, threat of new entrants.

Surfaced by: competitor-analysis.

Pre-Mortem

Writing, before you buy, the paragraph that begins “It is twelve months later and this position lost 40% because…”. Forces the most likely failure path into the open while it can still become an invalidation trigger.

Good / bad: Every thesis file should have one.
Surfaced by: thesis-tracker, bear-case.

Process vs. Outcome

The 2×2 that separates a good decision from a good result: good decision / good outcome, good decision / bad outcome (bad luck — keep the process), bad decision / good outcome (the dangerous one — you learn the wrong lesson), bad decision / bad outcome.

Good / bad: Judge yourself on the process column; the market decides the outcome column.
Surfaced by: thesis-tracker (decision log), learning-coach.

Protective Put & Collar

A protective put is buying a put on shares you own — a floor at the strike, for the premium. A collar pays for that put by also selling a call above the price, giving up the upside beyond the call’s strike.

Good / bad: Insurance for a specific risk and window: a put rolled every quarter can cost double-digit percent a year. A collar is cheap because it sells your upside — a fit for a concentrated position you cannot sell yet.
Surfaced by: options-analysis, catalyst-calendar. See Lesson 15 → Protective puts and collars.

Put Option

The right, not the obligation, to sell 100 shares at the strike price until expiration. A long put gains as the stock falls; a short put obliges you to buy at the strike if assigned.

Good / bad: Long puts are insurance; sell puts only cash-secured, on a stock you want to own.
Surfaced by: options-analysis. See Lesson 15 → Calls, puts, and the contract.

Put/Call Ratio

Put volume (or open interest) divided by call volume — a sentiment gauge, read contrarian at the extremes.

Good / bad: < 0.6 complacency (a contrarian warning) · 0.7–1.0 neutral · > 1.3 extreme fear (a contrarian buy signal). For a single stock, an open-interest ratio above 1.5 means heavy hedging or a bearish bet.
Surfaced by: technical-analysis, short-interest, options-analysis. See Lesson 5 → Sentiment and smart-money positioning.

Q

QE / QT (Quantitative Easing / Tightening)

QE: the Fed buys Treasuries and mortgage bonds to push long-term yields down and add liquidity. QT: it lets those bonds run off its balance sheet without replacing them — the reverse, more slowly.

Good / bad: QE has tended to support valuations; QT is a slow extra tightening on top of rate hikes.
Surfaced by: — See Lesson 14 → What the Fed is trying to do.

Qualified Dividend

A dividend taxed at the lower long-term capital-gains rates instead of ordinary rates. Requires an eligible payer and holding the stock more than 60 days in the 121-day window around the ex-dividend date. REIT dividends are generally not qualified.

Good / bad: Qualified → lower tax; non-qualified → ordinary income. US rules; not tax advice.
Surfaced by: tax-lens, dividend-analysis.

Quick Ratio (Acid Test)

Stricter liquidity than current ratio — excludes inventory. (Current Assets − Inventory) ÷ Current Liabilities.

Good / bad: > 1.0 comfortable.
Surfaced by: fundamental-analysis.

R

Residual Income

Earnings above the cost of the equity capital used to produce them. Value is created only when returns exceed the cost of capital.

Surfaced by: stock-valuation.

Reverse DCF

A DCF run backwards: start from today’s price and solve for the growth (or margin) the price requires at your discount rate. It turns “is it cheap?” into “is that much growth plausible?”

Good / bad: Implied growth far above anything the business has achieved = priced for perfection; implied growth below your base case = the price asks for less than the business should deliver.
Surfaced by: bear-case, compare, earnings-preview, learning-coach. See Lesson 12 → What’s priced in.

ROA (Return on Assets)

Profit per dollar of assets. Net Income ÷ Total Assets. How well management uses the asset base.

Good / bad: > 5% solid (industry-dependent).
Surfaced by: fundamental-analysis.

ROE (Return on Equity)

Profit per dollar of shareholder equity. Net Income ÷ Equity. Watch for ROE inflated by heavy debt.

Good / bad: > 15% strong · 10–15% decent · < 10% weak.
Surfaced by: fundamental-analysis, stock-eval.

ROIC (Return on Invested Capital)

The cleanest profitability measure: returns on all capital (debt + equity) put to work. NOPAT ÷ Invested Capital. Compare to WACC — value is created only when ROIC > WACC.

Good / bad: > 15% excellent · 10–15% good · below WACC = destroying value.
Surfaced by: stock-eval, fundamental-analysis, competitor-analysis.

