Archive / Glossary
Financial Dictionary
62 termsDefinitions, analyst notes, and sector context for the metrics and ratios used in equity research.
Annual Recurring Revenue (ARR)
The annualised value of all active subscription contracts. The north-star revenue metric for SaaS businesses because it measures predictable, contracted future cash flows.
Analyst Note
Salesforce (CRM) crossed $30B ARR; ServiceNow (NOW) grows ARR at 20%+ annually. Investors pay 8–15x ARR for high-growth SaaS versus 2–4x for slower growers.
Average Revenue Per User (ARPU)
Total revenue divided by total active users. Tracks monetisation efficiency and is the key metric for assessing whether user growth translates into revenue growth.
Analyst Note
Meta's US/Canada ARPU exceeds $60 per quarter versus $4 in Asia-Pacific — the geographic mix of users dramatically affects blended ARPU and growth trajectory.
Beta
A measure of a stock's volatility relative to the market (typically the S&P 500). Beta > 1 means the stock is more volatile than the market; Beta < 1 means less volatile; Beta = 1 means it moves in line with the market. A negative beta means the stock moves inversely to the market.
Analyst Note
Beta is used in the CAPM formula to derive the cost of equity: Re = Rf + β × (Rm − Rf). High-growth tech stocks typically carry betas of 1.2–1.8; utilities and healthcare often run 0.5–0.8. Beta is backward-looking — use levered and unlevered beta calculations carefully when comparing companies with different capital structures.
Burn Rate
The rate at which a company spends its cash reserves in excess of revenue. Relevant for pre-profitability platforms and early-stage digital businesses.
Analyst Note
Burn rate determines runway. A company with $500M cash burning $50M per month has 10 months of runway. Investors watch burn rate inflection points — decelerating burn before profitability is the key re-rating catalyst.
Capital Expenditure (CapEx)
Cash spent on acquiring or upgrading physical and intangible assets. Separates maintenance capex (keeping the business running) from growth capex (expanding capacity).
Analyst Note
NVIDIA and TSMC (TSM) are in a capex supercycle driven by AI infrastructure demand. Amazon's capex consistently runs $50–60B annually across logistics and AWS infrastructure.
CET1 Ratio
Common Equity Tier 1 capital as a percentage of risk-weighted assets. The primary measure of a bank's core capital adequacy.
Analyst Note
US regulators require approximately 11.5% for large banks. Banks above 13% have the flexibility to return more capital to shareholders.
Churn Rate
The percentage of customers or revenue lost in a given period. The single most important metric for assessing the sustainability of a subscription business.
Analyst Note
Best-in-class enterprise SaaS runs below 5% annual churn. Consumer subscription businesses like Netflix face 2–3% monthly churn. Net Revenue Retention above 120% means expansion outpaces churn entirely.
Circuit Breaker
A mechanism on Indian stock exchanges (NSE/BSE) that automatically halts trading in a stock if its price moves beyond a predefined limit — typically 5%, 10%, or 20% — in a single session. Designed to prevent panic-driven crashes.
Analyst Note
India uses both index-level circuit breakers (15%, 20%, 25% for the Nifty/Sensex) and stock-level price bands. A stock hitting its upper circuit means buyers outnumber sellers and no trades can execute above that price — a sign of very strong demand or speculative frenzy.
Contribution Margin
Revenue minus variable costs, expressed as a percentage of revenue. Measures the profitability of each incremental unit of business before fixed cost allocation.
Analyst Note
DoorDash (DASH) and food delivery platforms track contribution margin per order obsessively — achieving positive contribution margin per order is the first milestone before targeting overall profitability.
Cost-to-Income Ratio
Total operating costs divided by total operating income. Measures how efficiently a bank converts revenue into profit.
Analyst Note
Best-in-class banks operate at 40–50%; above 65% signals structural inefficiency. Goldman Sachs (GS) runs leaner than retail-heavy peers due to lower branch infrastructure.
Current Ratio
Current assets divided by current liabilities. Measures short-term liquidity — whether a company can cover near-term obligations with near-term assets.
Analyst Note
Above 1.5x is generally healthy; below 1x warrants investigation. Retailers like Walmart intentionally run below 1x through payables management — context determines whether low current ratio is a risk or a strength.
Customer Acquisition Cost (CAC)
The total sales and marketing spend divided by the number of new customers acquired in a period. The denominator in the unit economics equation.
Analyst Note
High CAC is only justified by high LTV. Salesforce spends aggressively on sales because enterprise contracts renew for decades. Consumer apps like Meta acquire users at near-zero CAC through network effects.
Daily Active Users (DAU)
The number of unique users who engage with a platform on any given day. The primary engagement health metric for social and consumer internet platforms.
Analyst Note
Meta's Family DAP exceeded 3.3 billion in 2024. Plateauing DAU before monetisation matures is the classic growth trap — the platform has to extract more from existing users.
