The words that get thrown around on earnings calls and in headlines, explained like you're a normal person, with an example, the catch, and where I talk about it in a video.
8-K Current report
A filing a US public company makes with the SEC to announce a major event, usually within four business days of it happening.
Explain it
An 8-K is what a company files when something big happens between its regular reports, which basically just means it's the official news alert. Think of things like an earnings release, a CEO leaving, a big acquisition, a new loan, or the auditor resigning.
Most of them are routine, and a lot of companies attach their quarterly earnings press release to an 8-K. But every so often an 8-K is where the bad news quietly shows up first, like a delayed filing or a statement that past financials shouldn't be relied on anymore.
For you, it's worth knowing that the SEC's EDGAR site lets you see every 8-K a company has filed, so you can check the primary source instead of relying on someone's summary of it.
The catch. An 8-K about an auditor change or financials that can no longer be relied on is a much bigger deal than the dull form name suggests.
Related: 10-K, 10-Q, Going concern warning
10-K Annual report
The full-year report every US public company files with the SEC, with audited financial statements and a long list of risks.
Explain it
A 10-K is the annual report a public company files with the SEC, which basically just means it's the big, once-a-year rundown of the whole business... what it does, how it makes money, what could go wrong, and the full set of financial statements, which have been audited by an outside accounting firm.
It's long and it's dry, and that's kind of the point. The glossy investor slides are marketing, but the 10-K is the document the company's lawyers and auditors actually sign off on, so the honest stuff tends to live here, in the risk factors, the footnotes and the section called management's discussion and analysis.
For you as an investor, you don't have to read the whole thing cover to cover. Even just skimming the risk factors, the revenue footnote and the debt footnote will usually tell you more than a dozen headlines will.
The catch. The numbers that matter most are often buried in the footnotes, so reading only the summary pages can leave out the debt, lawsuits or customer concentration that change the picture.
Where I talk about it
Related: 10-Q, 8-K, GAAP, Going concern warning
10-Q Quarterly report
The quarterly report a US public company files with the SEC, with financial statements that are reviewed but not fully audited.
Explain it
A 10-Q is the quarterly version of the 10-K, which basically just means it's the company's official update for each of its first three quarters. There's no 10-Q for the fourth quarter, because that quarter gets rolled into the annual 10-K.
The financial statements in a 10-Q are reviewed by the auditors, but they aren't audited the way the annual numbers are, so think of it as a lighter check rather than the full inspection.
For you, the 10-Q is where you can see whether the story the company told on its earnings call actually shows up in the numbers... things like cash on hand, debt, and how many shares are outstanding.
The catch. A review is a much lighter level of assurance than an audit, so quarterly numbers can still get revised later, especially around tricky areas like revenue timing.
Where I talk about it
Related: 10-K, 8-K, Earnings beat or miss
A company's own version of its profit that leaves out certain costs it considers unusual or noncash, so it isn't held to GAAP rules.
Explain it
Adjusted earnings, or non-GAAP earnings, are the profit number a company builds on its own by starting with official GAAP results and then taking out costs it says don't reflect the core business. All that I mean is that the company is choosing what counts.
Common things that get removed are stock-based compensation, restructuring charges, the amortization of intangible assets from acquisitions, and one-time legal costs. Some of those adjustments are reasonable, and the SEC does require companies to show a reconciliation back to the closest GAAP number.
For you, the move is to read that reconciliation table. If the same so-called one-time costs show up every single quarter, they aren't really one-time... they're just part of running the business.
Example. As an example, say a company reports GAAP net income of $50 million. It adds back $40 million of stock-based compensation and $10 million of restructuring costs, so its adjusted net income is $50 million plus $40 million plus $10 million, which is $100 million. Same business, but the adjusted number is twice the GAAP one.
The catch. Adjusted earnings are almost always higher than GAAP earnings, and when the gap keeps widening year after year, that's worth a closer look.
Where I talk about it
Related: GAAP, Net income, Stock-based compensation, EBITDA, EPS
A Wall Street analyst's estimate of where a stock's price could be, usually about 12 months out.
Explain it
An analyst price target is the price a research analyst at a bank or brokerage thinks a stock could reach, usually over the next 12 months. It basically just comes out of their model of the company's future earnings or cash flow and a valuation multiple they think is fair.
You'll often see an average of all the targets, and news headlines love to report when a target gets raised or cut. But targets tend to chase the price... when a stock runs up, targets often get raised after the fact.
For you, the useful part isn't the number, it's the reasoning behind it. What growth is the analyst assuming, and do you actually believe it?
The catch. Price targets are opinions with a decent amount of guesswork built in, and they're often revised after a big move rather than before it.
Where I talk about it
Related: Consensus estimate, P/E ratio, Forward P/E
A two-step move where someone over the Roth income limits makes a nondeductible traditional IRA contribution and then converts it to a Roth.
Explain it
A backdoor Roth IRA isn't a special type of account, it's a strategy. All that I mean is that if your income is too high to contribute to a Roth IRA directly, you can contribute to a traditional IRA without taking a deduction, and then convert that money into a Roth IRA. Conversions don't have an income limit, which is why this works.
For 2026, the contribution is still capped at the regular IRA limit, which is $7,500, or $8,600 if you're 50 or older. You report the nondeductible contribution and the conversion on Form 8606 with your tax return.
The big catch is the pro-rata rule. If you already have pre-tax money sitting in any traditional, SEP or SIMPLE IRA, the conversion gets taxed partly based on that balance, so the clean, tax-free version of this only really works when those other IRAs are empty or have been moved into an employer plan.
For you, this is one where it's worth running your actual numbers, or talking to a tax pro, before you do it, because the paperwork matters as much as the move itself.
The catch. Forgetting about an old rollover IRA or SEP IRA is the classic mistake, because the pro-rata rule can make a chunk of the conversion taxable.
Where I talk about it
Related: Roth IRA, Pro-rata rule
Backlog and RPO Remaining performance obligations
Revenue a company has already signed contracts for but hasn't earned yet, because the work or service hasn't been delivered.