Rule of 40

A shortcut for growth software: revenue growth % + FCF margin % should be at least 40.

Good / bad: ≥ 40 healthy, measured on the SBC-adjusted FCF margin; well below 40 means growth is being bought too expensively, or has stalled.
Surfaced by: stock-eval, financial-report-analyst, compare.

S

Sahm Rule

A real-time recession signal: it triggers when the three-month average unemployment rate rises 0.50 percentage points or more above its lowest three-month average of the prior twelve months.

Good / bad: It flagged every US recession since 1970 — and triggered in August 2024 (the July jobs report) with no recession declared since, partly because the rise came from labour-force growth, not layoffs. A shift in probability, not a verdict.
Surfaced by: economics-analysis, learning-coach. See Lesson 14 → Leading indicators.

Settlement (T+1)

US stock trades settle one business day after the trade date: that is when shares are delivered and cash is final. Selling and immediately re-spending the proceeds can run into settlement rules in cash accounts.

Good / bad: Know when your cash is actually available before placing the next order.
Surfaced by: —

Sharpe Ratio

Risk-adjusted return: excess return per unit of volatility. (Return − Risk-free Rate) ÷ Std Dev.

Good / bad: > 1 good · > 2 very good · < 1 weak.
Surfaced by: portfolio-review.

Short Float (Short Interest %)

Percent of freely tradable shares sold short. Shares Short ÷ Float.

Good / bad: > 10% elevated · > 20% high (crowded short, squeeze potential).
Surfaced by: short-interest.

Sortino Ratio

Like the Sharpe ratio, but penalizes only downside volatility: (Return − Risk-free) ÷ Downside deviation. Rewards portfolios whose swings are mostly upward.

Good / bad: > 1 acceptable · > 2 strong. Compare against a benchmark over the same period.
Surfaced by: portfolio-review, risk-stress-test.

Specific Identification (Lot Selection)

Choosing which shares (tax lot) you sell — instead of the broker’s default, usually FIFO. Must be designated at or before the trade. Lets you pick the lot that produces the gain or loss you want.

Good / bad: Almost always better than FIFO for a partial sale of a long-held winner. US rules; not tax advice.
Surfaced by: tax-lens, position-ladder.

Stock-Based Compensation (SBC)

Pay in shares or options instead of cash. A real cost — it dilutes owners — but excluded from non-GAAP earnings and added back in operating cash flow, so it flatters both.

Good / bad: As % of revenue: < 5% normal · 5–15% material — value FCF on the SBC-adjusted line, FCF − SBC · > 15% severe. Buybacks that only offset SBC are compensation paid in cash.
Surfaced by: forensic-accounting, stock-eval, financial-report-analyst, stock-valuation, bear-case.

Strike Price

The fixed price at which an option can be exercised — what a call holder pays for the shares, or a put holder receives for them. Its distance from the stock price sets the option’s moneyness.

Surfaced by: options-analysis. See Lesson 15 → Calls, puts, and the contract.

Support & Resistance

Price levels where buying (support) or selling (resistance) has historically clustered. Breaks of these levels are technical signals.

Surfaced by: technical-analysis.

T

Tax-Loss Harvesting

Selling a position at a loss to offset realized gains (and up to a small amount of ordinary income), then holding a similar but not substantially identical replacement for 31 days to avoid a wash sale.

Good / bad: Defers tax, does not eliminate it — the replacement’s basis is lower. US rules; not tax advice.
Surfaced by: tax-lens, portfolio-review.

Terminal Value

In a DCF, the value of all cash flows beyond the explicit forecast period — often 60–80% of the total. Highly sensitive to the assumed perpetual growth rate.

Surfaced by: dcf-valuation. See Concepts → How intrinsic value works.

Theta

How much value an option loses each day from the passage of time, all else equal. Decay accelerates in the last weeks before expiration.

Good / bad: It works for the seller and against the buyer — a buyer needs the move to come soon.
Surfaced by: options-analysis. See Lesson 15 → The Greeks.

Tracking Difference

A fund’s actual return minus its index’s return over a period. For a well-run index fund it is roughly −(expense ratio); anything worse is a gap to explain.

Good / bad: ≈ −ER is fine · a gap beyond −(ER + 0.10%)/yr is a flag. Not the same as tracking error.
Surfaced by: etf-analysis.

Tracking Error

The volatility of the difference between a fund’s returns and its index’s returns — how consistently it tracks, not how much it lags. Low tracking error with a large tracking difference means a fund that reliably underperforms.

