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Your comprehensive guide to the essential metrics and concepts of fundamental analysis, inspired by the principles of Benjamin Graham.

D

Debt-to-Equity Ratio

A ratio that measures a company's financial leverage by dividing its total liabilities by its total shareholder equity. A lower number indicates less reliance on debt and therefore lower risk. Value investors look for companies with strong balance sheets and manageable debt.

F

Free Cash Flow (FCF) Yield

A valuation metric that measures a company's free cash flow per share relative to its market price per share. FCF is the cash a company has left over after paying for its operating expenses and capital expenditures. Many investors consider FCF Yield a more honest valuation metric than the P/E ratio, as cash flow is harder to manipulate than earnings.

I

Intrinsic Value

The "true" underlying value of a business, based on its assets and earning power. The goal of a value investor is to calculate a conservative estimate of intrinsic value and buy the company's stock for significantly less.

M

Margin of Safety

The central concept of value investing. It is the difference between a stock's market price and its estimated intrinsic value. A large margin of safety (i.e., buying a stock for much less than it's worth) provides a buffer against bad luck, miscalculation, and market volatility.

Mr. Market

An allegory created by Benjamin Graham to describe the stock market's irrational, manic-depressive nature. Mr. Market offers you prices every day that are driven by either euphoria or pessimism. The intelligent investor ignores his moods and uses their own analysis to decide when to buy or sell.

P

Price-to-Book (P/B) Ratio

A ratio that compares a company's market price to its book value (assets minus liabilities). A P/B ratio under 1.5 was a classic benchmark for Graham, as it suggests you are not overpaying for the company's net assets.

Price-to-Earnings (P/E) Ratio

A ratio that compares a company's stock price to its earnings per share. It's a classic valuation metric to determine if a stock is cheap or expensive relative to its profits. A low P/E ratio is often a starting point for finding undervalued stocks.

R

Return on Equity (ROE)

A measure of profitability that calculates how much profit a company generates with the money shareholders have invested. While useful, it can be artificially inflated by high debt levels.

Return on Invested Capital (ROIC)

A measure of quality and efficiency that shows how well a company is using all its capital (both debt and equity) to generate profits. A consistently high ROIC is often considered the single best indicator of a company with a strong "economic moat" or competitive advantage.

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