Basic Investment Terms and Definitions

Enterprise value can be thought of as a private market valuation for the company. When a buyer purchases a company in the private market, he has to pay for the company equity (including common stock, preferred shares, minority interest, etc – learn about common stock vs preferred stock), he has to pay off all the… [Read More]

Quick ratio measures the liquidity of the company. It is similar to current ratio but a bit more restrictive in what it considers to be liquid. Inventory is part of the current asset used for current ratio. However, it is explicitly excluded from the calculation of quick ratio. Quick Ratio, also called Acid Test Ratio… [Read More]

What is Inventory Turnover? Inventory turnover is used to indicate how many times a company sells its complete inventory in any given period of time. This measures the briskness of the business. Inventory Turnover Formula Inventory turnover = Cost of Goods Sold / Average Inventory Where, Average Inventory = (Beginning Inventory + Ending Inventory) /… [Read More]

Enterprise Value/EBIT or EV/EBIT is a similar measure as P/E ratio (P E ratio definition). Instead of the Market Value, we use the Enterprise Value and instead of the Earnings in the denominator, we use EBIT. EV/EBIT = Enterprise Value (EV) / Earnings Before Interest and Tax (EBIT) (obviously) You may want to use EV/EBIT… [Read More]

The investment world is filled with trading opportunities outside of your traditional stocks and bonds. You may not have heard about them as much, but each one offers their own set of benefits and risks. Take, for example, a master limited partnership. A master limited partnership (MLP) is a publicly traded partnership that shares elements… [Read More]

There are a lot of different methods for valuing stocks and determining a fair price for their shares. One of the oldest methods is the dividend discount model, commonly abbreviated to DDM. It’s a more theoretical model in a lot of ways, but can be helpful once you learn how to use it. Let’s dive… [Read More]

With a constantly changing market, assessing the potential risks and rewards of and investment can be tricky. As you build your portfolio, you may be in search of the ideal investment that helps bring in a maximized return while minimizing risks. This type of investment is almost impossible find, but that hasn’t stopped people from… [Read More]

What is CAPM & Why it Matters CAPM stands for Capital Asset Pricing Model. It is used to calculate the predicted rate of return of any risky asset. It compares the relationship between systematic risk and expected return. Typically, it’s used on stocks. However, CAPM can also be used throughout financial decision making to price… [Read More]

Assessing and understanding the risks associated with investment is one of the biggest decisions an investor has to make. It’s important to know how to measure, understand and express the level of risk that you face when investing. One of the most common ways to do this is by using a statistical measure known as… [Read More]

Risk Premium Definition The risk premium is the minimum amount of money that a person is willing to accept as compensation for taking on a risky or volatile investment. So, in investing, it is the minimum amount of money by which the expected return on a risky investment exceeds the known return on a non-risky… [Read More]

Diversification Definition When looking to invest, you’ll often be advised to “diversify” your portfolio. But exactly what is diversification? In short, diversification of a portfolio (See: investment portfolio definition) is a risk-management technique. A diverse portfolio is comprised of a variety of types of investments, instead of just one or two. The thought process and… [Read More]

PEG ratio is often used to bridge the gap between value and growth. Most value investors tend to consider the P/E ratio as one of the more important qualifying metric to find a value stock. However, the P/E ratio often does not tell the complete story. A stock may sell for a low price to… [Read More]

Whether you are looking at investing or just want to get a better handle on finances, there are a lot of important terms to know. One of these terms is the debt to equity ratio. This is also called the debt/equity ratio, D/E ratio or simply referred to as “risk.” To help you with your… [Read More]

As an investor, you want to make sure that your money is being spent wisely. Some companies do better with investment capital than others do, and knowing your money is going to be well-spent is a great incentive to invest in that particular business. This is where “return on equity” comes in. Return on Equity… [Read More]

When considering which companies to invest in, there are a lot of factors to look over. It can confusing or intimidating at first, but the more you know, the more able you are to make wise decisions with your money. One of these factors that might seem confusing as first is “Return on Assets.” Read… [Read More]

An investment portfolio is basically a collection of assets owned by an individual or institution designed to grow in value or provide income. Typically, an investment portfolio is well-diversified, and may contain many different types of assets, including cash, real estate, and gold. Most commonly, however, an investment portfolio will contain stocks and bonds whose… [Read More]

In the world of investing, a knowledge of some of the basic terms crucial to managing your money successfully. One of those terms is “Mutual Fund.” If you’re not familiar with the definition of mutual fund or how mutual funds can work for you, read on to learn more. What is a Mutual Fund? A… [Read More]

You’ve no doubt heard the term “stock index” before. Whenever financial news is talked about, stock indices are a big part of the discussion. But, what does the term mean, and what do you need to know about them? If you’ve wanted to know more about stock indices, read on. What is a Stock Index?… [Read More]