This glossary explains common financial-statement terms at an introductory level. Each entry gives you a definition, a simple formula where useful, what the metric helps with and what it cannot prove alone.
Start with the income statement, balance sheet or cash flow statement if you want to see where the terms appear.
Income-statement and valuation terms
Revenue
Money recognised from selling goods or services. Revenue growth shows activity, not profitability or cash collection.
Gross margin
Gross profit ÷ revenue. It shows what remains after direct production costs. It helps track pricing and input costs but excludes operating expenses.
Operating income / EBIT
Profit from operations before interest and taxes. It helps compare the core activity before financing. “Adjusted EBIT” may exclude real costs, so check the definition.
Operating margin
Operating income ÷ revenue. It shows the operating profit generated per unit of sales. It is most useful over time and against similar companies; industries have very different normal margins.
EBITDA
Earnings before interest, taxes, depreciation and amortisation. It removes several costs to aid some comparisons, but it is not cash flow and ignores CapEx. Read the full EBITDA explanation.
Effective tax rate
Income tax expense ÷ pre-tax income. It shows the accounting tax burden for the period. One-offs, losses and different countries can make it volatile. It is corporate tax in the accounts, not an investor’s personal tax.
Net income
The bottom-line accounting profit after operating costs, interest, taxes and other items. It is the starting point for EPS, but one-off and non-cash items can affect it.
Earnings per share / EPS
Net income attributable to ordinary shareholders ÷ weighted-average diluted shares. It puts profit on a per-share basis. EPS can rise through profit growth or fewer shares and can fall through dilution.
P/E ratio
Share price ÷ EPS, or market capitalisation ÷ net income. It relates price to current earnings but does not measure debt, business quality or future growth by itself. Read what P/E means and when it misleads.
Balance-sheet terms
Working capital
Current assets − current liabilities. It helps explain short-term operating funding. More is not always better if inventory or overdue receivables are rising.
Net debt
Financial debt − cash and cash equivalents. It gives a first view of leverage after cash. It can miss leases, restricted cash and maturity risk; pair it with cash flow.
Goodwill
An asset created when an acquisition price exceeds the fair value of identifiable net assets. It may represent acquired strengths, but it is not cash and can be impaired.
Cash-flow terms
CapEx
Cash spent on property, equipment and other long-lived assets. It supports maintenance or growth. The split between those two purposes is often an estimate.
Free cash flow / FCF
Common simple formula: operating cash flow − CapEx. It approximates cash available after operations and long-term investment. Definitions vary, so reconcile it with the statement. Continue with the deeper FCF guide.
How to use the glossary
Do not turn these formulas into pass/fail rules. Follow several years, read the notes and compare companies with similar economics. Then use the fundamental-analysis process to connect the evidence.
Common questions
Should I use one financial metric to decide whether to invest?
No. Every metric answers a narrow question and has limitations. Read trends, compare similar businesses and connect all three statements.
Are EBIT and operating income always identical?
They are often used as equivalents, but company presentations and data providers may adjust or classify items differently. Check the reconciliation and definition.
This is an introductory educational glossary, not accounting, tax or investment advice.