Investing Glossary

The inverse of the P/E ratio — earnings as a percentage of the share price. Allows direct comparison between stocks and bonds.

Enterprise value divided by EBITDA. The preferred valuation multiple in M&A and institutional analysis — and a more complete measure than the P/E ratio.

What a business is actually worth, calculated from its fundamentals — independent of what the market is currently pricing. The central concept in value investing.

The ratio of a company's market value to its net assets. Essential for banks and asset-heavy businesses; less useful for asset-light compounders.

What the market is willing to pay for £1 of a company's annual earnings. The most-cited valuation metric in equity analysis.

Market value divided by annual revenue. The valuation metric of last resort — most useful for pre-profit companies and fast-growing sectors.

Money spent to acquire, maintain, or upgrade physical assets. The difference between CapEx and earnings is what separates cash-generative businesses from capital traps.

The share of a company's profit attributable to each ordinary share. The denominator in the P/E ratio and the foundation of most equity valuation.

Earnings before interest, taxes, depreciation, and amortisation. A widely used — and widely misunderstood — proxy for operating cash generation.

The cash a business generates after paying to maintain and grow its physical assets. Often called the most honest number in a company's accounts.

The percentage of revenue left after the direct cost of producing goods or delivering services. The first and most fundamental test of a business's economics.

The total market value of a company's outstanding shares. The most basic measure of a company's size — and widely misunderstood as a measure of value.

The percentage of revenue that becomes net profit after all costs — including interest and tax. The bottom-line measure of overall business profitability.

The percentage of revenue that becomes operating profit after running costs but before interest and tax. A core measure of business efficiency and pricing power.

How many times a company's earnings cover its dividend payment. The primary test of whether a dividend is sustainable.

The annual income a stock pays as a percentage of its current share price. The primary measure of a stock's income return.

The date from which a buyer of shares is no longer entitled to receive the next dividend payment. Essential knowledge for income investors.

A sustainable competitive advantage that protects a business's market position and profitability from competitors — the single most important qualitative factor in long-term equity analysis.

The profit a business generates for every pound of capital invested in it. The UK analyst's favourite quality metric.

Net profit as a percentage of shareholders' equity. The primary measure of how efficiently management generates returns for the owners of the business.

The net accounting value of a company's assets — what shareholders would theoretically receive if the business were wound up today and all debts paid.

The ratio of financial debt to shareholders' equity. A measure of leverage and financial risk — how much of the business is funded by debt versus by owners' capital.

Total borrowings minus cash and liquid assets. The clearest single measure of a company's balance sheet health.

The capital tied up in the day-to-day operations of a business — inventory, receivables, and payables. Often the hidden drain on cash that earnings statements miss.

When a company uses its cash to repurchase its own shares from the market, reducing the total share count and increasing earnings per share for remaining holders.

A measure of how much a stock moves relative to the overall market. Beta of 1.0 moves with the market; above 1.0 amplifies it; below 1.0 dampens it.