Updated October 21, 2026 · 67 terms
Stock market glossary: financial ratios explained, with formulas
Every term you see on our stock, ETF and index pages, explained in plain words: what it means, how it is calculated and how to read it, with a worked example.
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Valuation9 terms
How expensive or cheap a stock is compared with what the company earns.
- P/EHow many dollars you pay for each dollar the company earns in a year.
- P/SWhat the market pays for each dollar of yearly sales.
- P/BThe share price compared with the company's value on its balance sheet.
- EV/EBITDAThe price of the whole business, debt included, compared with its operating profit.
- PEGP/E divided by the profit growth rate.
- Free cash flow yieldHow much spare cash the company makes in a year, compared with its stock market value.
- Market capWhat the company is worth on the stock market: price times number of shares.
- EPSThe company's net profit divided by the number of shares.
- Fair valueWhat a stock should be worth, based on the business behind it.
Profitability11 terms
How well the company turns sales and capital into profit.
- ROEHow much profit the company makes from shareholders' money.
- ROAHow much profit the company makes from everything it owns.
- ROICHow much the company earns on all the capital invested in the business, debt included.
- WACCWhat the money the company runs on costs it, on average.
- Gross marginWhat is left of sales after the direct cost of the products.
- Operating marginHow much operating profit is left from every $100 of sales.
- Net marginHow many dollars of profit are left from every $100 of sales.
- EBITDAOperating profit before interest, tax, depreciation and amortization.
- Free cash flow (FCF)The cash left to the company after it pays for its investments.
- Cash conversionHow much of the accounting profit actually lands in the bank as cash.
- Rule of 40Sales growth plus profit margin: the balance test for tech companies.
Earnings quality5 terms
Tests that show whether reported profit is solid or only looks good on paper.
- Piotroski F-scoreNine simple financial health tests, one point each.
- Beneish M-scoreA statistical test that looks for patterns of aggressive accounting.
- Sloan ratioHow much of profit is only on paper and has not arrived as cash yet.
- Economic moatWhat protects the company from competitors, year after year.
- Dilution from stock-based payHow much your stake shrinks because the company pays its staff in shares.
Growth and results3 terms
How fast sales and profit grow, and how earnings reports turn out.
Debt and bankruptcy risk9 terms
How heavy the debt is and how far the company is from trouble.
- Debt / EBITDAHow many years the company would need to pay off its debt from operating profit.
- Debt / equityHow many dollars of debt the company has for each dollar of shareholders' money.
- Interest coverageHow many times operating profit covers the interest due.
- Current ratioWhether the company has enough cash and quick assets to pay its bills for the next year.
- Altman Z-scoreThe classic formula for the risk of a company going bankrupt within two years.
- Ohlson O-scoreA model that gives the probability of a company running into financial distress.
- Zmijewski scoreThe probability of financial distress from three numbers: profit, debt, liquidity.
- Distance to defaultHow far the company's value is from its debt, in units of volatility.
- GoodwillThe part of assets that comes from paying extra in acquisitions.
Dividends4 terms
The cash a company pays its shareholders, and how safe those payments are.
- Dividend yieldHow much the company pays you each year in dividends, compared with the share price.
- Payout ratioThe part of profit that goes to shareholders as dividends.
- Ex-dividend dateThe first day on which a buyer of the stock no longer gets the next dividend.
- Years of dividend growthHow many years in a row the company has raised its dividend.
Risk and return10 terms
How much the price moves and how much you earn for the risk you take.
- VolatilityHow much the price usually goes up and down in a year.
- BetaHow much the stock moves when the market moves.
- Maximum drawdownThe largest fall in price from a peak to the lowest point after it.
- Sharpe ratioHow much extra return you got for each unit of risk.
- Sortino ratioLike Sharpe, but it only counts price drops.
- Calmar ratioAnnual return divided by the largest drop.
- Treynor ratioThe extra return for each unit of market risk (beta).
- Omega ratioTotal gains divided by total losses, around a threshold.
- Ulcer indexHow deep and how long the drops from the peak were.
- Hurst exponentShows whether the price tends to keep its direction or snap back to the average.
Technical analysis11 terms
Indicators calculated from the price chart: trend, pace and volume.
- Moving averageThe average price over the last trading days: the trend without the noise.
- Golden crossWhen the 50-day average crosses above or below the 200-day average.
- RSIShows whether the price rose or fell too fast over the last two weeks.
- MACDThe gap between a fast and a slow average of the price: it shows changes in pace.
- Bollinger BandsA channel around the average price that widens when the market gets choppy.
- ADXHow strong the price trend is, without saying which way.
- CCIHow far the price is from its recent average, compared with its usual deviation.
- Parabolic SARDots that follow the price and show the direction of the trend.
- OBVVolume added on up days and subtracted on down days.
- 52-week highThe highest price of the past year and how far today's price is from it.
- Price momentumHow much the stock has risen or fallen in recent months: the force of the move.
ETFs and indices5 terms
The basics of exchange-traded funds and stock market indices.
- ETFA fund listed on the stock exchange that buys dozens or hundreds of companies at once.
- Stock market indexA basket of stocks that shows how a market is doing: S&P 500, DAX, BET.