Explain it
Backlog is the pile of orders or contracts a company has signed but hasn't delivered on yet. Remaining performance obligations, or RPO, is the official accounting version of that idea, which basically just means the total value of contracted revenue that hasn't been recognized as revenue yet.
Think of a contractor who has signed jobs for the next two years. They haven't done the work, so they can't count it as revenue, but it tells you a lot about how busy they're going to be.
For you, a growing RPO can be a good sign that future revenue is already lined up, especially for software and defense companies. Companies often break out how much of it they expect to recognize in the next 12 months, which is the more useful part.
The catch. Backlog isn't cash or revenue yet, and some contracts can be cancelled, delayed or shrunk, so a huge backlog with a shaky customer is less solid than it looks.
Where I talk about it
Related: Deferred revenue, Revenue, Guidance
A measure of how much a stock has tended to move compared with the overall market, usually the S&P 500.
Explain it
Beta is a number that tells you how jumpy a stock has been relative to the market. A beta of 1 basically just means it has tended to move about in line with the market, above 1 means it has moved more, and below 1 means it has moved less.
It's like comparing a speedboat to a cruise ship on the same waves. Both feel the water, but one bounces around a lot more.
For you, beta can help you understand why a stock you own swings so much on days the market is only a little up or down. It's a description of the past, though, not a promise about the future.
Example. As an example, if a stock has a beta of 1.5 and the market drops 10%, the stock has historically tended to drop about 1.5 times 10%, which is roughly 15%. That's a tendency, not a rule.
The catch. Beta is calculated from past prices, so it can change a lot when a company's business or the market environment changes.
Related: Implied volatility, Index fund
The profit you make when you sell an investment for more than you paid, taxed differently depending on how long you held it.
Explain it
A capital gain is just the profit when you sell something for more than your cost basis, which is basically what you paid for it. If you sell for less, it's a capital loss.
How long you held it matters a lot. If you held it for more than one year, it's a long-term gain, and for 2026 that's taxed at the 0%, 15% or 20% federal rates depending on your income. If you held it for one year or less, it's short-term, and it's taxed at your ordinary income tax rate, the same as your paycheck. Higher earners can also owe the 3.8% net investment income tax on top.
If your losses are bigger than your gains for the year, you can use up to $3,000 of the net loss against your ordinary income, or $1,500 if you're married filing separately, and carry the rest forward to future years.
For you, the timing of a sale can change your tax bill quite a bit, and none of this applies inside an IRA or 401(k), where gains aren't taxed year to year.
Example. As an example, say you paid $1,000 for some shares and sold them for $1,500. Your gain is $1,500 minus $1,000, which is $500. If you held them more than a year and you're in the 15% long-term bracket, the federal tax is $500 times 15%, which is $75. If you held them a year or less and you're in the 22% bracket, it's $500 times 22%, which is $110.
The catch. The holding period is more than one year, so selling exactly one year after the purchase date still counts as short-term.
Where I talk about it
Related: Tax-loss harvesting, Wash sale rule, Roth IRA
How fast a company that isn't making money is using up its cash, usually measured per quarter or per month.
Explain it
Cash burn is the rate a company is spending more cash than it brings in, which basically just means how fast the bank balance is going down. It usually comes up with young, unprofitable companies like biotech or early-stage tech.
The related idea is runway, which is how long the company can keep going before it runs out of cash. You get it by dividing the cash on hand by the burn rate.
For you, this matters because when the runway gets short, the company usually has to raise money, either by borrowing or by issuing new shares, and new shares mean dilution for existing shareholders.
Example. As an example, say a company has $200 million in cash and burns $50 million a quarter. Its runway is $200 million divided by $50 million, which is 4 quarters, or about a year, before it needs more money.
The catch. Companies sometimes describe their runway using planned cost cuts that haven't happened yet, so check the actual cash burn in recent quarters.
Where I talk about it
Related: Free cash flow, Dilution, Going concern warning
The average of what Wall Street analysts expect a company to report for revenue or earnings in a given quarter or year.
Explain it
The consensus estimate is basically just the average forecast from the analysts who cover a stock. When you hear that a company beat or missed, it's almost always being compared to this number.
Different data providers can have slightly different consensus numbers, because they pull from different groups of analysts, and estimates move around in the weeks before earnings.
For you, the consensus is helpful as a measuring stick for what the market was expecting... the stock's reaction often has more to do with how results compare to that expectation than with whether the results were good in some absolute sense.
The catch. There's often an unofficial whisper number that's higher than the published consensus, which is one reason a stock can fall even after a beat.
Where I talk about it
Related: Earnings beat or miss, Guidance, Analyst price target, EPS
Cash a company has already collected from customers for products or services it hasn't delivered yet, recorded as a liability.
Explain it
Deferred revenue is money the company has been paid up front for something it still owes the customer. All that I mean is it's like a gym collecting a full year of membership fees in January... it has the cash, but it hasn't earned it yet, so it can't call it all revenue right away.
Because the company still owes the service, deferred revenue sits on the balance sheet as a liability, and it moves into revenue a little at a time as the service is delivered.
For you, growing deferred revenue at a subscription company can be a sign of healthy demand, and a sudden drop can be an early hint that new sales are slowing down before it shows up in revenue.
Example. As an example, a software company collects $1,200 from a customer on January 1 for a one-year subscription. At that moment it has $1,200 of deferred revenue. Each month it earns $1,200 divided by 12, which is $100 of revenue, so after three months it has recognized $300 and still has $900 deferred.
The catch. Changes in billing terms, like moving customers from annual to monthly payments, can make deferred revenue drop even when the business is fine.
Where I talk about it
Related: Backlog and RPO, Revenue, Free cash flow
When a company issues more shares, so each existing share owns a smaller slice of the business.
Explain it
Dilution is what happens when the total number of shares goes up, which basically just means your piece of the pie gets smaller even though you didn't sell anything. It's like a pizza that gets cut into 12 slices instead of 8... you still have one slice, but it's a smaller one.
New shares can come from a stock offering to raise cash, from stock-based compensation paid to employees, from convertible bonds turning into stock, or from using shares to pay for an acquisition.
