Financial Terms
Understand essential investment terms and concepts simply.
123 terms found
52-Week Range
The lowest and highest price a share traded at over the past year. It shows where today's price sits between its recent extremes.
Active Investing
An investment strategy that involves frequent buying and selling to outperform the market, typically requiring more research, time, and higher fees.
Adjusted (Non-GAAP) Earnings
Earnings with one-off and non-cash items - such as restructuring costs or stock-based pay - taken out. Analyst estimates are usually set on this basis; the official (GAAP) figure can differ a lot.
ADR (American Depository Receipt)
A certificate issued by a U.S. bank representing shares of a foreign company, allowing investors to buy foreign stocks through U.S. exchanges in dollars.
Alpha
A measure of an investment's performance compared to a benchmark index. Positive alpha indicates the investment outperformed the market; negative alpha means it underperformed.
Analyst Price Target
The price an analyst expects a share to reach, usually within 12 months. Invesumo shows the median of the published targets, with the lowest and the highest.
Annual Return
The percentage change in an investment's value over a one-year period, including both price appreciation and income.
Asset Allocation
The strategy of dividing investments among different asset categories (stocks, bonds, cash) to balance risk and reward based on goals and risk tolerance.
Backtesting
The process of testing an investment strategy using historical data to see how it would have performed in the past. Helps evaluate strategy effectiveness before risking real money.
Bear Market
A market condition where prices fall 20% or more from recent highs, typically accompanied by widespread pessimism.
Benchmark
A standard index (like S&P 500 or XU100) used to measure the performance of an investment portfolio or individual security.
Beta
How much a stock tends to move with the market. A beta of 1 moves in line with it, 2 roughly twice as much, and below 1 more calmly.
Blue-Chip Stocks
Shares of large, well-established, and financially stable companies with a history of reliable performance and often paying dividends.
Bonds
Fixed-income securities representing loans made by investors to borrowers (typically governments or corporations) that pay regular interest.
Book Value
What a company owns minus what it owes, as shown in its accounts - in theory, what shareholders would get if everything were sold at those values.
Broad Market ETF
An exchange-traded fund that tracks a wide market index (like the total stock market or S&P 500), providing instant diversification across hundreds or thousands of companies in a single investment.
Bull Case and Bear Case
The optimistic and the pessimistic outcome for a stock: what has to go right or wrong, and the price range each points to. They are possibilities, not forecasts.
Bull Market
A market condition characterized by rising prices and investor optimism, typically with a 20% or more increase from recent lows.
CAGR (Compound Annual Growth Rate)
The mean annual growth rate of an investment over a specified period longer than one year, assuming profits are reinvested. It smooths out returns to show the rate at which an investment would have grown if it grew at a steady rate.
Capital Gains
The profit earned when an investment is sold for more than its purchase price.
Capital Preservation
An investment strategy focused on protecting the original investment amount from loss, prioritizing safety over high returns.
Commodities
Physical goods like gold, silver, oil, or agricultural products that can be traded on exchanges, often used as inflation hedges or portfolio diversifiers.
Compound Interest
Interest calculated on both the initial principal and the accumulated interest from previous periods, causing wealth to grow exponentially over time.
Compounding
The process where investment returns generate their own returns over time, creating exponential growth. Often called the "eighth wonder of the world."
Consensus Estimate
The average of analysts' forecasts for a company's revenue or earnings in a coming quarter or year.
Cost Basis
What you paid for an investment, including fees. Your gain or loss is measured from it. Invesumo's ledger keeps it at the exchange rate of the purchase date.
Currency Risk
The chance that exchange-rate moves change what an investment is worth in your own currency. A US stock can rise in dollars and still lose value in lira or euros, or the other way round.
Cyclical Stock
A company whose profits rise and fall with the economy or with a commodity price - chipmakers, steelmakers, airlines, oil producers. Its earnings at a peak overstate what it usually earns.
Diversification
The practice of spreading investments across various assets to reduce risk by not putting all eggs in one basket.
Dividend
A portion of a company's earnings distributed to shareholders, usually paid quarterly in cash or additional shares.
Dividend Reinvestment (DRIP)
A strategy of automatically using dividend payments to purchase additional shares of the same stock, accelerating the power of compound growth.
