MARKETS / GLOSSARY

Glossary

The 41 figures and conventions this site publishes — what each one means, how to calculate it step by step, and what it leaves out.

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The income statement Margins Return on capital Cash Shares and per-share figures Dividends Shareholder return The balance sheet Reading the figures over time

Every entry states the formula, explains each input, works through the arithmetic with a number, and ends with the blind spot. The last one is the part most glossaries skip, and the reason a number can be arithmetically correct and still mislead.

The income statement

8 terms

Revenuerevenue as filed − sales taxes collected for a government (only where the filing still includes them)Cost of revenueas reported in the income statement (also filed as 'cost of goods sold' or 'cost of sales')Gross profitrevenue − cost of revenue Operating incomegross profit − operating expenses (as reported)Depreciation and amortisationas reported in the cash flow statement EBITDAoperating income + depreciation and amortisation Income taxas reported in the income statement (current tax + deferred tax)Net incomerevenue − all costs, expenses, interest and taxes

What the company billed, what it cost, and what was left.

Margins

4 terms

Gross margin(revenue − cost of revenue) ÷ revenue Operating marginoperating income ÷ revenue Net marginnet income ÷ revenue Free cash flow margin(cash from operations − capital expenditure) ÷ revenue

The same result read as a share of revenue — the only way to compare companies of different sizes.

Return on capital

2 terms

Return on equitynet income ÷ average shareholders' equity Return on assetsnet income ÷ average total assets

Profit measured against the money it took to produce it.

Cash

3 terms

Cash from operationsas reported in the cash flow statement Capital expenditureas reported in the investing section of the cash flow statement Free cash flowcash from operations − capital expenditure

Profit is an opinion; cash is a fact. These are the figures that track the fact.

Shares and per-share figures

4 terms

Shares outstandingas reported on the cover of the annual filing Basic earnings per sharenet income attributable to common shareholders ÷ weighted average basic shares Diluted earnings per sharenet income attributable to common shareholders ÷ weighted average diluted shares Change in the share countshares outstanding now ÷ shares outstanding n years ago − 1

The same company divided into a number of slices that changes.

Dividends

5 terms

Dividend per sharedividends declared ÷ shares outstanding Dividends paidas reported in the financing section of the cash flow statement Payout ratiodividends paid ÷ net income Dividend coverageearnings per share ÷ dividend per share Dividend growth streakconsecutive fiscal years in which the dividend per share rose

What is paid out in cash, how much of the profit it takes, and for how long it has risen.

Shareholder return

3 terms

Net buybacksshare repurchases − share issuance Shareholder returndividends paid + net share buybacks Share of profit returned(dividends paid + net buybacks) ÷ net income

Dividends are half the story in the United States; buybacks are the other half.

The balance sheet

10 terms

Total assetsas reported on the balance sheet (= total liabilities + shareholders' equity)Shareholders' equitytotal assets − total liabilities Cash and equivalentsas reported on the balance sheet Gross debtshort-term debt + long-term debt Net debt(short-term debt + long-term debt) − cash and equivalents Net debt to equity(total debt − cash) ÷ shareholders' equity Current ratiocurrent assets ÷ current liabilities Depositsas reported on the balance sheet of a deposit-taking institution Negative equitytotal assets minus total liabilities, when the result falls below zero Not availablenot a calculation — a label distinguishing three reasons a figure can be missing

What the company owns, what it owes, and what is left for the owners.

Reading the figures over time

2 terms

CAGR (compound annual growth rate)(value at the end ÷ value at the start) ^ (1 ÷ years) − 1 Fiscal yearthe twelve months the company itself declares as its reporting year

Two conventions that decide whether a comparison means anything.