Bottom line– refers to the bottom line of a company’s income statement, which is net earnings.

Dividend– a part of company earnings paid back to shareholders.
Usually paid every quarter, or once a year. Read more about how to double your money with dividends.

Earnings– a company’s net profit. Total revenue minus total expenses.

Revenue– total sales.

Shares– units of stock.

Shareholders– the owners of a stock.

Top Line– refers to the top line of a company’s income statement, which is revenue.

10-k– form that every company with at least 100 million in market cap must file with the SEC. Contains the company’s annual report and financial information.

Annual report– see 10-k.

Income statement– Shows money that is flowing into the business. It is the part of annual report that displays revenue, earnings, gross margins, and other income numbers.

Balance sheet– Describes everything that the company owns, along with everything they owe. It is the part of annual report that breaks down all assets, liabilities, and shareholder’s equity of a company.

Statement of cash flows– Presents cash flow numbers from operating activities, investing activities, and financing activities. This includes things like inventories, capital expenditures, and short and long term debt.

Book value– Describes a company’s worth. If you were buying the business, this would be its value. Calculated by subtracting total assets minus total liabilities. Buying a stock that is trading below book value gives the investor a margin of safety.

Assets– Things of value that can produce or be converted into cash. You can find assets listed in a company’s balance sheet, found in the 10-k. Can vary from real estate to inventory and more.

Liabilities– A company’s expenses, which can include debt commitments, contingencies accounts payable and more. Can also be found in a company’s balance sheet in the 10-k.

Shareholder’s equity– Total assets minus total liabilities. See also book value.

Market cap– Also called market capitalization. This is the market value of a stock. It is the company’s share price multiplied by the shares outstanding.

Shares outstanding– the number of shares in the market.

Stock split– When a company doubles the amount of shares outstanding, thus halving the share price. This doesn’t create extra value for shareholders, as is believed. Instead it makes the stocks appear to be more affordable, when in reality nothing has changed. An investor has more shares but owns the same percentage of the company.

For example, a company with 1,000 shares trading at $20 can do a stock split, increasing the total number of shares to 2,000 with a new stock price of $10. As you can see, the market cap doesn’t change– it’s still at $20,000– and so in reality the stock is no more valuable.

Share buybacks– When a company agrees to use profits to buyback its own stock. This creates value for shareholders either by driving up the stock price, or reducing the shares outstanding.

P/E ratio– price to earnings ratio. It is the relation of a company’s price to its earnings. Calculated by dividing price by earnings. Lower P/E ratio companies tend to be undervalued and cheaper. Read more about the P/E ratio.

P/S ratio– price to sales ratio. Relation of a company’s price to its sales. Calculated by dividing price by total sales. This ratio is an underused tool in the investing world, yet it can be extremely effective in finding undervalued companies. Read more about the P/S ratio.

P/B ratio– price to book value ratio. Relation of a company’s price to its book value. Calculated by dividing price by book value. It is a tool frequently used by value investors to identify a stock’s valuation. Read more about the P/B ratio.

P/C ratio– price to cash ratio. Relation of  a company’s price to how much cash it has. Calculated by dividing price by amount of cash, found in the statement of cash flows. Read more about the P/C ratio.

Short squeeze– When shorting a stock, an investor must put down some margin in case the stock goes up. When the stock goes higher, the broker may make a margin call. If many shorts can’t make this margin call, the stock becomes pushed higher and higher as it causes more shorts to have to make their margin calls. In a snowball like effect, this increasing of margin calls causes the stock price to shoot up, also known as a short squeeze.

Shorting– When an investor bets that a company’s stock will go down instead of go up. The investor makes money when the share price crosses below the price shorted at. The most an investor can make from a single short is 100% if the stock goes to zero. But, an investor shorting a stock can short the stock more and more as it crashes down, also known as pyramiding. This greatly increases the profit of a short.

Overvalued– when a stock is trading at a much higher premium than what it is actually worth. So much money has been lost forever from foolish purchases of these stocks.

Undervalued– when a stock is trading at a much lower premium than what it is actually worth. A lot of money can be made by buying these bargain stocks.

Margin– when referring to a brokerage account, it is another word for debt. It increases gain possibilities for the margin account holder but also greatly increases his risk.

Margin call– when an investor shorts a stock and the stock goes up instead of down. The investor’s broker will then call the investor and require that the investor put more money down to cover his losses if he wants to stay in the trade.

Volume– refers to how frequently a stock is being bought or sold in the market

Gross margins– This is a company’s margin of profit. It is calculated by subtracting total sales by total costs, and dividing that by total sales. A company with higher gross margins has a competitive advantage over its peers.