Financial terms, defined without circling

A measure of how much a security's returns move with the market's, estimated by regressing one against the other.

Two things distort it. Daily returns bias it toward zero through bid-ask bounce and non-synchronous trading, which is why published betas are weekly or monthly. And measured betas mean-revert toward one, so a raw regression slope is a biased forecast over a multi-year horizon and is usually adjusted for that.

Valuing a business by applying the trading multiples of similar listed companies to its own financials.

The count behind the median is the whole question. A median of two peers is a midpoint, and a median of one is that company. Any comparables output without its peer count beside it should be treated as unlabelled.

The return equity holders require to hold a company's shares, usually estimated as a risk-free rate plus beta multiplied by an equity risk premium.

All three inputs are choices rather than observations, and the result drives a valuation harder than almost anything else in the model.

A valuation method that projects a business's future free cash flow and discounts it back to a present value at a rate reflecting its risk.

On most quality businesses, 70 to 80 per cent of the resulting value sits in the terminal period. The forecast years feel like the work; the terminal assumption is where the answer actually comes from.

The value of a business's operations, calculated as market capitalisation plus net debt, so that it is independent of how the business is financed.

Because it is a subtraction, a missing debt or cash figure poisons it silently. If either side was not reported, the honest output is no enterprise value rather than one computed from half the inputs.

The extra return investors require for holding equities rather than risk-free government debt.

It is an assumption, not a measurement, and it should be named as one wherever it is used.

Cash generated by operations after the capital expenditure needed to keep the business running.

Compare it with reported net income over five years rather than one. A persistent gap between the two is the most reliable single signal about earnings quality available in a public filing.

Running a model many times across randomly drawn assumptions to produce a distribution of outcomes rather than a single figure.

An infeasible draw must be discarded and counted, never clamped to a boundary. Clamping piles the whole probability mass on the edge and then presents the result as a distribution, which is how a loss-making company's simulated value comes back at exactly zero.

Total debt less cash and cash equivalents.

The most common data defect in equity analysis. A missing debt tag coalesced to zero reports a debt-free company, and after the lease accounting standard changed most filers moved to a caption that many pipelines do not read.

The value attributed to all cash flows beyond the explicit forecast period in a discounted cash flow model.

A perpetuity growth terminal value at a nine per cent discount rate and two and a half per cent growth implies roughly fifteen times the final year's free cash flow. Markets routinely pay more than that for quality, which is why conventional DCF assumptions make most good businesses look expensive.

Weighted average cost of capital: the blended cost of a company's equity and after-tax debt, weighted by how much of each it uses.

If it falls below the terminal growth rate the model has no finite solution, and a comparison against a non-finite value is silently false rather than an error, so it has to be checked explicitly.

Whether an acquisition raises or lowers the acquirer's earnings per share once the new shares and financing costs are included.

Undefined when the acquirer earns nothing, and a tool that renders undefined as dilutive is passing a verdict it did not compute.

One hundredth of a percentage point.

Used because 'the margin rose by one per cent' is ambiguous between one percentage point and a one per cent relative increase. Basis points are not.

Earnings before interest, tax, depreciation and amortisation, used as a rough proxy for operating cash generation.

It excludes the cost of maintaining the asset base, which for capital-intensive businesses is the largest real cost they have.

Revenue less the direct cost of producing it, as a percentage of revenue.

A move here is worth understanding before anything further down the statement, because it is either mix or pricing and those have very different implications.

The degree to which fixed costs cause profit to move more than proportionally with revenue.

Net income as a percentage of shareholders' equity.

It rises when equity shrinks, so a company buying back stock or carrying accumulated losses can post a high figure for reasons unrelated to how good the business is.

Employee pay issued as equity rather than cash.

It is a real cost and it is routinely added back in adjusted figures. Recomputing operating margin with it treated as an expense is one of the four comparisons worth doing on any annual report.

A machine-readable tagging standard for financial statements, required for filings with the SEC.

It is why fundamentals can be read from a filing rather than bought from a vendor who read it. It is also why two providers disagree: a filer chooses among several valid captions and can extend the taxonomy.

The annual report US public companies file with the SEC.

Around ninety per cent of it is carried forward unchanged. The value is concentrated in management's discussion and in the risk factors that were newly added.

The quarterly report US public companies file with the SEC.

A quarterly filing of long US equity positions by institutional managers above a size threshold.

It excludes shorts entirely, covers only US listed equity, and is filed 45 days after quarter end. On the day it publishes, its oldest position is four and a half months old.

A current report filed when something material happens between scheduled reports.

The SEC's electronic filing system, through which every US company filing is published free of charge.

The filing a company insider makes within two business days of transacting in the company's stock.

Only transaction codes P and S, open-market purchases and sales, reflect a decision. Option exercises, tax withholding, awards and gifts are compensation plumbing.

A non-US company that files with the SEC under a lighter regime, typically reporting under IFRS.

Their statements use a different taxonomy and usually a different currency, which is why coverage of them separates a serious data pipeline from a superficial one.

International Financial Reporting Standards, the accounting framework used across most of the world outside the United States.

A pre-arranged trading plan that lets an insider transact on a schedule set in advance, while not in possession of material non-public information.

A sale under one is a calendar executing an old instruction. It should be set aside rather than scored, because averaging in a zero still drags a signal.

The degree to which two return series move together, on a scale from minus one to one.

Filling a missing session with a zero return asserts the asset was flat on a day it did not trade, and drags every correlation toward nothing. Missing sessions should be dropped.

The decline from a peak to a subsequent trough, usually expressed as a percentage.

An estimate of the loss a portfolio would not exceed over a given period, at a given confidence level.

It says nothing about how bad things are beyond that confidence level, which is precisely the region that matters in a crisis.

The dispersion of returns, usually the annualised standard deviation.

The relationship between government bond yields and their maturities, from short-dated bills to long bonds.

The spread between the ten-year and three-month is watched because it has historically inverted before recessions. The US Treasury publishes the curve itself, free and without a licence restriction.

The investigation of a business before a transaction, covering its financials, contracts, operations and risks.

The constraint is almost never storage. It is being able to ask a question across everything at once and evidence the answer to a page.

The discount rate at which a set of cash flows has a net present value of zero, used as the headline return measure on a private investment.

A naive solver returns a bracket bound rather than a solution when the cash flows contain no sign change, which is how an all-zero model produces a several-hundred-per-cent return.

An acquisition financed substantially with debt, where the acquired company's own cash flow services the borrowing.

The table showing where the money for a transaction comes from and what it is spent on. The two sides must balance.

The body that approves an investment, and the pack of materials prepared to persuade it.

A numbered reference from a claim in an answer to the passage it was derived from.

The only practical way to verify AI output. A confidence score is easier to display and cannot be checked against anything.

A language model producing a confident, fluent statement that is not supported by any source.

It is indistinguishable from a correct answer by tone, which is why the fix is retrieval and citation rather than a better-behaved model.

Text inside a document that attempts to issue instructions to the model reading it.

Reading third-party documents is the feature that creates this risk. The mitigation is to fence untrusted text from the instructions, scan it deterministically, and screen the output. None of that eliminates it.

Finding relevant passages first and giving a language model only that material to answer from, rather than relying on what it memorised.

It is what makes an answer checkable, which is the only property that matters here.

A second pass that reorders retrieved passages by how well each actually answers the question, after a broader first pass has gathered candidates.