Financial terms, explained simply
Plain-language definitions of the financial metrics and ratios used in stock analysis. No jargon, no assumptions about what you already know.
Valuation
DCF (Discounted Cash Flow)
A valuation model that estimates what a stock may be worth based on projected future cash flows, discounted back to their present value using a discount rate.
One of the most widely used valuation frameworks. StockFind uses DCF for technology, consumer, and growth companies.
Intrinsic Value
A model-based estimate of what a stock may be worth based on fundamental analysis. Results depend on the assumptions used and the valuation model selected.
Comparing a model estimate to the current market price can indicate whether a stock is trading above or below the model's output. This is not a guarantee of future performance.
Market Capitalisation
The current share price multiplied by the total number of shares outstanding. Represents the market's total valuation of a company.
Used to classify companies by size (large-cap, mid-cap, small-cap) and compare relative valuations within a sector.
P/B Ratio (Price-to-Book)
Stock price divided by book value per share. Compares what the market is willing to pay versus the company's accounting value.
Often used for asset-heavy industries like banking and real estate. A P/B below 1.0 may indicate the stock trades below its book value.
P/E Ratio (Price-to-Earnings)
Stock price divided by earnings per share. One of the most common measures of how much investors pay per dollar of earnings.
Useful for comparing valuations across companies in the same sector. A higher P/E may indicate higher growth expectations.
P/S Ratio (Price-to-Sales)
Stock price divided by revenue per share. Measures how much investors pay per dollar of revenue.
Particularly useful for evaluating companies that are not yet profitable, where P/E cannot be calculated.
PEG Ratio
P/E ratio divided by the expected earnings growth rate. Adjusts the P/E ratio for anticipated growth.
A PEG near 1.0 is sometimes interpreted as fairly valued relative to growth, though this varies by sector and market conditions.
Residual Income Model
A valuation approach that measures the value a company creates above its cost of equity. Calculates excess earnings relative to what shareholders require as a return.
StockFind uses this model for financial sector companies where traditional DCF may be less applicable due to the nature of bank balance sheets.
Terminal Value
The estimated value of a business beyond the explicit forecast period in a DCF model. Typically calculated using a perpetual growth rate or exit multiple.
Often represents the largest component of a DCF valuation. Small changes in terminal value assumptions can significantly affect the model output.
Profitability
EBITDA
Earnings Before Interest, Taxes, Depreciation, and Amortisation. A measure of operating profitability that strips out financing and accounting decisions.
Allows comparison of operating performance across companies with different capital structures and tax situations.
Gross Margin
Revenue minus cost of goods sold, divided by revenue, expressed as a percentage. Measures production or service delivery efficiency.
Higher gross margins generally indicate stronger pricing power or lower production costs relative to peers.
Net Margin
Net income divided by revenue, expressed as a percentage. The proportion of revenue that becomes profit after all expenses.
Shows overall profitability. Comparing net margins across peers reveals which companies are most efficient at converting revenue to profit.
Operating Margin
Operating income divided by revenue, expressed as a percentage. Measures core business profitability before interest and taxes.
Isolates the profitability of core operations from financing decisions and tax jurisdictions.
Return on Assets (ROA)
Net income divided by total assets, expressed as a percentage. Measures how efficiently a company uses its assets to generate profit.
Useful for comparing companies with different levels of leverage. Higher ROA suggests more efficient asset utilisation.
Return on Equity (ROE)
Net income divided by shareholders' equity, expressed as a percentage. Measures how efficiently a company uses shareholder capital to generate profit.
A key profitability metric for evaluating management effectiveness. Central to the Residual Income valuation model.
Growth & Cash Flow
EPS (Earnings Per Share)
Net income divided by the number of shares outstanding. Represents the profit attributable to each share.
A fundamental measure of profitability per share. Used in the P/E ratio and other valuation metrics.
Free Cash Flow
Cash generated from operations minus capital expenditures. The cash available for dividends, share buybacks, debt repayment, or reinvestment.
Often considered more reliable than earnings because it's harder to manipulate. A key input in DCF models.
Revenue Growth
The percentage change in a company's revenue over a specific period, typically year-over-year or quarter-over-quarter.
Indicates whether a business is expanding. Sustained revenue growth is a key input in valuation models.
Leverage & Liquidity
Current Ratio
Current assets divided by current liabilities. A measure of a company's ability to pay short-term obligations.
A ratio above 1.0 generally indicates the company can cover its near-term debts. Below 1.0 may signal liquidity concerns.
Debt-to-Equity Ratio
Total debt divided by total shareholders' equity. Measures how much a company relies on borrowed money versus its own capital.
Higher ratios indicate more leverage, which can amplify both gains and losses. What's considered healthy varies by industry.
Risk & Cost of Capital
Beta
Measures how much a stock's price tends to move relative to the overall market. A beta of 1.0 means the stock generally moves in line with the market.
Helps gauge how volatile a stock may be compared to a broad index. Higher beta suggests larger price swings.
WACC (Weighted Average Cost of Capital)
The blended cost of a company's debt and equity financing, weighted by their proportions in the capital structure.
Used as the discount rate in DCF models. Represents the minimum return a company needs to generate to satisfy its investors.
Definitions are provided for educational and informational purposes only. Not investment advice. Financial metrics should be considered in context and alongside other information. Consult a qualified financial adviser before making investment decisions.