Glossary Terms

A - F 

Berkshire Hathaway

An American multinational conglomerate holding headquartered in Omaha, Nebraska according to Wikipedia. But I view Berkshire as a mental model for an ethical business conduct. Reading Buffett's letters to shareholders highly influenced - and continues to influence - my approach to business analysis and investing in general.

Capital structure

The mix of debt and equity that a company uses to finance its business; a company's specific mixture of long-term financing.

Dividend

A distribution paid to shareholders based on the number of shares owned.

Earnings before interest, taxes, depreciation, and amortization (EBITDA)

a company's earnings, before interest expenses, taxes, depreciation, and amortization are subtracted. While some investors view EBITDA as a proxy fro a company' current operating profitability, it is a poor indicator. Or in the words of Charlie Munger: "I think that, every time you saw the word EBITDA earnings, you should substitute the word "bullshit" earnings." 

Earnings per share (EPS)

Net earnings divided by common shares outstanding. I prefer to use the dilutive number of outstanding common shares.

Enterprise Value

Total company value (market value of debt, preferred and common equity) minus the value of investments and cash.

Exchange-traded fund (ETF)

an investment fund traded on stock exchanges, much like stocks. It is often attractive for the passive investor for its low management cost.

Form 10-K

A Form 10-K is an annual report required by the U.S .Securities and Exchange Commission (SEC), that gives a comprehensive summary of a company's financial performance.

Funds from operations

The National Association of Real Estate Investment Trusts (NAREIT) calculates funds from operations as GAAP-based net income, excluding gains (or losses) from property sales, real estate related depreciation and amortization, and impairment charges on depreciable real estate assets.

G - L

No items found.

M - R

Real estate investment trust (REIT)

A REIT is a company that owns or finances income-producing real estate in a range of property sectors.

Return on equity (ROE)

A profitability ratio calculated as net income divided by the average shareholders' equity.

Risk

According to FINRA, Risk is any uncertainty with respect to your investments that has the potential to negatively affect your financial welfare. In his latest annual report to shareholders, Warren Buffett defined risk as follows: "Investing is an activity in which consumption today is foregone in an attempt to allow greater consumption at a later date.”Risk" is the possibility that this objective won't be attained." In that spirit, I define risk as how likely it is that you will lose money.

S - Z

Standard & Poor's 500 (S&P 500) index

An American stock market index based on the market capitalization of 500 large companies having common stock listed on the NYSE or NASDAQ.

Shareholders' equity

Total assets minus total liabilities.

Trailing P/E

A stock's current market price divided by the most recent four quarters of EPS. Also called current P/E.

Treasury stock

Shares that were issued and subsequently repurchased by the company.