Dividend Yield
The annual dividend payment divided by the stock price, expressed as a percentage. A key metric for evaluating income-generating investments.
Dollar Cost Averaging (DCA)
An investment strategy of regularly investing a fixed amount regardless of market conditions, reducing the impact of volatility.
Drawdown
The fall from a peak to the low that follows it, as a percentage. The maximum drawdown is the worst such fall over a period - how far down you would have been at the worst moment.
Earnings Beat and Miss
Whether a company's reported earnings per share came in above the consensus estimate (a beat) or below it (a miss), and by how much.
Earnings Per Share (EPS)
A company's net profit divided by its number of outstanding shares, used to measure profitability on a per-share basis.
EBITDA
Earnings before interest, taxes, depreciation and amortization: a rough measure of the profit from operations, used to compare companies with different debts and tax rates.
Emergency Fund
A cash reserve set aside to cover unexpected expenses or financial emergencies, typically 3-6 months of living expenses.
Emerging Markets
Developing countries with growing economies and financial markets, such as China, India, Brazil, and Turkey. They offer higher growth potential but also higher volatility and risk than developed markets.
Enterprise Value (EV)
A company's market value plus its debt minus its cash: roughly what it would cost to buy the whole business.
ETF (Exchange-Traded Fund)
A type of investment fund that trades on stock exchanges and typically tracks an index, commodity, or basket of assets.
EV/EBITDA
Enterprise value divided by EBITDA. Unlike P/E it counts a company's debt, so companies financed in different ways can be compared.
Expense Ratio
The annual fee charged by mutual funds or ETFs, expressed as a percentage of your investment.
Fair Value
An estimate of what a share is worth, worked out from the company's figures rather than its price. Invesumo combines several valuation methods suited to the kind of company; when they disagree widely, it says the value is uncertain. It is a model's estimate, not a price target.
Fiscal Year and Quarter
The 12-month accounting period a company reports on. It need not follow the calendar: NVIDIA's fiscal year ends in January, so its quarter labels differ from the calendar's.
Forward P/E
The share price divided by the earnings per share analysts expect over the next year. It sits below the trailing P/E when profits are expected to grow.
Fractional Shares
A portion of a whole share of stock, allowing investors to buy expensive stocks with smaller amounts of money.
Free Cash Flow
The cash a business generates after paying for its operations and its investment in equipment and buildings. It is what is available to repay debt, pay dividends or buy back shares.
Fund Category
A group of funds that invest the same way, such as large-company growth or short-term bonds. Comparing a fund with its category average shows whether it did better or worse than similar funds.
Geographic Diversification
Spreading investments across different countries and regions to reduce risk from any single economy. This can include domestic, international developed, and emerging market investments.
Golden Cross and Death Cross
When the 50-day moving average crosses above the 200-day one (golden cross), it is read as bullish; when it crosses below (death cross), as bearish.
Gross Margin
Revenue minus the direct cost of making what was sold, as a percentage of revenue. A high gross margin means each sale leaves a lot over to pay for everything else.
Growth Stocks
Shares of companies expected to grow at an above-average rate compared to other companies, typically reinvesting earnings rather than paying dividends.
Holdings
The individual securities a fund owns. The top holdings and their share of total assets show how concentrated the fund is.
Index Fund
A mutual fund or ETF designed to track the performance of a specific market index like the S&P 500.
Inflation
The rate at which the general level of prices for goods and services rises, eroding purchasing power over time.
Inflation Hedge
An investment that tends to maintain or increase its value during periods of inflation, protecting purchasing power. Common hedges include gold, real estate, commodities, and inflation-protected securities.
Investment Goal
A specific financial objective you want to achieve through investing, such as retirement, buying a house, or education funding.
Investment Projection
An estimate of future investment value based on assumptions about returns, contributions, and time horizon. Projections help visualize potential outcomes but are not guarantees of future performance.
Investor Profile
Your answers about age, amount, time horizon, risk tolerance, goal and income stability. Invesumo uses them to suggest scenarios and to weigh recommendations for you.
Liabilities
What you owe, such as a mortgage, a loan or a credit card balance. Net worth is what you own minus your liabilities.
Liquidity
The ease with which an asset can be quickly converted to cash without significantly affecting its price.
