50 Essential Investment & Finance Terms

The Price to Earnings Ratio (PER / P/E) measures a company's current share price relative to its per-share earnings. A lower P/E may indicate that the stock is undervalued or that investors expect lower future growth, while a higher P/E suggests high growth expectations.

The Price to Book Ratio (PBR / P/B) compares a firm's market capitalization to its book value. A P/B ratio under 1.0 indicates that the stock is trading below its asset liquidation value.

Return on Equity (ROE) measures profitability by revealing how much profit a company generates with the money shareholders have invested.

The ex-dividend date is the day on which a stock begins trading without the right to receive the next dividend payment. Investors must purchase shares before this date to qualify.

Dividend yield indicates how much a company pays out in dividends each year relative to its stock price.

Watering down (Dollar-Cost Averaging on dips) is the strategy of buying more shares as the price drops to lower the average cost basis per share.

Dividend income tax is the tax levied on dividend payments received by investors. In Korea, a flat 15.4% is withheld at source up to 20 million KRW annually.

Comprehensive taxation applies when annual interest and dividend earnings exceed 20 million KRW, combining with other earned income at progressive rates up to 49.5%.

Compound Annual Growth Rate (CAGR) measures the geometric progression ratio that provides a constant rate of return over multiple time periods.

Earnings Per Share (EPS) represents the portion of a company's profit allocated to each outstanding share of common stock.

Book Value Per Share (BPS) calculates per-share book value by dividing total equity by total outstanding shares.

Short selling involves borrowing shares to sell in hopes that the stock price falls, allowing repurchasing at a lower cost to pocket the spread.

A short squeeze occurs when rapid price increases force short sellers to buy shares to cover losses, driving prices exponentially higher.

A stop-loss is an order or predetermined rule placed with a broker to sell a security when it reaches a certain price to limit investor loss.

Market capitalization refers to the total dollar market value of a company's outstanding shares of stock.

EBITDA measures core corporate profitability by looking at cash generated before interest, taxes, depreciation, and amortization.

EV/EBITDA compares a company's enterprise value (including debt) to its cash earnings, showing payback years.

Operating profit margin measures how much profit a company makes upon a dollar of sales after paying for variable costs of production.

Net profit margin illustrates the percentage of revenue remaining after all operating expenses, taxes, and interest are settled.

The dividend payout ratio shows the percentage of net income paid out as dividends to shareholders.

Dividend Aristocrats are S&P 500 companies that have consistently increased their dividend payouts for 25 consecutive years or more.

Dividend Kings are exceptional corporations that have increased dividend payments for 50 or more consecutive years.

The debt-to-equity ratio calculates the proportion of company financing that comes from debt relative to equity.

The current ratio measures a company's ability to pay short-term obligations due within one year using liquid assets.

Operating cash flow (OCF) indicates the cash generated by core business operations, reflecting true liquidity.

Free Cash Flow represents the cash a company generates after accounting for cash outflows to support operations and maintain its capital assets.

Dollar-cost averaging (DCA) is an investment strategy where fixed amounts are invested at regular intervals regardless of share price.

A market order is a request to buy or sell a security immediately at the best available current price.

A limit order is an order to buy or sell a stock at a specific target price or better.

Beta measures a stock's systemic volatility and sensitivity in relation to the overall market benchmark.

Inflation measures the rate of rising prices across goods and services, diminishing purchasing power over time.

The Federal Funds Rate is the target interest rate set by the Fed at which commercial banks borrow and lend overnight reserves.

Korea's ISA offers tax exemption up to 2-4 million KRW on investment profits and a reduced 9.9% separate withholding rate beyond.

Scaling in involves dividing total capital into multiple tranches to buy shares gradually across key price supports.

Scaling out means selling portions of a winning position incrementally to lock in profit while letting runner shares trend.

A golden cross occurs when a short-term moving average crosses above a major long-term moving average, signaling bullish trends.

A death cross happens when a short-term moving average crosses below a long-term moving average, signaling sustained bearish momentum.

Compound interest generates earnings not only on initial principal but on previously accumulated interest, yielding exponential growth.

A Dividend Reinvestment Plan automatically re-allocates cash dividends into purchasing additional fractional or whole shares.

An Exchange Traded Fund (ETF) is a pooled investment security that tracks an index and can be bought and sold like regular stock.

REITs own and operate income-producing commercial real estate, required by law to distribute 90%+ of taxable income as dividends.

A dividend cut occurs when a company decreases its per-share dividend payout, frequently triggering massive stock selloffs.

A liquidity trap is a macroeconomic condition where interest rates are near zero yet consumers and firms hoard cash instead of investing.

Share repurchases reduce outstanding share count, automatically enhancing EPS and delivering tax-efficient capital appreciation.

Market circuit breakers temporarily halt trading across all exchanges when benchmark indices experience drastic percentage drops.

A sidecar temporarily pauses automated program trading orders for 5 minutes when index futures swing violently.

An inverted yield curve occurs when short-term treasury yields exceed long-term yields, acting as a premier recession predictor.

Maximum Drawdown (MDD) calculates the peak-to-trough decline of an investment before a new peak is attained.

The Sharpe ratio measures risk-adjusted return by dividing excess return over the risk-free rate by overall volatility.