For you, the easy check is the share count over time. If it keeps creeping up by a few percent every year, your ownership is shrinking, and earnings per share have to grow faster just to stand still.
Example. As an example, say a company has 100 million shares and you own 1 million, so you own 1%. If it issues 25 million new shares, there are now 125 million shares, and your 1 million shares are 1 million divided by 125 million, which is 0.8%.
The catch. Dilution isn't automatically bad if the cash raised earns a good return, but steady dilution that never seems to pay off is a real cost to shareholders.
Where I talk about it
Related: Stock-based compensation, Share buyback, EPS, Cash burn
A cash payment a company makes to its shareholders out of its profits, usually every quarter.
Explain it
A dividend is a payment a company sends to shareholders, which basically just means it's sharing some of its profits in cash instead of keeping it all to reinvest. Most US companies that pay one do it quarterly.
There are a few dates that matter. To get the dividend, you need to own the stock before the ex-dividend date, and on that date the stock price usually drops by roughly the amount of the dividend, because that cash is leaving the company.
For tax purposes, many dividends count as qualified dividends, which are taxed at the lower long-term capital gains rates, as long as you've held the stock for more than 60 days during the 121-day window around the ex-dividend date. Other dividends are taxed at ordinary income rates.
For you, a dividend is a choice the company makes, not a promise. Boards can cut or suspend it, and that usually happens when the business is under pressure.
The catch. A dividend isn't free money, since the share price typically falls by about that amount on the ex-dividend date.
Where I talk about it
Related: Dividend yield, Share buyback, Free cash flow
A stock's yearly dividend divided by its share price, shown as a percentage.
Explain it
Dividend yield tells you how much a company pays in dividends each year compared to what the stock costs, which basically just means it's the dividend expressed as a percentage of the price.
Because price is in the bottom of the math, the yield goes up when the stock falls. So a really high yield can be a sign the market thinks the dividend is in trouble, rather than a sign of a great deal.
For you, it's worth checking whether the company's free cash flow actually covers the dividend. A payout that's bigger than the cash the business brings in can't last forever.
Example. As an example, say a stock costs $50 and pays $0.50 a quarter. The yearly dividend is $0.50 times 4, which is $2. The yield is $2 divided by $50, which is 4%.
The catch. A yield that looks unusually high is often a warning that the market expects a dividend cut.
Where I talk about it
Related: Dividend, Free cash flow
Investing a fixed dollar amount on a regular schedule, no matter what the price is doing.
Explain it
Dollar-cost averaging basically just means putting the same amount of money in on a set schedule, like every payday, instead of trying to pick the perfect moment. If you contribute to a 401(k) out of every paycheck, you're already doing it.
Because the dollar amount stays the same, you end up getting more shares when the price is low and fewer when it's high, which takes a lot of the guesswork and emotion out of it.
For you, the biggest benefit is probably behavioral. It's a lot easier to stick with a plan when you don't have to decide each time whether now is a good time.
Example. As an example, you put in $100 each month. In month one the price is $10, so you get 10 shares. In month two it's $5, so you get 20 shares. You've invested $200 and own 30 shares, so your average cost is $200 divided by 30, which is about $6.67 a share, lower than the simple average price of $7.50.
The catch. Studies have generally found that investing a lump sum right away has come out ahead more often than spreading it out, so dollar-cost averaging is mainly about managing risk and nerves, not boosting returns.
Where I talk about it
Related: Index fund, ETF
Whether a company's reported results came in above or below what analysts were expecting for the quarter.
Explain it
When a company reports earnings, the headline is almost always whether it beat or missed, which basically just means whether its revenue and earnings per share came in above or below the consensus estimate.
Companies often guide a little conservatively, so small beats are really common. That's part of why the stock's reaction usually depends more on the guidance for next quarter and the details on the call than on the beat itself.
For you, it helps to look past the headline. A beat that came from a lower tax rate or a one-time gain is a lot different from a beat that came from customers actually buying more.
The catch. Many beats are measured against adjusted earnings, so a company can beat on its own non-GAAP number while its GAAP profit tells a weaker story.
Where I talk about it
Related: Consensus estimate, Guidance, EPS, Adjusted earnings
EBITDA Earnings before interest, taxes, depreciation and amortization
A profit measure that starts with earnings and adds back interest, taxes, depreciation and amortization.
Explain it
EBITDA stands for earnings before interest, taxes, depreciation and amortization, which basically just means it's a rough look at operating profit before the costs of debt, taxes, and the wear and tear on the company's equipment and acquired assets.
People like it because it makes companies with different debt levels and tax situations easier to compare, and it's often used in valuation as part of EV to EBITDA.
For you, the important thing to remember is that it isn't a GAAP measure, and the costs it ignores are real. A company that has to keep spending heavily on equipment can look great on EBITDA while not producing much actual cash.
Example. As an example, say a company has net income of $40 million, interest expense of $10 million, taxes of $15 million and depreciation and amortization of $35 million. EBITDA is $40 million plus $10 million plus $15 million plus $35 million, which is $100 million.
The catch. Depreciation reflects money that was actually spent on equipment, so for capital-heavy businesses EBITDA can make profits look much better than the cash really is.
Where I talk about it
Related: Enterprise value, Operating margin, Free cash flow, Adjusted earnings
The value of a whole business including its debt, roughly market cap plus debt minus cash.
Explain it
Enterprise value is basically just an estimate of what it would cost to buy the entire company, debt and all. You start with market cap, add the debt, and subtract the cash, because if you bought the company you'd take on its debt but also get its cash.
It's like buying a house. The price tag isn't the full story if there's a mortgage you have to take over, or a pile of cash left in the safe.
For you, enterprise value is useful when you're comparing companies with very different amounts of debt. Two companies with the same market cap can have very different enterprise values, and that's often where the real difference in risk shows up.
Example. As an example, say a company's market cap is $10 billion, it has $3 billion of debt and $1 billion of cash. Enterprise value is $10 billion plus $3 billion minus $1 billion, which is $12 billion.
