The Investor's Lexicon

Specific patterns in financial statements that signal elevated risk of accounting manipulation, governance failure, or business deterioration.

Charlie Munger

The excess return of an investment above what would be predicted by its exposure to market risk (beta) — the value added by active management or security selection.

Howard Marks

The division of a portfolio across different asset classes — equities, bonds, cash, real assets — to balance expected return against risk over time.

Ray Dalio

Revenue divided by total assets — measures how efficiently a business converts its asset base into revenue, a key driver of return on assets.

Warren Buffett

A standard index or reference portfolio used to evaluate investment performance — the S&P 500 is the most common equity benchmark in the US.

Warren Buffett

A measure of an investment's sensitivity to broad market movements — a beta of 1.0 moves in line with the market; above 1.0 amplifies market moves; below 1.0 dampens them.

Howard Marks

Shareholders' equity on the balance sheet — total assets minus total liabilities — representing the accounting net worth of a company.

Benjamin Graham

Buffett's four-part investment screen: a business he understands, with favourable economics, honest and competent management, and a sensible price.

Warren Buffett

The decisions management makes about how to deploy the cash a business generates — reinvestment, acquisitions, dividends, buybacks, or debt repayment — which determine long-term shareholder value.

Warren Buffett

Money spent on acquiring or upgrading physical assets — the primary drain on free cash flow.

The profit from selling an investment for more than its purchase price — the difference between the selling price and the original cost basis.

Warren Buffett

The domain of businesses and industries that an investor understands deeply enough to make reliable judgments about long-term competitive prospects and intrinsic value.

Warren Buffett

A relative valuation method that values a company by comparing its financial metrics to publicly traded peers — establishing a market-derived valuation range.

Benjamin Graham

The risk that an excessive allocation to a single investment, sector, geography, or risk factor could cause outsized losses if that concentration performs poorly.

Howard Marks

The system of rules, practices, and processes by which a company is directed and controlled — the mechanisms that align management decisions with shareholder interests.

Warren Buffett

The statistical measure of how two investments move in relation to each other — ranging from +1 (perfect positive correlation) to -1 (perfect negative correlation).

Howard Marks

Total debt divided by shareholders' equity — a measure of financial leverage that determines how much of the business is financed by borrowing.

Benjamin Graham

A valuation method that estimates intrinsic value by projecting future cash flows and discounting them to present value at an appropriate rate.

Warren Buffett

A cash distribution paid by a company to its shareholders from profits — typically expressed as a dividend per share or as a yield relative to the share price.

Benjamin Graham

Annual dividend per share divided by the current share price — the income return on a stock expressed as a percentage, directly comparable to bond yields.

Benjamin Graham

The practice of investing a fixed sum at regular intervals regardless of market price — buying more shares when prices are low and fewer when prices are high, smoothing the average cost basis.

Warren Buffett

Earnings before interest, taxes, depreciation, and amortisation — a proxy for operating cash flow used widely in valuation multiples, particularly EV/EBITDA.

Warren Buffett

Investment approach incorporating Environmental, Social, and Governance factors alongside financial analysis — evaluating non-financial risks and opportunities that affect long-term returns.

Howard Marks

Net profit divided by the number of shares outstanding — the portion of a company's profit attributable to each share, the denominator in the P/E ratio.

Benjamin Graham

The value of a business assuming its current normalised earnings continue indefinitely with zero growth — a conservative analytical floor distinct from growth-dependent DCF valuation.

Benjamin Graham

The degree to which reported earnings accurately reflect the true economic performance and cash-generating capacity of a business.

Benjamin Graham

Earnings per share divided by market price — the inverse of P/E expressed as a percentage, directly comparable to bond yields.

Benjamin Graham

A durable structural advantage that protects a business from competition and allows it to sustain above-average returns on capital over an extended period.

Warren Buffett

Market capitalisation plus net debt (total debt minus cash) — the theoretical takeover price of a business, representing the total cost to acquire all cash flows.

Warren Buffett

The excess return investors expect from equities over a risk-free rate — the fundamental driver of market valuations.

A systematic investment approach that tilts a portfolio toward well-documented return drivers (factors) — including value, quality, momentum, size, and low volatility — that have historically produced excess returns.

Howard Marks

Premiums collected but not yet paid out as claims — an interest-free pool of capital Buffett famously deployed at Berkshire.

The portion of a company's value from its ability to earn returns above the cost of capital on incremental investments.

The analytical distinction between a business worth more than its tangible assets due to durable competitive advantage (franchise) and one worth only what its assets cost to replace (commodity).

Warren Buffett

Operating cash flow minus capital expenditures — the actual cash a business generates after funding its own maintenance and growth requirements.

Warren Buffett

The portion of a company's shares actually available for public trading — excluding promoter and strategic holdings.

The premium paid above the fair value of a company's net assets in an acquisition — recorded on the acquirer's balance sheet as an intangible asset.

Warren Buffett

A dividend discount model that values a stock as the next period's dividend divided by the difference between the discount rate and the perpetual dividend growth rate.

Benjamin Graham

The square root of (22.5 × EPS × Book Value per Share) — Graham's formula for the maximum price to pay for any stock.

