Glossary
The terms you meet most in U.S. earnings and valuation — what each one means, how to read it, and the common trapsAbout & Methodology →Earnings & Expectations
- Earnings SeasonReporting seasonEarnings season is the stretch of weeks when public companies report their quarterly results in quick succession. In the U.S. it happens four times a year, kicking off around the middle of January, April, July and October and running for four to six weeks.
- Earnings Per Share (EPS)Diluted EPSEarnings per share is net income divided by shares outstanding: how much profit each share earned during the period. It is the most closely watched number in any earnings report, and it is also the denominator of the P/E ratio.
- Consensus EstimateStreet estimates · Wall Street expectationsThe consensus estimate is the average (or median) of the forecasts that sell-side analysts covering a company have made for metrics such as revenue and EPS. The market uses it as the baseline for deciding whether a report was "good."
- Earnings Beat / MissEarnings surpriseWhen reported revenue or EPS comes in above the consensus estimate it is a beat; below is a miss; roughly equal is in line. The difference expressed as a percentage of the estimate is called the surprise.
- GuidanceOutlook · Forward guidanceGuidance is management's forecast for next quarter's or the full year's revenue, margins, EPS and similar metrics, usually given as a range. It is one of the parts of an earnings report that moves the stock the most.
- Non-GAAP EarningsAdjusted earningsGAAP stands for U.S. Generally Accepted Accounting Principles. Non-GAAP figures are "adjusted" numbers that a company calculates itself by starting from GAAP and excluding certain items, most commonly stock-based compensation, amortization of acquired intangibles and restructuring charges.
- BMO / AMC (Before Market Open / After Market Close)Pre-market · After-hoursBMO (Before Market Open) means a company reports earnings before the U.S. market opens; AMC (After Market Close) means it reports after the close. The timing determines which trading day the stock reacts on.
- Fiscal Year and Fiscal QuartersFY · Q1–Q4A fiscal year is a company's own accounting year, and it does not have to match the calendar year. Nvidia's fiscal year ends in late January, Apple's in late September and Microsoft's at the end of June, so the same calendar quarter goes by different names at different companies.
- YoY and QoQYear over Year · Quarter over QuarterYear over year (YoY) compares a quarter with the same quarter a year earlier; quarter over quarter (QoQ) compares it with the quarter just before. They answer different questions: YoY shows the growth trend, QoQ shows the most recent change.
Valuation
- P/E RatioPrice-to-Earnings · P/E (TTM)The P/E ratio is the share price divided by earnings per share, which is the same as market cap divided by net income. It tells you how many years of earnings at the current level it would take to earn back the purchase price. TTM means the calculation uses trailing-twelve-month earnings.
- Forward P/EForward price-to-earnings · NTM P/EForward P/E swaps past earnings for the consensus estimate of earnings over the next twelve months. It answers the question: if the analysts' forecasts are right, is today's price expensive?
- PEG RatioPrice/Earnings-to-GrowthThe PEG ratio is the P/E ratio divided by the earnings growth rate (expressed as a percentage). It tries to answer whether a given P/E is reasonable once growth is taken into account. By convention, a PEG around 1 is considered fair and below 1 is on the cheap side.
- Price-to-Sales (P/S)P/S ratioThe price-to-sales ratio is market cap divided by trailing-twelve-month revenue. It is the most widely used valuation metric for companies that do not yet have steady profits.
- Price-to-Book (P/B)P/B ratioThe price-to-book ratio is market cap divided by book value (total assets minus total liabilities). It measures how much the market is willing to pay for each dollar of net assets on the company's books.
- Market CapitalizationMarket capMarket capitalization is the share price multiplied by total shares outstanding: the price the market puts on all of a company's equity. To compare the size of companies, look at market cap, not share price.
Profitability & Cash Flow
- Gross MarginGross margin is (revenue minus cost of revenue) divided by revenue: how much of each dollar of sales is left after direct costs. It reflects the profitability of the product itself and the company's pricing power.