The catch. The simple formula leaves out things like leases, preferred stock and minority interests, so different data sites can show different enterprise values for the same company.
Where I talk about it
Related: Market cap, EBITDA, P/E ratio
EPS Earnings per share
A company's profit divided by its number of shares, showing how much profit is attached to each share.
Explain it
EPS, or earnings per share, is the company's net income divided by its shares outstanding, which basically just means how much of the profit belongs to each share you own.
You'll usually see two versions. Basic EPS uses the shares that exist today, and diluted EPS also counts shares that could be created from things like stock options and convertible bonds. Diluted EPS is usually the one people quote.
For you, EPS growth over time is one of the cleaner ways to see whether a business is getting more profitable for shareholders, because it accounts for both the profit and the share count.
Example. As an example, if a company earns $500 million of net income and has 250 million shares, EPS is $500 million divided by 250 million, which is $2.00 a share.
The catch. EPS can rise just because a company bought back shares, even if total profit didn't grow, so check net income alongside it.
Where I talk about it
Related: Net income, P/E ratio, Dilution, Share buyback
ETF Exchange-traded fund
A fund that holds a basket of investments and trades on a stock exchange throughout the day like a single stock.
Explain it
An ETF, or exchange-traded fund, is basically just a basket of stocks, bonds or other assets packaged into one thing you can trade on an exchange, the same way you'd trade a single share of a company.
Many ETFs are index funds that try to track something like the S&P 500, but not all of them. Some are actively managed, some focus on one narrow theme, and some use leverage or options to do something more complicated.
For you, the main things to check are what's actually inside it, what it costs through the expense ratio, and whether it's a simple fund or one of the more complex ones that behaves differently than you'd expect.
The catch. Leveraged and inverse ETFs reset daily, so over longer periods their returns can drift far from two or three times the index they track.
Related: Index fund, Expense ratio, Dollar-cost averaging
The yearly fee a fund charges, shown as a percentage of the money you have invested in it.
Explain it
The expense ratio is what a mutual fund or ETF charges each year to run the fund, which basically just means it's a percentage that gets taken out of the fund's assets. You never get a bill for it, it just quietly comes out of your returns.
Because it comes out every single year, small differences add up a lot over a long time, especially on a big balance.
For you, when two funds hold basically the same thing, the expense ratio is one of the few differences you can actually control.
Example. As an example, if you have $10,000 in a fund with a 0.05% expense ratio, the yearly cost is $10,000 times 0.0005, which is $5. The same $10,000 in a fund charging 1% costs $10,000 times 0.01, which is $100 a year.
The catch. The expense ratio doesn't include everything, like trading costs inside the fund or any advisory fee you pay on top.
Where I talk about it
Related: ETF, Index fund
Forward P/E Forward price-to-earnings
A stock's price divided by analysts' estimate of its earnings per share for the next year.
Explain it
Forward P/E is the same idea as the regular P/E ratio, except it uses expected earnings instead of past earnings. All that I mean is you divide today's price by what analysts think EPS will be over the next 12 months or the next fiscal year.
It's popular for fast-growing companies, because last year's earnings might be tiny compared to where the business is heading.
For you, the catch is that the bottom of the math is a forecast. If those estimates turn out too optimistic, the stock was never as cheap as the forward P/E made it look.
Example. As an example, say a stock costs $100, it earned $4 per share last year and analysts expect $5 next year. The trailing P/E is $100 divided by $4, which is 25. The forward P/E is $100 divided by $5, which is 20.
The catch. Forward estimates are usually based on adjusted earnings and can be cut quickly, so a low forward P/E depends entirely on the forecast holding up.
Where I talk about it
Related: P/E ratio, PEG ratio, Consensus estimate, EPS
The cash a business generates from operations after paying for the equipment and investments it needs to keep running.
Explain it
Free cash flow is basically just operating cash flow minus capital expenditures, which are the dollars spent on things like buildings, equipment and data centers. It's the cash left over that the company could use to pay down debt, pay dividends, buy back shares or invest in growth.
Think of it like your paycheck after the bills that keep your life running... rent, the car payment, groceries. What's left is what you can actually choose what to do with.
For you, free cash flow is harder to dress up than earnings, because it's tied to actual cash moving in and out. A company that reports profits year after year but never produces free cash flow deserves some extra questions.
Example. As an example, say a company has $800 million of operating cash flow and spends $300 million on capital expenditures. Free cash flow is $800 million minus $300 million, which is $500 million.
The catch. Many companies report free cash flow without subtracting stock-based compensation, which isn't cash but is still a real cost to shareholders through dilution.
Where I talk about it
Related: Cash burn, Net income, Stock-based compensation, EBITDA
GAAP Generally accepted accounting principles
The official set of US accounting rules that public companies have to follow in their financial statements.
Explain it
GAAP stands for generally accepted accounting principles, which basically just means the rulebook US companies use to prepare their financial statements. The rules are set by the Financial Accounting Standards Board, and the SEC requires public companies to follow them.
The point is consistency. When every company follows the same rules for things like when revenue counts and how to handle stock compensation, you can actually compare one company to another and one year to the next.
For you, when a company reports a non-GAAP number, it's stepping outside that rulebook. That's allowed, but the GAAP number is the one the auditors signed off on, so it's the place to start.
The catch. GAAP numbers aren't perfect either, and they still involve a lot of judgment, so reading the footnotes matters even with audited numbers.
Where I talk about it
Related: Adjusted earnings, Net income, 10-K
A disclosure that there is substantial doubt a company can keep operating and meet its obligations over the next year.
Explain it
A going concern warning basically just means management, and often the auditor, has concluded there's substantial doubt the company can keep running and pay its bills for at least the next year after the financial statements are issued.
Under US accounting rules, management has to do this evaluation, and when the doubt isn't resolved by their plans, the auditor adds a separate paragraph to its report. It's one of the clearest red flags you'll ever see in a filing, because auditors don't add it lightly.
For you, it usually means the company needs to raise money soon, restructure its debt, or sell assets, and any of those can be painful for existing shareholders.
