Investing glossary
Plain-language explanations for reading company reports and evaluating stock ideas.
Earnings per share (EPS)
Profit attributable to common shareholders divided by the relevant share count. Diluted EPS accounts for instruments that could create additional shares. Compare reported and adjusted figures separately.
Price-to-earnings ratio (P/E)
Share price divided by earnings per share. Trailing P/E uses historical earnings; forward P/E uses estimates. A low ratio can reflect weak growth or unusually high cyclical profits rather than a bargain.
Free cash flow
Cash generated by operations after capital expenditure, subject to the definition used. Check the cash-flow statement and adjustments rather than treating earnings as cash.
Earnings guidance
Management’s outlook for future business performance. Guidance is uncertain and can change. Compare it with prior guidance and clearly dated market expectations.
Market capitalization
Share price multiplied by outstanding shares. It measures equity value, not enterprise value or the cash required to acquire a business.
Support and resistance
Price areas traders watch for changes in buying or selling pressure. They describe historical behavior and can fail; they are not guaranteed floors or ceilings.
Risk and reward
A comparison of potential loss and gain under explicit scenarios. Position size, probability, liquidity and the possibility of gaps matter as much as a target price.
Diversification
Spreading exposure across investments with different risks. Correlations can rise during stress, so diversification reduces some risks without eliminating losses.