Glossary
Finance terms in plain English
53 terms you'll meet in annual reports and on the channel. Each one has a short explanation, a simple example with round numbers, and a diagram.
Revenue & growth
How much a company sells, how fast it grows and how much is already signed.
Annual recurring revenue (ARR)The yearly value of subscriptions a company can count on renewing.
BacklogOrders already placed that the company hasn't delivered yet.
BillingsRevenue plus the change in deferred revenue: roughly what was invoiced.
ChurnThe share of customers or revenue a company loses over a period.
Compound annual growth rate (CAGR)The steady yearly growth rate between a start and an end value.
Customer concentrationHow much revenue depends on a few big customers.
Deferred revenueMoney received for work not delivered yet.
Net revenue retention (NRR)How much more, or less, existing customers spend a year later.
Organic growthGrowth from the existing business, without acquisitions.
Remaining performance obligationsRevenue already signed but not yet delivered.
Rule of 40Growth rate plus profit margin should add up to at least 40%.
SegmentsThe business lines or regions a company reports separately.
Year-over-year growth (YoY)The change compared with the same period one year earlier.
Profit & margins
What's left of the revenue after the costs, and the ways companies measure it.
Adjusted EBITDAEBITDA with further costs the company chooses to leave out.
AmortizationSpreading the cost of intangible assets over the years they're useful.
DepreciationSpreading the cost of machines and buildings over the years they're used.
EBITDAEarnings before interest, taxes, depreciation and amortization.
Gross marginThe share of revenue left after the direct cost of the product.
ImpairmentA write-down when an asset is worth less than its book value.
Net incomeThe profit left after all costs, interest and taxes.
Non-GAAP figuresCompany-defined numbers that leave out some official costs.
Operating leverageWhen costs are mostly fixed, profit moves faster than revenue.
Operating marginThe share of revenue left after running the business.
Cash flow
The cash that actually comes in and goes out, which isn't the same as profit.
Balance sheet & debt
What a company owns, what it owes, and what that says about its finances.
Balance sheetWhat a company owns and owes on one day.
Contractual obligationsPayments a company has already signed up to make in future years.
Convertible notesBonds that can be swapped for shares.
Equity methodHow a company accounts for a big minority stake in another business.
Finance leaseA lease that works like buying the asset with borrowed money.
GoodwillThe part of an acquisition price above the assets you can list.
InventoryProducts and materials made or bought but not yet sold.
Net debtBorrowings minus cash.
Valuation
How the stock market prices a company, and how to compare those prices.
Enterprise valueMarket value plus debt minus cash.
EV/EBITDAEnterprise value divided by EBITDA.
Free cash flow yieldYearly free cash flow divided by market value.
Market capitalizationShare price times the number of shares.
Price-to-earnings ratio (P/E)Share price divided by earnings per share.
Price-to-sales ratio (P/S)Market value divided by yearly revenue.
Reports & filings
The documents companies publish and the calendar they follow.
10-K (annual report)The annual report US companies file with the SEC.
Fiscal yearThe 12-month period a company uses for its accounting.
GuidanceA company's own forecast for its coming results.
Pro formaFigures restated as if something had happened earlier.
Proxy statementThe pre-meeting document with executive pay, the board and the biggest owners.
Related partyA business the company is closely tied to, which must be disclosed.
Risk factorsThe 10-K section listing what could seriously hurt the business.
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