The catch. A going concern warning doesn't guarantee bankruptcy, but it does mean the company's survival depends on things that haven't happened yet.
Where I talk about it
Related: Cash burn, 10-K, Dilution, 8-K
Goodwill is the premium a company paid above the value of another company's assets; an impairment is writing that value down.
Explain it
Goodwill shows up when one company buys another for more than the fair value of its identifiable assets minus its liabilities. All that I mean is it's the extra amount paid for things like the brand, the customers and the expected synergies that don't have their own line on the balance sheet.
For US public companies, goodwill isn't expensed a little each year. Instead, it gets tested for impairment at least once a year, and if the acquired business is worth less than what's on the books, the company writes it down and takes a charge.
For you, a big impairment is basically the company admitting it overpaid for an acquisition. It's a noncash charge, so it doesn't drain the bank account that day, but the cash was already spent when the deal happened.
Example. As an example, a company pays $1 billion for a business whose assets minus liabilities are worth $700 million. It records $1 billion minus $700 million, which is $300 million of goodwill. If a few years later it decides that business is only worth $850 million in total, it takes an impairment of $1 billion minus $850 million, which is $150 million.
The catch. When goodwill is a large share of a company's total assets, a lot of its book value depends on past acquisitions working out.
Where I talk about it
Related: Net income, Adjusted earnings, GAAP
The share of revenue left after paying the direct costs of making the product or delivering the service.
Explain it
Gross margin is gross profit divided by revenue, and gross profit is basically just revenue minus the cost of goods sold, which is the direct cost of making what the company sells.
Think of a coffee shop. If a latte sells for $5 and the coffee, milk and cup cost $1.50, the gross profit is $3.50, before rent, wages for the manager, or marketing.
For you, gross margin tells you something about the business model and pricing power. Software companies often have very high gross margins, while grocery stores and car makers tend to have much thinner ones, and a margin that keeps slipping can mean rising costs or more competition.
Example. As an example, a company has $1,000 million of revenue and $400 million of cost of goods sold. Gross profit is $1,000 million minus $400 million, which is $600 million, and gross margin is $600 million divided by $1,000 million, which is 60%.
The catch. Companies have some choice in which costs go into cost of goods sold, so gross margins aren't always perfectly comparable from one company to another.
Where I talk about it
Related: Operating margin, Revenue, Net income
A company's own forecast for its upcoming revenue, earnings or other results, usually given with quarterly earnings.
Explain it
Guidance is the company telling you what it expects for the next quarter or the full year, which basically just means management's own forecast. It's usually a range for things like revenue, earnings per share or margins.
The market often cares more about guidance than about the quarter that just ended, because stock prices are mostly about the future. So a company can report a great quarter and still see the stock fall if it guides below what analysts were expecting.
For you, it's worth noticing how a company's guidance has played out over time. Some management teams set targets they can reliably beat, and others have a habit of overpromising.
The catch. Guidance isn't required and isn't audited, and a company that suddenly stops giving it is often signaling less confidence in what's ahead.
Where I talk about it
Related: Consensus estimate, Earnings beat or miss, Backlog and RPO
The amount of future price movement that options prices suggest the market is expecting, shown as a yearly percentage.
Explain it
Implied volatility comes from options prices, and it basically just means how much the market expects a stock to move going forward. When people expect big swings, options get more expensive, and implied volatility goes up.
It usually climbs before events like earnings and then drops off sharply right after, once the news is out. People call that drop IV crush.
For you, implied volatility is helpful even if you never trade options, because it gives you a sense of how big a move the market is bracing for around an event.
The catch. Someone can buy an option, be right about the direction, and still lose money if implied volatility falls hard after the event.
Related: Options, Beta
A fund that tries to match a market index, like the S&P 500, by holding the same investments the index holds.
Explain it
An index fund basically just copies a list. Instead of a manager picking stocks, the fund holds whatever is in a particular index, like the S&P 500 or the total US stock market, in roughly the same proportions.
Because there's no one trying to outsmart the market, index funds tend to have very low expense ratios, and they don't trade much, which also helps keep costs down.
For you, the idea is that you're getting the market's return, minus a small fee, rather than trying to beat it. They can be mutual funds or ETFs... the structure is different but the idea is the same.
The catch. Some popular indexes are weighted by market cap, so a handful of the biggest companies can make up a much larger share of the fund than people expect.
Where I talk about it
Related: ETF, Expense ratio, Dollar-cost averaging, Market cap
IPO and S-1 Initial public offering
An IPO is when a private company first sells shares to the public; the S-1 is the SEC filing that describes it.
Explain it
An IPO, or initial public offering, is when a private company sells shares to the public for the first time and starts trading on an exchange. Before that happens, it files an S-1 with the SEC, which basically just means it's the company's big introduction... the business, the financials, the risks and how the money raised will be used.
The S-1 is often the most detailed look you'll ever get at a company's history, and it includes things like who owns what, how much insiders are getting paid, and whether the founders keep special voting control.
For you, the IPO price is set by the company and its bankers for the big investors in the deal, and most regular investors only get to trade once it opens on the exchange, often at a different price.
The catch. Newly public companies often have a lock-up expiration a few months later, when insiders can start selling and a lot of new shares can hit the market.
Where I talk about it
Related: Lock-up expiration, SPAC, 10-K
The date when insiders and early investors in a newly public company are first allowed to sell their shares.
Explain it
When a company goes public, insiders and early investors usually agree not to sell their shares for a set period, often around 90 to 180 days. The lock-up expiration is basically just the day that agreement ends.
It's like a dam with a scheduled opening. Nothing forces anyone to sell, but a lot of shares that couldn't trade before suddenly can.
For you, the date is usually disclosed in the S-1, so it isn't a surprise, but stocks sometimes see extra selling pressure around it, especially if early investors are sitting on big gains.
The catch. Some lock-ups have early release terms tied to the stock price or earnings dates, so the real date can come sooner than the headline number of days.
Where I talk about it
Related: IPO and S-1, Dilution, SPAC
Market cap Market capitalization
The total value of all of a company's shares, found by multiplying the share price by the number of shares outstanding.