Benjamin Graham

Assets not reflected in financial statements — real estate at historical cost, brand value, or undervalued subsidiaries.

Operating earnings divided by interest expense — measures how many times over a company can cover its interest payments from operating profits.

Benjamin Graham

The true economic worth of a business based on its future cash flows, assets, and earnings power — independent of its market price.

Benjamin Graham

The estimated proceeds from selling all of a company's assets and settling all liabilities — the absolute floor value of a business in a forced sale scenario.

Benjamin Graham

The ease with which an asset can be bought or sold without materially affecting its price — cash is perfectly liquid; private real estate is highly illiquid.

Howard Marks

Buying an asset at a significant discount to its intrinsic value to create a buffer against errors in analysis, adverse events, or bad luck.

Benjamin Graham

The largest peak-to-trough decline in a portfolio's value over a specific period — the worst loss that would have been experienced by an investor who bought at the high and sold at the low.

Howard Marks

The observed tendency for asset prices, corporate profit margins, and returns on capital to return toward long-run historical averages after periods of extreme deviation.

Benjamin Graham

Graham's metaphor for the stock market as an erratic business partner who offers to buy or sell his share at a different price every day — driven by emotion, not logic.

Benjamin Graham

Net income divided by revenue — the percentage of each rupee of revenue that reaches the bottom line after all costs, taxes, and interest payments.

Warren Buffett

Current assets minus all liabilities (both current and long-term). Graham's ultra-conservative value floor — any stock trading below this is statistically cheap.

Benjamin Graham

Earnings adjusted to remove cyclical, one-time, or accounting distortions — representing the sustainable through-cycle earning power of a business.

Benjamin Graham

Operating profit (EBIT) divided by revenue — the percentage of each rupee of revenue remaining after variable costs and operating overhead, before interest and taxes.

Warren Buffett

Buffett's measure of a business's true cash generation: net income plus depreciation and amortisation, minus the capital expenditure required to maintain competitive position.

Warren Buffett

Dividends per share divided by earnings per share — the percentage of profits paid out as dividends; the remainder is retained and reinvested in the business.

Benjamin Graham

The complete collection of investments held by an individual or institution — the total of all positions across all asset classes at a given point in time.

Warren Buffett

The process by which markets aggregate dispersed information to arrive at a price reflecting collective knowledge.

Market price per share divided by book value per share — compares the market's valuation to the accounting value of a company's net assets.

Benjamin Graham

Market price per share divided by annual earnings per share — the most widely used shorthand for whether a stock is cheap or expensive relative to its earnings.

Benjamin Graham

Market capitalisation divided by annual revenue — a valuation multiple useful for companies with no earnings, or when earnings are temporarily depressed.

Peter Lynch

The pledging of promoter-held shares as collateral for a loan — a risk indicator in Indian markets where forced sales of pledged shares can trigger price collapses.

Warren Buffett

The valuation premium that high-quality businesses with durable competitive advantages command over the broad market — the extra P/E an investor should rationally pay for superior, predictable earnings.

Charlie Munger

The periodic adjustment of a portfolio back to its target asset allocation by selling outperforming assets and buying underperforming ones — systematically buying low and selling high.

Ray Dalio

The cost to build or acquire the same business from scratch today — a floor valuation for asset-intensive industries.

Cumulative profits reinvested in the business rather than paid as dividends — the raw material of compounding.

Net income divided by total assets — a measure of how efficiently a business uses its asset base to generate profit.

Operating profit divided by capital employed (total assets minus current liabilities) — measures how efficiently a business generates profit from all capital deployed in the business.

Warren Buffett

Operating profit after tax divided by total capital employed — the single most revealing measure of whether a business creates or destroys economic value.

Charlie Munger

The percentage gain or loss on an investment relative to its cost — total return (including dividends and price appreciation) divided by the amount invested.

Warren Buffett

A valuation technique that asks what growth rate the current market price implies, revealing the expectations embedded in the stock price rather than projecting cash flows forward.

Warren Buffett

The theoretical return on an investment with zero risk — typically the 10-year government bond yield.

A company's repurchase of its own shares from the open market, reducing the share count and increasing each remaining shareholder's proportional ownership.

Warren Buffett

The excess return above the risk-free rate divided by the standard deviation of returns — a risk-adjusted performance measure expressing return per unit of volatility taken.

Howard Marks

A valuation method that values each business unit or asset of a conglomerate separately, then adds the components — useful when the whole trades at a discount to its parts.

Benjamin Graham

The practice of selling investments at a loss to realise a tax deduction, then reinvesting in a similar (but not identical) position to maintain market exposure.

Warren Buffett

The present value of all cash flows beyond the explicit forecast period in a DCF model — typically representing 60–80% of a company's total calculated intrinsic value.

Warren Buffett

The integrated reading of the income statement, balance sheet, and cash flow statement as a connected system — the foundation of all fundamental analysis.

Benjamin Graham

The blended cost of a company's capital, weighted by the proportion of debt and equity in its capital structure — used as the discount rate in DCF valuations.

Warren Buffett

Current assets minus current liabilities — the short-term liquidity buffer a business uses to fund its day-to-day operations and meet near-term obligations.

Benjamin Graham