- TERWhat an ETF or fund costs you each year, as a percentage of the money invested.
- UCITSThe European label for funds that follow EU investor protection rules.
- Assets under management (AUM)How much money all investors have put into a fund.
All terms, A to Z
#
- 52-week high
- The highest price of the past year and how far today's price is from it.
A
- ADX
- How strong the price trend is, without saying which way.
- Altman Z-score
- The classic formula for the risk of a company going bankrupt within two years.
- Analyst revisions
- Which way analysts are moving their profit forecasts.
- Assets under management (AUM)
- How much money all investors have put into a fund.
B
- Beneish M-score
- A statistical test that looks for patterns of aggressive accounting.
- Beta
- How much the stock moves when the market moves.
- Bollinger Bands
- A channel around the average price that widens when the market gets choppy.
C
- CAGR
- How much something grew on average per year, counting the compounding.
- Calmar ratio
- Annual return divided by the largest drop.
- Cash conversion
- How much of the accounting profit actually lands in the bank as cash.
- CCI
- How far the price is from its recent average, compared with its usual deviation.
- Current ratio
- Whether the company has enough cash and quick assets to pay its bills for the next year.
D
- Debt / EBITDA
- How many years the company would need to pay off its debt from operating profit.
- Debt / equity
- How many dollars of debt the company has for each dollar of shareholders' money.
- Dilution from stock-based pay
- How much your stake shrinks because the company pays its staff in shares.
- Distance to default
- How far the company's value is from its debt, in units of volatility.
- Dividend yield
- How much the company pays you each year in dividends, compared with the share price.
E
- Earnings beat
- Reported profit came in above what analysts expected.
- EBITDA
- Operating profit before interest, tax, depreciation and amortization.
- Economic moat
- What protects the company from competitors, year after year.
- EPS
- The company's net profit divided by the number of shares.
- ETF
- A fund listed on the stock exchange that buys dozens or hundreds of companies at once.
- EV/EBITDA
- The price of the whole business, debt included, compared with its operating profit.
- Ex-dividend date
- The first day on which a buyer of the stock no longer gets the next dividend.
F
- Fair value
- What a stock should be worth, based on the business behind it.
- Free cash flow (FCF)
- The cash left to the company after it pays for its investments.
- Free cash flow yield
- How much spare cash the company makes in a year, compared with its stock market value.
G
- Golden cross
- When the 50-day average crosses above or below the 200-day average.
- Goodwill
- The part of assets that comes from paying extra in acquisitions.
- Gross margin
- What is left of sales after the direct cost of the products.
H
- Hurst exponent
- Shows whether the price tends to keep its direction or snap back to the average.
I
- Interest coverage
- How many times operating profit covers the interest due.
M
- MACD
- The gap between a fast and a slow average of the price: it shows changes in pace.
- Market cap
- What the company is worth on the stock market: price times number of shares.
- Maximum drawdown
- The largest fall in price from a peak to the lowest point after it.
- Moving average
- The average price over the last trading days: the trend without the noise.
N
- Net margin
- How many dollars of profit are left from every $100 of sales.
O
- OBV
- Volume added on up days and subtracted on down days.
- Ohlson O-score
- A model that gives the probability of a company running into financial distress.
- Omega ratio
- Total gains divided by total losses, around a threshold.
- Operating margin
- How much operating profit is left from every $100 of sales.
P
- P/B
- The share price compared with the company's value on its balance sheet.
- P/E
- How many dollars you pay for each dollar the company earns in a year.
- P/S
- What the market pays for each dollar of yearly sales.
- Parabolic SAR
- Dots that follow the price and show the direction of the trend.
- Payout ratio
- The part of profit that goes to shareholders as dividends.
- PEG
- P/E divided by the profit growth rate.
- Piotroski F-score
- Nine simple financial health tests, one point each.
- Price momentum
- How much the stock has risen or fallen in recent months: the force of the move.
R
- ROA
- How much profit the company makes from everything it owns.
- ROE
- How much profit the company makes from shareholders' money.
- ROIC
- How much the company earns on all the capital invested in the business, debt included.
- RSI
- Shows whether the price rose or fell too fast over the last two weeks.
- Rule of 40
- Sales growth plus profit margin: the balance test for tech companies.
S
- Sharpe ratio
- How much extra return you got for each unit of risk.
- Sloan ratio
- How much of profit is only on paper and has not arrived as cash yet.
- Sortino ratio
- Like Sharpe, but it only counts price drops.
- Stock market index
- A basket of stocks that shows how a market is doing: S&P 500, DAX, BET.
T
- TER
- What an ETF or fund costs you each year, as a percentage of the money invested.
- Treynor ratio
- The extra return for each unit of market risk (beta).
U
- UCITS
- The European label for funds that follow EU investor protection rules.
- Ulcer index
- How deep and how long the drops from the peak were.
V
- Volatility
- How much the price usually goes up and down in a year.
W
- WACC
- What the money the company runs on costs it, on average.
Y
- Years of dividend growth
- How many years in a row the company has raised its dividend.
Z
- Zmijewski score
- The probability of financial distress from three numbers: profit, debt, liquidity.
These explanations are for information only. They are not a recommendation to buy or sell.