What to buy?
| Fundamental Analysis | A method of assessing the intrinsic value of a stock. It combines financial statements, external influences, events, and industry trends. It is important to note that the intrinsic value or a fair value of a stock does not change overnight. |
| Market Capitalization | Multiply the total number of outstanding shares by the value-per-share on the stock market. For example, a company with 100 million shares, trading at $5 a share, has a market cap of $500 million. |
| Micro-cap | A micro-cap is a stock with a market cap of between $50 million and $300 million. Micro-cap stocks tend to have greater volatility, thus are inherently riskier, than larger-cap stocks. |
| Small-cap | A small-cap stock is a stock from a public company whose total market value, or market capitalization, is about $250 million to $2 billion. |
| Mid-cap | A Mid-cap: market value between $2 billion and $10 billion. |
| Large-cap | A large-cap: market value between $10 billion and $200 billion. |
| Mega-cap | A mega-cap: market value of $200 billion or more. |
| Balance Sheet | A financial statement that contains details of a company’s assets or liabilities at a specific point in time. It is one of the three core financial statements (income statement and cash flow statement being the other two) used for evaluating the performance of a business. |
| Generally Accepted Accounting Principles (GAAP) | Calls for accounts to be listed in the order of liquidity—or how quickly and easily they can be converted to cash. The items are arranged in descending order (most liquid to least liquid): current assets, non-current assets, current liabilities, non-current liabilities, and owners’ equity. |
| Non-GAAP | Figures usually exclude irregular or non-cash expenses, such as those related to acquisitions, restructuring, or one-time balance sheet adjustments. |
| Price-earnings ratio (PE ratio) | Calculated by dividing the market value price per share by the company’s earnings per share. A high P/E ratio can mean that a stock’s price is high relative to earnings and possibly overvalued. A low P/E ratio might indicate that the current stock price is low relative to earnings. |
| Earnings before interest, taxes, depreciation, and amortization (EBITDA) | Reflects a company’s short-term operational efficiency. EBITDA is useful when comparing companies with different capital investment, debt, and tax profiles. Quarterly earnings press releases often cite EBITDA |
| Return on Equity (ROE) | Measures how efficiently a company is generating income from the equity investments of its shareholders. Calculated using Net Income / Shareholder’s Equity. |
| Return on Capital (ROC) | Measure of the profitability and value-creating potential of companies relative to the amount of capital invested by shareholders and other debtholders. |
| Operating Expense (OpEx) | An expense that a business incurs through its normal business operations. Operating expenses include rent, equipment, inventory costs, marketing, payroll, insurance, step costs, and funds allocated for research and development. |
| Gross Margin | The portion of a company’s revenue left over after direct costs are subtracted. Gross margin is one of the most important indicators of a company’s financial performance. It’s the portion of business revenue left over after you subtract direct costs, such as labor and raw materials. |
| 10Q Report | A comprehensive report of financial performance that must be submitted quarterly by all public companies.
In the 10-Q, firms are required to disclose relevant information regarding their finances related to their business operations. The 10-Q is generally an unaudited report. A 10-Q must be filed for each of the first three quarters of the company’s fiscal year. |
| 10K Report | A comprehensive report filed annually by a publicly-traded company about its financial performance. The report contains much more detail than a company’s annual report, which is sent to its shareholders before an annual meeting to elect company directors.
Some of the information a company is required to document in the 10-K includes its history, organizational structure, financial statements, earnings per share, subsidiaries, executive compensation, and any other relevant data. The SEC requires this report to keep investors aware of a company’s financial condition and to allow them to have enough information before they buy or sell shares in the corporation, or before investing in the firm’s corporate bonds. |