Explain it
Market cap is the share price times the number of shares, which basically just means what the stock market says the whole company's equity is worth right now.
This is the number to use when you're comparing the size of companies. A $20 stock isn't cheaper than a $500 stock in any meaningful way... what matters is how many shares there are and what the business is worth overall.
For you, market cap is also a quick reality check. If a company's market cap is many times bigger than its total yearly revenue, the stock is pricing in a lot of growth that hasn't happened yet.
Example. As an example, if a stock trades at $40 and there are 500 million shares outstanding, the market cap is $40 times 500 million, which is $20 billion.
The catch. Market cap ignores debt and cash, so it can make a heavily indebted company look smaller than it really is, which is what enterprise value helps fix.
Where I talk about it
Related: Enterprise value, P/E ratio, Index fund
A company's profit after every expense, including interest and taxes, has been subtracted from revenue.
Explain it
Net income is the very last line of the income statement, which basically just means it's what's left after the company pays for everything... the cost of its products, salaries, marketing, research, interest on its debt, and taxes.
It's the number that earnings per share is built on, and it's the official GAAP measure of profit.
For you, net income is important, but it isn't cash. It includes noncash items like depreciation and impairments, and the timing of revenue and expenses can make it different from the cash the business actually brought in, so it's worth looking at it next to free cash flow.
The catch. One-time gains, like selling a division or a change in the value of an investment, can make net income jump in a way that won't repeat.
Where I talk about it
Related: EPS, Free cash flow, GAAP, Operating margin
The share of revenue left after paying both the direct costs and the everyday operating expenses of running the business.
Explain it
Operating margin is operating income divided by revenue. Operating income is basically just gross profit minus operating expenses, like salaries, research and development, marketing and rent, but before interest and taxes.
So if gross margin tells you how profitable each sale is, operating margin tells you how profitable the whole business is once you pay for everything it takes to run it.
For you, watching operating margin over time shows whether a company is getting more efficient as it grows. When revenue grows faster than expenses, margins expand, and that's often what investors call operating leverage.
Example. As an example, a company has $1,000 million of revenue, $600 million of gross profit and $450 million of operating expenses. Operating income is $600 million minus $450 million, which is $150 million, and operating margin is $150 million divided by $1,000 million, which is 15%.
The catch. Companies sometimes highlight an adjusted operating margin that leaves out stock-based compensation, which can make it look much higher than the GAAP version.
Where I talk about it
Related: Gross margin, Net income, EBITDA, Revenue
Options Calls and puts
Contracts giving the buyer the right, but not the obligation, to buy or sell a stock at a set price by a set date.
Explain it
An option is a contract tied to a stock. A call option gives the buyer the right to buy the stock at a set price, called the strike price, until the expiration date. A put option gives the buyer the right to sell at the strike price. In the US, one standard contract usually covers 100 shares.
The buyer pays a price for the contract called the premium, which basically just works like a nonrefundable deposit. If the stock doesn't move the way they need before expiration, the option can expire worthless and they lose the whole premium.
The person on the other side, the seller, collects the premium but takes on the obligation. Selling calls without owning the shares can have losses with no upper limit, which is why brokers require special approval for it.
For you, options are a much more complicated tool than shares, with time decay and volatility affecting the price, so it's worth understanding them well before touching them.
Example. As an example, say a call option has a $50 strike and costs $2 per share, so one contract costs $2 times 100, which is $200. If the stock is at $60 at expiration, the option is worth $60 minus $50, which is $10 per share, or $1,000 per contract, for a profit of $1,000 minus $200, which is $800. If the stock is at $48, the option expires worthless and the $200 is gone.
The catch. Options lose value as time passes even if the stock doesn't move, so being right eventually isn't enough... you have to be right before expiration.
Where I talk about it
Related: Implied volatility, Short squeeze
P/E ratio Price-to-earnings ratio
A stock's price divided by its earnings per share, showing how much investors are paying for each dollar of profit.
Explain it
The P/E ratio is the share price divided by earnings per share, which basically just means how many dollars you're paying for one dollar of the company's yearly profit. When people just say P/E, they usually mean trailing P/E, which uses the last 12 months of earnings.
A higher P/E usually means the market expects more growth, or sees the business as safer, and a lower one usually means lower expectations or more risk. It doesn't on its own tell you whether something is cheap or expensive.
For you, P/E is most useful as a comparison, either to the company's own history or to similar companies. It doesn't work at all for companies that are losing money, since there are no earnings to divide by.
Example. As an example, if a stock costs $60 and the company earned $3 per share over the last year, the P/E is $60 divided by $3, which is 20. You're paying $20 for each $1 of yearly earnings.
The catch. A very low P/E can be a value trap if earnings are about to fall, and one-time gains can make the P/E look lower than it really is.
Where I talk about it
Related: EPS, Forward P/E, PEG ratio, Market cap
PEG ratio Price/earnings-to-growth
A stock's P/E ratio divided by its expected yearly earnings growth rate, used to compare valuation against growth.
Explain it
The PEG ratio takes the P/E and divides it by the expected earnings growth rate, which basically just means it adjusts the P/E for how fast the company is expected to grow. The growth rate is used as a whole number, so 20% growth becomes 20.
The idea is that a P/E of 40 might be reasonable for a company growing 40% a year, but not for one growing 5%. A PEG around 1 is often treated as a rough rule of thumb for fair, though that's more tradition than science.
For you, it can be a quick way to compare growth companies, as long as you remember the growth number is someone's estimate.
Example. As an example, say a stock has a P/E of 30 and analysts expect earnings to grow 15% a year. The PEG ratio is 30 divided by 15, which is 2.
The catch. Different sites use different growth periods and estimates, so the same stock can show very different PEG ratios depending on where you look.
Where I talk about it
Related: P/E ratio, Forward P/E, Consensus estimate
The IRS rule that treats all your traditional, SEP and SIMPLE IRAs as one pot when taxing a Roth conversion.
