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Beginner investor glossary
Phrases used in investment analysis
Boago Sephutho
September 24, 2025
Good morning 😃🌞☀️, let’s get into it!
We have analyzed 7 companies examining whether they’re good for investing or not, whether dividend investing or value investing is good for any of them. Now there are some words that may be too difficult to understand for you, but let’s break those words down so that when you review the 7 companies, you will understand better.
This is your investor dictionary so, let’s take a look
1. EPS (Earnings Per Share)
What it is: Company profit ÷ number of shares.
Why it matters: Shows how much profit belongs to each share. Rising EPS usually means the company is getting more profitable.
2. P/E Ratio (Price-to-Earnings Ratio)
What it is: Share price ÷ EPS.
Why it matters: Tells you how expensive a stock is compared to its earnings.
High P/E → Investors expect strong growth.
Low P/E → Could be undervalued, or the market thinks growth is weak.
3. Valuation
What it is: Estimating how much a company is worth.
Why it matters: Helps you decide if a stock is cheap or expensive.
4. Dividend Yield
What it is: Annual dividend ÷ share price.
Why it matters: Shows how much cash return (as % of share price) you get if you hold the stock.
5. Dividend Payout Ratio
What it is: % of profits paid out as dividends.
Why it matters: High payout means less reinvestment, but more income for shareholders. Low payout means growth focus.
6. Free Cash Flow (FCF)
What it is: Cash left after running the business and paying for equipment/stores.
Why it matters: Shows how much money is available for dividends, debt repayment, or reinvestment.
7. Working Capital
What it is: Current assets (cash, stock, receivables) – current liabilities (bills, short-term loans).
Why it matters: Measures whether a company can pay short-term bills.
8. Balance Sheet
What it is: A snapshot of assets, liabilities, and equity at a point in time.
Why it matters: Healthy balance sheets = more safety in downturns.
9. Debt-to-Equity Ratio (Leverage)
What it is: Total debt ÷ shareholder equity.
Why it matters: Shows how much a company relies on borrowing. High leverage = riskier.
10. Lease Liabilities
What it is: Obligations to pay rent/leases for stores or warehouses.
Why it matters: Like debt, these payments must be made even if sales drop.
11. Net Asset Value (NAV) / Book Value
What it is: Total assets – total liabilities.
Why it matters: Roughly what the company would be worth if sold off.
12. Price-to-Book (P/B) Ratio
What it is: Share price ÷ book value per share.
Why it matters: P/B < 1 may mean undervalued, but depends on asset quality.
13. Return on Equity (ROE)
What it is: Net profit ÷ equity.
Why it matters: Shows how effectively management is using shareholders’ money.
14. Gross Margin
What it is: (Sales – cost of goods) ÷ sales.
Why it matters: High margin means more profit per item sold. Low margin means heavy competition/discounting.
15. Operating Margin
What it is: Operating profit ÷ sales.
Why it matters: Shows efficiency after paying wages, rent, etc.
16. Liquidity
What it is: How easily a company can pay its short-term obligations.
Why it matters: Strong liquidity reduces bankruptcy risk.
17.Capital Allocation
What it is: How management uses profits (dividends, reinvestment, debt paydown, acquisitions).
Why it matters: Smart allocation = long-term wealth creation.
18. Market Capitalization (Market Cap)
What it is: Share price × number of shares.
Why it matters: Tells you the total “value” investors put on a company in the stock market.
19. Enterprise Value (EV)
What it is: Market cap + debt – cash.
Why it matters: More complete measure of company value (what it’d cost to buy the whole business, including debt).
20. Risk Factors
What it is: Things that could hurt the company’s performance (economic downturn, competition, regulations).
Why it matters: Helps you judge how stable or fragile the investment is.
Sources
Mergers&Inquisitions.com