20 Must Know Investing Terms: Part 1


A comprehensive report filed by a publicly-traded company about its financial performance. These reports are legally required by the US Securities and Exchanges Commission (SEC), and feature a great deal more information than the annual report sent to shareholders.

These reports are publicly available, and can usually be found on the investment section of the company’s website.


  • A 10-K is filed annually by every publicly-traded company

  • Information in the 10-K includes corporate history, earning per share and earnings per share - and more

  • The 10-K is legally required by the SEC

1040 IRS Form

The 1040 IRS Form is the form used by all United States taxpayers to file their annual income tax return. This form is standardized by the US Internal Revenue Service (IRS), and is usually due back April 15th every year - with some notable exceptions.

The form requires that filers disclose their income to determine whether they owe additional money, or are entitled to an income tax return.


  • Form 1040 is what taxpayers use to file their taxes with the IRS

  • The form asks for such information as name, birthday, number of dependents, and all forms of taxable income

  • Some taxpayers may have to file multiple 1040 forms depending on the situation

401K Plan

A 401(k) plan is a retirement plan offered by many employers to their employees. This kind of plan is both tax-advantaged and built on a defined-contribution. The IRS allows taxpayers to make contributions to their 401(k) account through payroll withholdings, and employers may choose to match those contributions.


  • A 401(k) is a company-sponsored retirement plan that employees can contribute to

  • There are two types of 401(k) plans - traditional and Roth - which differ in how they are taxed

52 Week High/Low

The 52-week high/low is the highest and lowest price at which a security, such as a stock or a bond, has traded during that time period - equating to one year.


  • The 52-week high/low is mainly used as a technical indicator of security health

  • The 52-week high/low is based on the daily closing price of the security

  • Typically, traders use the high/low to support trading decisions on that security


CAGR, or Compound Annual Growth Rate, is the rate of return that would be required for an investment to grow from its initial balance to an ending balance. This assumes that the profits will be reinvested at the end of each year.

CAGR Formula:



  • CAGR is one of the most accurate ways to calculate returns for anything that can rise, fall, or otherwise change in value over time.

  • CAGR does not reflect investment risk


An acquisition is when one company purchases most (or all) of another company's stock shares to gain a controlling interest in that company. Acquisitions, which are very common in business, may occur with the target company's approval, or in spite of its disapproval. 


  • An acquisition occurs when one company buys most or all of another company's shares

  • An acquisition is often friendly, while a takeover is often hostile in nature; a merger creates a brand new entity from two separate companies


  • AT&T buying Time Warner in 2018

After Hours Trading

After-hours trading starts at 4 pm U.S. Eastern Time, after the major U.S. stock exchanges close - particularly the New York Stock Exchange (NYSE). The after-hours trading session can run as late as 8 pm, though volume typically thins out much earlier. All after-hours trading is done through electronic means.


  • After-hours trading start at 4pm and can run as late as 8pm

  • The spread between the bid and the ask may be wider during after-hours trading

  • All after hours trading is conducted electronically

Angel Investor

An angel investor is a high net worth individual who provides crucial early funding to small startups or entrepreneurships - usually in return for equity in the business. Angel investors are also referred to as private investors, seed funders or angel funders. Angel investors are often personal acquaintances with the proprietor of the business they are funding.


  • Angel investors are high net worth individuals who fund small startups

  • Angel investors may give financial backing once or many times

  • Angel investing is often the primary source of funding for many startups and entrepreneurs, who prefer it to more predatory forms of lending

Annual Percentage Rate 

Annual percentage rate (APR) refers to the annual rate of interest charged to borrowers and paid to investors. APR is expressed as a percentage that represents the yearly cost of funds over the course of a loan. The APR provides consumers with a bottom line number they can easily compare to other investors.


  • An annual percentage rate (APR) is the annual rate charged for borrowing or earned through an investment

  • An APR may not reflect the actual cost of borrowing due to the fact that fees that are included or excluded may not show up in the APR

  • Financial institutions legally must disclose a financial instrument’s APR


An annuity is a financial product that pays out a fixed stream of payments to an individual. These financial products are primarily used as a primary source of income for retirees. Annuities are contracts issued, distributed or sold by major financial institutions, which invest those funds from individuals.


  • Annuities are financial products that offer a guaranteed income stream, and they are used primarily by retirees

  • Annuities help individuals address the risk of outliving their combined savings

  • Annuities can be structured in many different ways - fixed, variable, immediate, deferred income, and other types

Asset Management 

Asset management is the direction of all or part of a client's portfolio by a financial services institution. These can take the form of investment banks, investment firms or even individuals. Financial service institutions tend to offer a wide range of products for the needs of many different consumers. 