Explain it
The pro-rata rule basically just means you can't pick and choose which dollars you convert to a Roth. If you have both after-tax money and pre-tax money across your IRAs, the IRS treats every conversion as a proportional mix of the two.
It's like pouring a cup of cream into a pitcher of coffee. Once it's mixed, you can't pour out just the cream... every cup you pour is part coffee, part cream.
The calculation uses the total value of all your traditional, SEP and SIMPLE IRAs as of December 31 of the year you convert, not the day you convert. Employer plans like a 401(k) aren't included, which is why some people roll pre-tax IRA money into their workplace plan first, if the plan allows it. Inherited IRAs aren't part of the pot either.
For you, this is the rule that decides whether a backdoor Roth is mostly tax-free or partly taxable, and it's reported on Form 8606.
Example. As an example, say you make a $7,500 nondeductible contribution for 2026, and you also have an old rollover IRA with $67,500 of pre-tax money. Your total IRA balance is $7,500 plus $67,500, which is $75,000, and your after-tax share is $7,500 divided by $75,000, which is 10%. If you convert $7,500, only 10% of it, or $750, is tax-free, and the other $6,750 is taxable income.
The catch. Because the balance is measured on December 31, rolling money into a traditional IRA later in the same year can still pull a conversion you did earlier into the pro-rata math.
Related: Backdoor Roth IRA, Roth IRA
Revenue Sales, the top line
The total amount a company earns from selling its products or services during a period, before any expenses.
Explain it
Revenue is the money a company brings in from its customers, which basically just means total sales before taking out any costs. It's the first line on the income statement, which is why people call it the top line.
Under the accounting rules, revenue counts when the company actually delivers what it promised, not necessarily when the cash comes in. That's why deferred revenue and backlog exist as separate ideas.
For you, revenue growth shows whether more people are buying, or paying more. But it's only half the story, since a company can grow revenue fast while losing more money on every sale.
The catch. Revenue can be pulled forward with discounts or aggressive end-of-quarter deals, so a sudden jump followed by a slow quarter is worth a second look.
Where I talk about it
Related: Gross margin, Deferred revenue, Backlog and RPO, TAM
When a company combines its existing shares into fewer shares at a higher price, without changing the total value.
Explain it
A reverse split basically just means the company swaps several of your shares for one new share. Your total value doesn't change on that day... you just have fewer shares at a higher price.
It's like trading ten $1 bills for a $10 bill. You don't have more money, it's just packaged differently.
Companies usually do this when the stock price has fallen a long way, often to stay above an exchange's minimum price, which for Nasdaq and the NYSE is $1. For you, it's worth knowing that it doesn't fix anything about the business itself, and it's sometimes followed by the company issuing more shares.
Example. As an example, say you own 1,000 shares at $0.50, which is worth $500. After a 1-for-10 reverse split, you own 1,000 divided by 10, which is 100 shares, at $0.50 times 10, which is $5 each. That's still 100 times $5, or $500.
The catch. A reverse split is often a sign the company is struggling to keep its listing, and the price frequently keeps sliding afterward.
Related: Dilution, Going concern warning, Market cap
A retirement account funded with after-tax money, where qualified withdrawals in retirement, including the growth, are tax-free.
Explain it
A Roth IRA is an individual retirement account where you pay tax on the money now, before it goes in, and then the growth can come out tax-free later. All that I mean is you skip the tax break today in exchange for not paying tax on the gains down the road.
For 2026, you can contribute up to $7,500, or $8,600 if you're 50 or older, and you can't contribute more than your earned income for the year. You have until the tax filing deadline, which is usually mid-April of the next year, to make contributions for 2026.
There are income limits. For 2026, the amount you can contribute directly starts phasing out at a modified adjusted gross income of $153,000 for single filers and $242,000 for married couples filing jointly, and it's gone completely at $168,000 and $252,000.
For you, the money you contributed can generally be taken back out at any time without tax or penalty, but earnings are only tax-free and penalty-free in a qualified withdrawal, which usually means you're at least 59 and a half and the account has been open for five years, with some exceptions.
The catch. The $7,500 limit is shared across all your IRAs, so traditional and Roth IRA contributions together can't go over it for 2026.
Where I talk about it
Related: Backdoor Roth IRA, Pro-rata rule, Capital gains
When a company uses its cash to buy its own shares, reducing the number of shares outstanding.
Explain it
A share buyback is when a company buys back its own stock, which basically just means it's taking shares off the market. With fewer shares left, each remaining share owns a slightly bigger piece of the business.
It's a way of returning cash to shareholders, a bit like a dividend, except instead of sending everyone cash, it raises the ownership stake of the people who stay. Since 2023, US companies have also paid a 1% excise tax on the net value of shares they buy back.
For you, the questions are what price they're paying and whether the share count is actually going down. A buyback that only offsets new shares handed out to employees isn't really shrinking anything.
The catch. When a company announces a buyback authorization, that's a permission slip, not a commitment, so check later filings to see how much was actually repurchased.
Where I talk about it
Related: Dilution, EPS, Dividend, Stock-based compensation
The number of a company's shares that investors have borrowed and sold short, often shown as a percentage of the shares available to trade.
Explain it
Short interest is the total number of shares that have been sold short and not yet bought back. Short selling basically just means borrowing shares, selling them, and hoping to buy them back later at a lower price to return them.
It's usually shown as a percentage of the float, which is the shares available for public trading, or as days to cover, which is how many days of normal trading volume it would take for all the short sellers to buy back.
For you, high short interest tells you a lot of investors are betting the price will go down. Sometimes they've spotted a real problem, and sometimes it sets up the conditions for a short squeeze. In the US, short interest is reported twice a month, so the number you see can be a couple of weeks old.
Example. As an example, say a company has 100 million shares in its float and 15 million are sold short. Short interest is 15 million divided by 100 million, which is 15%. If the stock trades 3 million shares a day, days to cover is 15 million divided by 3 million, which is 5 days.
The catch. Short interest data is delayed, so it can look very different by the time you see it.