Lump Sum Investment
Investing a large amount of money all at once, as opposed to spreading investments over time (dollar cost averaging). Can be more effective in rising markets but carries higher timing risk.
MACD
Moving Average Convergence Divergence: the gap between a 12-day and a 26-day average price, compared with its own 9-day average, the signal line. MACD above its signal line is read as strengthening momentum.
Market Capitalization
The total market value of a company's outstanding shares, calculated by multiplying share price by total shares outstanding.
Market Correction
A decline of 10% or more in a stock, index, or market from its recent high, often seen as a healthy adjustment in overvalued markets.
Market Index
A statistical measure of change in a securities market, tracking the performance of a specific group of stocks (e.g., S&P 500, BIST 100).
Momentum
The tendency of a rising price to keep rising for a while, and of a falling one to keep falling. Measured with indicators such as RSI and MACD.
Money Market Fund
A type of mutual fund that invests in short-term, high-quality debt securities. It offers high liquidity and low risk, making it suitable for emergency funds or short-term savings.
Moving Average (MA)
The average closing price over the last N days - typically 20, 50 or 200 - recalculated every day. A price above its 200-day average is usually read as a long-term uptrend.
Mutual Fund
An investment vehicle that pools money from multiple investors to purchase a diversified portfolio of stocks, bonds, or other securities.
Net Asset Value (NAV)
The value of everything a fund owns minus what it owes, divided by its number of shares. An ETF's market price usually stays close to it.
Net Assets (AUM)
The total value of the money a fund manages. Larger funds tend to be easier to trade and cheaper to own.
Net Income
What is left of revenue after every cost, interest payment and tax: the company's profit. Also called the bottom line.
Net Profit Margin
Net income as a percentage of revenue: how much of each sale the company keeps as profit.
Net Worth
The total value of all assets (savings, investments, property) minus all liabilities (debts, loans), representing overall financial health.
Nominal Return
The rate of return on an investment before adjusting for inflation. While it shows the raw growth percentage, it doesn't reflect the actual increase in purchasing power.
Operating Margin
Profit from the core business - after running costs such as salaries and research, but before interest and tax - as a percentage of revenue.
OTC (Over-the-Counter) Market
A decentralized market where securities are traded directly between parties rather than on a formal exchange, often including smaller or foreign companies.
Overbought and Oversold
A price that has risen (or fallen) so fast that a pause or pullback is more likely, usually judged with RSI. It describes speed, not value.
Passive Income
Earnings generated from investments with minimal ongoing effort, such as dividends, interest, or rental income from real estate investments.
Passive Investing
An investment strategy that aims to match market returns by tracking an index, rather than trying to beat the market through active trading.
Peers
Companies of the same kind in the same industry. Comparing a company with its peers shows whether its valuation, growth and margins are high or low.
PEG Ratio
The P/E ratio divided by the expected annual earnings growth. Around 1 is often read as fairly priced for its growth - but it is only as good as the growth forecast.
Portfolio
A collection of financial investments like stocks, bonds, cash equivalents, and other assets held by an individual or institution.
Price-to-Book (P/B)
Market value divided by book value. Most telling for banks and asset-heavy businesses, whose value sits largely on the balance sheet.
Price-to-Earnings Ratio (P/E)
A valuation metric calculated by dividing a stock's price by its earnings per share, indicating how much investors pay for each dollar of earnings.
Price-to-Sales (P/S)
Market value divided by revenue. Useful for companies that are not yet profitable, where a P/E cannot be calculated.
Principal
The original amount of money invested or borrowed, before any interest, dividends, or returns are added.
Purchasing Power
The real value of money in terms of what it can buy. Inflation erodes purchasing power over time, which is why investments should aim to beat inflation to maintain or grow real wealth.
Real Return
The annual percentage return on an investment adjusted for inflation, representing the actual increase in purchasing power.
Realized and Unrealized Gain
An unrealized gain is the profit on paper on something you still hold; it becomes realized when you sell. Only a realized gain is locked in.
Rebalancing
The process of realigning the weightings of a portfolio by periodically buying or selling assets to maintain the desired asset allocation.