Good / bad: < 0.10% annualized for a physical broad-market ETF is tight.
Surfaced by: etf-analysis.

U

UCITS ETF

An ETF domiciled in the EU (most often Ireland) under the UCITS framework. For non-US investors it typically means 15% fund-level US withholding under the US–Ireland treaty, accumulating share classes, and no US estate-tax exposure — at a slightly higher fee and wider spreads. US persons should not buy them (PFIC rules).

Good / bad: Often wins after tax for a no-treaty investor despite the higher TER. Not tax advice.
Surfaced by: tax-lens --non-us, etf-analysis.

V

VaR / CVaR (Value at Risk / Conditional VaR)

VaR: the loss you would not expect to exceed over a horizon at a confidence level (e.g. 95%, one month). CVaR (expected shortfall): the average loss in the cases beyond VaR — the tail VaR ignores.

Good / bad: Parametric VaR assumes normal returns and understates crashes; trust the historical scenario replay when they disagree.
Surfaced by: risk-stress-test.

Vega

How much an option’s price changes for a one-point move in implied volatility. Long options gain when IV rises and lose when it falls.

Good / bad: It explains IV crush: a vega of $0.07 with IV falling 30 points costs about $2.10, with the stock unchanged.
Surfaced by: options-analysis. See Lesson 15 → The Greeks.

VIX

The Cboe Volatility Index — the 30-day implied volatility of S&P 500 options, often called the market’s “fear gauge”.

Good / bad: Under ~20 calm · 20–30 elevated · above 30 stress (a review trigger in risk-stress-test); it closed above 80 in March 2020. It measures expected movement, not direction, and spikes are usually short.
Surfaced by: economics-analysis, risk-stress-test, options-analysis.

W

W-8BEN

The IRS form a non-US individual gives a broker to certify non-US status and claim any treaty rate on US-source income. Generally valid through the end of the third calendar year after signing; an expired form means statutory withholding.

Good / bad: On file and current — or 30% (and possibly backup withholding). Not tax advice.
Surfaced by: tax-lens --non-us.

WACC (Weighted Average Cost of Capital)

The blended required return on a company’s debt and equity — the discount rate in a DCF. (E/V × Cost of Equity) + (D/V × Cost of Debt × (1−tax)).

Good / bad: not good/bad — it’s the hurdle. A small WACC change swings intrinsic value a lot.
Surfaced by: dcf-valuation.

Wash Sale

A loss that is disallowed for US tax because the same or a substantially identical security was bought within 30 days before or after the sale (a 61-day window) — in any of your accounts, including DRIP purchases and IRAs. The loss is added to the replacement shares’ basis, not lost.

Good / bad: Check the window before every loss sale. US rules; not tax advice.
Surfaced by: tax-lens, position-ladder.

Whisper Number

The unofficial, buy-side expectation for a company’s results — usually above the published consensus for a stock that has been running. The bar the stock actually trades against. Always an estimate; label its source.

Good / bad: A large whisper gap over consensus is how a headline “beat” becomes a drop.
Surfaced by: earnings-preview.

Withholding Tax

Tax taken out of a dividend before it reaches the investor. For a non-US holder of US stocks the statutory rate is 30%, reduced only by an income-tax treaty claimed on a W-8BEN (Taiwan, Hong Kong, and Singapore have no US treaty). A 3.0% gross yield is 2.1% net at 30%.

Good / bad: The single largest tax cost for most non-US dividend investors. Not tax advice.
Surfaced by: tax-lens --non-us, dividend-analysis.

Y

Yield Curve / Inversion

Treasury yields plotted by maturity, normally sloping upward. The curve is inverted when short-term yields exceed long-term ones — watched as the 10-year minus 2-year (“2s10s”) and 10-year minus 3-month spreads.

Good / bad: A 10y−3m inversion preceded every US recession since the late 1960s, with a 6–24-month lag; the re-steepening is often the nearer warning. The 2022–2024 inversion — the longest on record for 2s10s — has not been followed by a declared recession. A probability dial, not a timer.
Surfaced by: economics-analysis, sector-analysis. See Lesson 14 → The yield curve.

Yield Trap

A stock with a tempting dividend yield that is unsustainable — the market has priced in a coming cut. Spotted via payout ratio > 100%, falling FCF, or rising debt.

Surfaced by: dividend-analysis. See Use Cases → The dividend investor.

See also: Concepts for the mental models behind these metrics · Choose a Skill to find the right framework · Data & Accuracy for how to trust the numbers.

Educational reference only. Not financial advice.

A