# Financial 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](#a) · [B](#b) · [C](#c) · [D](#d) · [E](#e) · [F](#f) · [G](#g) · [I](#i) · [M](#m) · [P](#p) · [Q](#q) · [R](#r) · [S](#s) · [T](#t) · [W](#w) · [Y](#y) --- ## A ### 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`. ### 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`. ### 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`. --- ## B ### 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`. ### 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`. --- ## 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`. ### 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](concepts.html#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`. ### 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](#yield-trap). - **Surfaced by:** `dividend-analysis`. --- ## 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`. ### EPS (Earnings Per Share) Net income attributable to each share. `Net Income ÷ Shares Outstanding`. "Diluted EPS" includes options/convertibles. - **Surfaced by:** nearly every fundamental skill. ### 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`. --- ## 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`. --- ## G ### 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`. ### 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). - **Surfaced by:** `options-analysis`. --- ## I ### Implied Volatility (IV) The market's expected future volatility, baked into option prices. Higher IV = pricier options = bigger expected swings. - **Surfaced by:** `options-analysis`. ### 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`. ### Interest Coverage Ratio How easily operating earnings pay interest. `EBIT ÷ Interest Expense`. - **Good / bad:** > 5x safe · 2–5x adequate · < 1.5x danger. - **Surfaced by:** `financial-report-analyst`, `dividend-analysis`. --- ## M ### 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](concepts.html#margin-of-safety--position-sizing). ### 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](concepts.html#reading-a-moat). --- ## 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`. ### 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`. --- ## Q ### 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`. ### 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`. --- ## S ### 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`. ### 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 ### 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](concepts.html#how-intrinsic-value-works). --- ## W ### 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`. --- ## Y ### 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](use-cases.html#the-dividend--income-investor). --- > **See also:** [Concepts](concepts.html) for the mental models behind these metrics · [Choose a Skill](choose-a-skill.html) to find the right framework · [Data & Accuracy](data-and-accuracy.html) for how to trust the numbers. *Educational reference only. Not financial advice.*