  • Asset management refers to the management of investments by financial service institutions, on the behalf of others

  • The goal is to grow a client’s portfolio as much as possible while mitigating as much risk as possible

  • Asset management is usually a service that is catered towards high net worth individuals

Asset Turnover Ratio

The asset turnover ratio measures the value of a company's sales or revenues relative to the value of its assets; it can be used as an indicator of the efficiency with which a company is using its assets to generate revenue.


  • Asset turnover is the ratio of total sales or revenue to average assets

  • Investors use the asset turnover ratio to compare companies within the same industry

  • A company’s asset turnover ratio can be affected by large asset sales as well as large asset purchases

Free Cash Flow 

Free cash flow (FCF) represents the cash a company generates after accounting for cash outflows used to support operations and maintain its capital assets. Free cash flow is a measure of profitability that excludes the non-cash expenses of the income statement, and includes the necessary spending on equipment and assets.


  • Free cash flow (FCF) represents the cash immediately available for the company to repay creditors, or pay dividends and interest to investors.

  •  FCF reconciles net income by adjusting for non-cash expenses, changes in working capital, and capital expenditures (CAPEX).

Return On Invested Capital

Return on invested capital (ROIC) is a calculation used to assess a company's efficiency at allocating the capital it controls into investments that prove to be profitable and worthwhile. This ratio is meant to give investors an idea of how well a company is doing at turning capital into more capital. 


  • ROIC is the amount of return a company makes above the average cost it pays for its debt and equity capital.

  • A company is considered to be creating value if its ROIC is higher than 2%, and destroying value if its ROIC is less than 2%

Operating Margin

Operating margin measures how much profit a company makes on a dollar of sales, after paying for the variables within the cost of production, such as wages and raw materials, but before paying interest or tax.


  • To calculate the operating margin, divide operating income (earnings) by sales (revenues)

  • Operating margin is a profitability ratio that shows how much profit a company makes from its core operations, and places that in relation to the total revenue the company brings in

  • An increasing operating margin over a given period of time indicates a company whose profitability is improving

Market Capitalization

Market capitalization, also known as “market cap,” refers to the sum total market value of a company’s outstanding shares of stock. This is found by multiplying the total number of outstanding shares by the current price of a single share


  • Market capitalization refers to how much a company is worth, as determined by the stock market

  • To calculate a company's market cap, multiply the number of outstanding shares by the current market value of one share

Net Debt

A liquidity metric that is used to determine how easily a company could pay off all of its if they were due immediately. Net debt aims to show how much money would remain if all debts were paid at once.


  • Net debt is a metric used to see how easily a company could pay off all debts if they were due immediately

  • Net debt aims to show how much money would be left if all debts were paid off

  • The calculation to find net debt is to subtract all company debt from all company assets


EBITDA stands for “earnings before interest, taxes, depreciation and amortization.” It is a measure of a company’s overall financial performance. In some cases it is used in the place of net income, but it can also be misleading because it neglects the cost of capital investments. In other words, EBITDA is a measure of profitability.


  • EBITDA is a widely used measure of corporate profitability 

  • EBITDA can also act as a good measure of core profit trends

  • The formula for EBITDA is EBITDA = net income + interest + taxes + depreciation + amortization

Price to Earnings Ratio 

Price to earning ratio, also known as P/E ratio, is used to value companies that measure current share price relative to per-share earnings. P/E ratios are used by investors and analysts to determine the relative value of a company’s shares as compared to other companies.


  • The price-earnings ratio (P/E ratio) relates a company's share price to its earnings per share

  • Companies that have no earnings or that are losing money do not have a P/E ratio since there is nothing to put in the denominator

  • The formula for price to earnings ratio is market value per share divided by earnings per share

Ex-Dividend Date 

The ex-dividend date or "ex-date" is the day the stock starts trading without the value of its next dividend payment. Typically, the ex-dividend date for a stock is one business day before the record date, meaning that an investor who buys the stock on its ex-dividend date or later will not be eligible to receive the next declared dividend.


  • Ex-dividend date is the day that a company’s dividend allocations are officially determined for the coming payout

  • The ex-dividend date of a stock is the day on which the stock begins trading without the subsequent dividend value.

  • Even if you buy a dividend stock the day after it goes ex-dividend, the payout will go to whoever owned the stock on the ex-dividend date

Written by: Sebastian Johnson
Published on: Sunday, October 18, 2020 6:30 AM

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