Where I talk about it
Related: Short squeeze, Options
A fast price spike that happens when short sellers rush to buy back shares to limit their losses, pushing the price even higher.
Explain it
A short squeeze is a kind of feedback loop. When a heavily shorted stock starts rising, short sellers are losing money, and to stop the bleeding they have to buy shares back, which basically just adds more buying and pushes the price up even further.
It's like a crowded theater where everyone heads for the same exit at once. The rush itself is what causes the chaos.
For you, the important part is that squeezes are usually driven by trading mechanics rather than anything changing in the business, so once the forced buying is over, the price can drop just as fast.
The catch. Prices during a squeeze can swing wildly in both directions within days, and late arrivals have often taken the biggest losses.
Where I talk about it
Related: Short interest, Options
SPAC Special purpose acquisition company
A shell company that goes public with no business of its own, raising money to merge with a private company and take it public.
Explain it
A SPAC, or special purpose acquisition company, is sometimes called a blank check company, which basically just means it raises money in an IPO with no actual operations, puts that cash in a trust, and then goes looking for a private company to merge with. When the deal closes, the private company ends up public without a traditional IPO.
SPACs usually have a deadline, often around two years, to find a deal, and shareholders typically get the choice to redeem their shares for their slice of the trust instead of staying in after the merger.
For you, the thing to understand is the cost built into the structure. The sponsors who create the SPAC usually get a big chunk of shares for very little money, often around 20% of the company's shares, and that dilutes everyone else.
The catch. Many companies that went public through SPACs relied on rosy long-range projections, and a lot of them traded far below the typical $10 starting price afterward.
Related: IPO and S-1, Dilution, Lock-up expiration
Paying employees with company shares or stock options instead of cash, which is recorded as an expense.
Explain it
Stock-based compensation is when a company pays its people partly in stock, usually restricted stock units or options. All that I mean is instead of handing out more cash, it hands out a slice of the company.
Under GAAP, it's recorded as an expense, but because no cash goes out the door, it gets added back in the cash flow statement, and a lot of companies leave it out of their adjusted earnings too.
For you, it's a real cost even though it isn't cash. Shareholders pay for it through dilution, or the company spends cash on buybacks just to keep the share count from rising. It's worth comparing stock-based compensation to revenue to see how big it really is.
Example. As an example, say a company reports $300 million of free cash flow and $120 million of stock-based compensation. If you treat that compensation as a cost, free cash flow is $300 million minus $120 million, which is $180 million, so about 40% of the reported number came from paying people in stock.
The catch. Adding back stock-based compensation can make a company look profitable on an adjusted basis when it's actually losing money under GAAP.
Where I talk about it
Related: Dilution, Adjusted earnings, Free cash flow, Share buyback
TAM Total addressable market
An estimate of the total yearly revenue available if a company captured an entire market for its product.
Explain it
TAM stands for total addressable market, which basically just means the size of the whole pie if every possible customer bought the product. Companies love putting a big TAM number in investor presentations.
It's a useful way to think about how much room a company has to grow. But it's an estimate, usually built by the company or a consulting firm, and there's a lot of freedom in how the market gets defined.
For you, the better question is how much of that market the company can realistically win, and at what profit. A huge TAM doesn't help much if the competition is fierce or the customers won't pay.
Example. As an example, say there are 10 million small businesses that could use a piece of software that costs $1,000 a year. The TAM would be 10 million times $1,000, which is $10 billion a year. If the company has 100,000 customers, it has 100,000 divided by 10 million, which is 1% of that market.
The catch. TAM figures often get bigger with each new investor presentation, sometimes because the definition got stretched rather than the market actually grew.
Where I talk about it
Related: Revenue, Guidance
Selling investments at a loss in a taxable account to offset capital gains and possibly some ordinary income.
Explain it
Tax-loss harvesting basically just means selling an investment that's down so you can use the loss on your taxes. The loss can offset capital gains you've realized, and if losses are bigger than gains, up to $3,000 a year, or $1,500 if you're married filing separately, can offset ordinary income, with the rest carried forward.
People often reinvest the money into something similar so they stay invested, but it has to be different enough to avoid the wash sale rule.
For you, this only applies in regular taxable brokerage accounts. Inside an IRA or 401(k), gains and losses aren't taxed year to year, so there's nothing to harvest.
Example. As an example, say you have a $5,000 gain from one stock and a $3,000 loss in another. If you realize the loss, your net gain is $5,000 minus $3,000, which is $2,000, so you're only taxed on $2,000 instead of $5,000.
The catch. Harvesting a loss lowers your cost basis on whatever you reinvest in, so in many cases it pushes the tax down the road rather than making it disappear.
Where I talk about it
Related: Capital gains, Wash sale rule
An IRS rule that blocks a loss if you buy a substantially identical investment within 30 days before or after the sale.
Explain it
The wash sale rule says that if you sell something at a loss and buy the same or a substantially identical investment within 30 days before or 30 days after the sale, you can't claim that loss right now. That's basically just a 61-day window centered on the sale date.
The loss isn't gone forever in a normal account... it gets added to the cost basis of the new shares, so you get the benefit later when you sell those. But if the repurchase happens inside your IRA, the IRS has said the loss is effectively lost for good, since IRA basis doesn't work that way.
It also counts purchases made by your spouse, and things like automatic dividend reinvestment can accidentally trigger it. For you, the simplest way to stay clear is to watch the calendar on both sides of any sale at a loss.
Example. As an example, you buy 100 shares for $5,000 and sell them for $4,000, a $1,000 loss. Two weeks later you buy 100 shares back for $4,200. That's a wash sale, so the $1,000 loss is disallowed for now and added to your new cost basis, which becomes $4,200 plus $1,000, or $5,200.
The catch. The window runs 30 days before the sale too, so buying more shares a week before selling the old ones at a loss can trigger it.
Where I talk about it
Related: Tax-loss harvesting, Capital gains, Roth IRA
No term matches that. Tell me in the YouTube comments and I'll add it.
Tax numbers are for the 2026 tax year. This is education, not tax or investment advice. I'm a CPA, but I'm not your CPA. Full disclaimer.