- Operating MarginOperating margin is operating income divided by revenue. Operating income is what remains of gross profit after operating expenses such as R&D, sales and marketing, and general and administrative costs, so it reflects the overall profitability of the core business.
- Free Cash Flow (FCF)Free cash flow is operating cash flow minus capital expenditures. It is the cash a company is genuinely free to use: for buybacks, dividends, paying down debt or acquisitions.
- Share BuybackShare repurchase · Stock buybackA buyback is a company using cash to repurchase its own shares on the market and retire them. With fewer shares outstanding, earnings per share and each share's claim on the company both go up. It is the other way, besides dividends, of returning capital to shareholders.
- Revenue Flow Chart (Sankey)Sankey diagramA revenue flow chart uses bands of varying width to break down a quarter's revenue from left to right: on the left, revenue from each business segment; on the right, cost of revenue, R&D, SG&A, taxes and, finally, net income.
SEC Filings
- Form 8-KCurrent reportForm 8-K is the current report a public company files with the SEC when a material event occurs, and it must be filed within four business days of the event. Quarterly earnings press releases are published as exhibits to an 8-K.
- Form 10-QQuarterly reportForm 10-Q is the formal quarterly report a public company files with the SEC for each fiscal quarter except the fourth. It contains complete unaudited financial statements, management's discussion and analysis, and updates to risk factors.
- Form 10-KAnnual reportForm 10-K is the annual report a public company files after each fiscal year ends. It contains audited financial statements and the most complete description available of the business, its competition and its risk factors.
- MD&AManagement's Discussion and AnalysisMD&A is a standard section of the 10-Q and 10-K in which management explains in words why the period's results changed: which businesses grew, which costs rose, how cash flow and capital spending are being managed, and what risks it sees.
- Form 13F13F institutional holdingsInstitutional investors managing more than $100 million must file Form 13F with the SEC within 45 days after each quarter ends, disclosing their long positions in U.S. stocks. It is a public window into what well-known funds are doing.
- Insider Transactions (Form 4)Insider buying and sellingWhen a company's executives, directors or shareholders owning more than 10% buy or sell the company's stock, they must disclose the trade on Form 4 within two business days. This refers to legal, publicly disclosed trades, not the illegal practice of trading on inside information.
- XBRLeXtensible Business Reporting LanguageXBRL is a standard format for tagging financial data. The SEC requires public companies to attach a standardized tag to every financial number in their 10-Qs and 10-Ks so that machines can read and compare them directly.
Markets
- S&P 500S&P 500 IndexThe S&P 500 is made up of roughly 500 large U.S.-listed companies, weighted by float-adjusted market cap. It covers about 80% of total U.S. stock market value and is the most widely used gauge of the U.S. large-cap market.
- Market BreadthAdvance/declineMarket breadth measures how many stocks are taking part in a rally or a decline. Common indicators include the advance/decline ratio, the share of stocks trading above their 50-day moving average, and the number of stocks hitting new 52-week highs and lows.
- VIXCBOE Volatility Index · Fear indexThe VIX is derived from the prices of S&P 500 index options and reflects how much volatility the market expects over the next 30 days, on an annualized basis. The higher the reading, the more investors are willing to pay for insurance.
- Treasury Yields10-year Treasury yield · U.S. Treasury yieldsA Treasury yield is the annualized return from holding a U.S. government bond to maturity. The 10-year yield is treated as the "risk-free rate" for pricing assets worldwide, while the 2-year yield most directly reflects the market's expectations for Federal Reserve interest rates.
- BetaBeta measures how much a stock moves relative to the overall market. A beta of 1 means it moves in step with the market; 1.5 means it moves 1.5% on average when the market moves 1%; below 1 means it is steadier than the market.
- 52-Week Range52-week high / lowThe 52-week range is a stock's highest and lowest price over the past year. Where the current price sits within that range is the simplest reference point for whether the stock is expensive or cheap right now.