Recommendation (Buy, Hold, Avoid)
The call at the top of a Samurai report: Buy, Accumulate, Hold, Watch, Reduce, Sell or Avoid. It is calculated from five scored pillars - valuation, analysts, quality, growth and momentum - weighted for your investor profile. It is not investment advice.
REIT (Real Estate Investment Trust)
A company that owns, operates, or finances income-producing real estate. REITs allow investors to invest in real estate without buying property directly, and typically pay high dividends.
Retirement Account
Tax-advantaged investment accounts designed for long-term retirement savings, such as 401(k), IRA, or pension plans.
Return on Assets (ROA)
Net income divided by total assets: how much profit a company makes from everything it owns.
Return on Equity (ROE)
Net income divided by shareholders' equity: how much profit a company makes with the money its owners have put in.
Revenue
The money a company brings in from selling its products and services, before any costs are taken off. Also called sales or the top line.
Risk Capacity vs. Risk Willingness
Risk capacity is how much risk you can financially afford to take (based on time horizon, income stability, and financial cushion). Risk willingness is how much volatility you can emotionally handle. Both should align for a suitable investment strategy.
Risk Tolerance
An investor's ability and willingness to endure declines in the value of their investments in pursuit of higher potential returns.
Risk-Adjusted Return
A measure of investment return that accounts for the level of risk taken to achieve that return, helping compare investments with different risk profiles.
ROI (Return on Investment)
A performance measure used to evaluate the efficiency of an investment, calculated as (gain - cost) / cost × 100%.
RSI (Relative Strength Index)
A 0-100 gauge of how strongly a price has moved over the last 14 days. Above 70 is usually called overbought, below 30 oversold.
Sector
A group of companies in the same business or industry (e.g., technology, healthcare, finance) used to categorize investments.
Stock Market
A marketplace where shares of publicly held companies are issued, bought, and sold through exchanges or over-the-counter markets.
Stock Split
A corporate action that increases the number of shares while proportionally reducing the price per share, making the stock more accessible without changing the company's market value.
Stocks
Shares representing ownership in a corporation, entitling the holder to a portion of the company's assets and earnings.
Style Box
A 3x3 grid showing where a fund's holdings sit: by company size and investment style (value, blend, growth) for a stock fund, or by credit quality and interest-rate sensitivity for a bond fund.
Support and Resistance
Price levels where a stock has repeatedly stopped falling (support) or stopped rising (resistance). A clear break through either is watched as the start of a new move.
Thematic Investing
Investing around one idea - such as AI infrastructure, space or energy - across the companies that stand to benefit, from established leaders to smaller, faster-growing names.
Ticker Symbol
A unique series of letters assigned to a security or company for trading purposes (e.g., AAPL for Apple, SPY for an S&P 500 ETF). Outside the US a suffix names the exchange: THYAO.IS is Turkish Airlines in Istanbul, ASML.AS is ASML in Amsterdam - the same letters can mean different companies on different exchanges.
Time Horizon
The length of time an investor expects to hold an investment before taking the money out, which influences investment strategy and risk tolerance.
Total Return
The actual rate of return on an investment, including both capital appreciation and income from dividends or interest.
Trading Volume
How many shares changed hands in a day. A price move on high volume is taken more seriously than one on thin trading.
TTM (Trailing Twelve Months)
The total of the last four reported quarters. It gives a full-year view without waiting for the annual report.
Value Stocks
Shares of companies trading below their intrinsic value, often paying dividends and considered undervalued by the market.
Volatility
The degree of variation in the price of an investment over time, often used as a measure of risk.
Withdrawal Rate
The percentage of a portfolio withdrawn annually during retirement, commonly 4% is considered sustainable (the 4% rule).
XIRR (Extended Internal Rate of Return)
A method for calculating the rate of return on investments with irregular cash flows (like monthly contributions). Unlike simple returns, XIRR accounts for the timing of each deposit or withdrawal.
Year over Year (YoY)
A comparison with the same period a year earlier - this quarter's revenue against the same quarter last year - which removes seasonal swings.
Year to Date (YTD)
The period from 1 January to today. A YTD return is how much an investment has changed since the year began.
Yield
The income return on an investment, such as the interest or dividends received, expressed as a percentage of the investment's cost or current value.
These definitions are simplified for educational purposes. Investment concepts may vary based on context and specific circumstances.
Last updated: January 2025