DAU/MAU Ratio
Daily active users divided by monthly active users, expressed as a percentage. Measures platform stickiness — how often monthly users return daily.
Analyst Note
Facebook core app runs 65–70% DAU/MAU, exceptionally high for a mature platform. Below 20% signals the platform is used occasionally rather than habitually, limiting ad frequency and ARPU.
Days Sales Outstanding (DSO)
The average number of days a company takes to collect payment after a sale. Elevated DSO in healthcare signals payer disputes or collection inefficiency.
Analyst Note
US hospital systems and device companies often carry 45–60 day DSO due to insurance reimbursement cycles. Consistent DSO expansion is an early warning of revenue quality deterioration.
DCF (Discounted Cash Flow)
A valuation method that estimates the intrinsic value of an investment based on its expected future free cash flows, discounted back to present value using the WACC. Intrinsic Value = Σ (FCF_t / (1 + WACC)^t) + Terminal Value / (1 + WACC)^n.
Analyst Note
Terminal value typically represents 60–80% of total DCF output — which is why your terminal growth rate assumption is the single most important and most scrutinised input. Always cross-check your DCF output against a trading multiple. If they diverge by more than 30%, your assumptions are likely inconsistent.
Debt-to-Equity (D/E)
Total debt divided by shareholders' equity. Measures financial leverage and the degree to which a company finances operations through debt versus equity.
Analyst Note
Capital-intensive businesses like telcos and utilities run D/E of 2–4x; asset-light tech companies like Google run near zero. High D/E is not inherently bad if cash flows are stable and predictable enough to service debt comfortably.
Delivery Volume
The portion of total traded volume where shares are actually transferred to the buyer's demat account, as opposed to intraday trades that are squared off the same day. High delivery volume signals genuine investor interest rather than speculative activity.
Analyst Note
Delivery percentage above 40–50% on heavy volume days is considered a signal of institutional accumulation. Conversely, very high volume with low delivery percentage signals speculative intraday trading with little long-term investor conviction.
Demat Account
A dematerialised account that holds shares and securities in electronic form in India, replacing physical share certificates. Required for trading on NSE and BSE. Equivalent to a brokerage/custodian account in Western markets.
Analyst Note
India had over 150 million demat accounts as of 2024, a figure that quadrupled post-COVID as retail investor participation surged. Rising demat account openings are a leading indicator of retail equity market participation.
Depreciation and Amortisation (D&A)
The non-cash accounting charge that spreads the cost of an asset over its useful life. Adding D&A back to operating income gives EBITDA.
Analyst Note
High D&A relative to capex suggests a business is shrinking its asset base — capex below D&A is a classic sign of underinvestment. Data centre-heavy businesses like Microsoft and Amazon carry significant D&A from server infrastructure.
Discount Rate
The rate used to convert future cash flows into their present value. In DCF analysis, the discount rate is the WACC. A higher discount rate means future cash flows are worth less today — reflecting higher risk or the time value of money.
Analyst Note
A 1% change in the discount rate can move a DCF-derived valuation by 10–20%. Growth stocks with cash flows far in the future are disproportionately sensitive to discount rate changes, which is why high-multiple tech stocks sold off sharply when interest rates rose in 2022–23.
Dividend Yield
Annual dividend per share divided by share price. For mature financial institutions, a key component of total shareholder return.
Analyst Note
US banks like JPM and BAC yield 2–3%; insurance companies like Allianz (ALIZF) often yield 4–6%, reflecting their capital-return model.
EBITDA Margin
Earnings before interest, taxes, depreciation, and amortisation as a percentage of revenue. Removes capital structure and accounting policy differences to enable cleaner cross-company comparison.
Analyst Note
Large-cap pharma like Eli Lilly (LLY) and AbbVie (ABBV) run 35–45% EBITDA margins. Medical device companies typically run 25–35%. Below 20% for a mature pharma signals structural cost problems.
Enterprise Value (EV)
Market capitalisation plus total debt minus cash and cash equivalents. The theoretical takeover price of a business — what an acquirer would actually pay including assuming the debt.
Analyst Note
Cash-rich companies like Apple have EV significantly below market cap. Debt-heavy companies have EV above market cap. Always use EV-based multiples (EV/EBITDA) when comparing companies with different capital structures.
EV/EBITDA
Enterprise value divided by EBITDA. The most widely used acquisition valuation multiple because it is capital structure neutral and strips out depreciation policy differences.
Analyst Note
Technology companies trade at 20–30x EV/EBITDA; consumer staples at 12–18x; banks are not valued on EV/EBITDA due to the role of debt in their core business model.
FII/FPI
Foreign Institutional Investor / Foreign Portfolio Investor — overseas entities (funds, pension managers, hedge funds) registered to invest in Indian securities markets. FII is the older term; FPI is the current SEBI designation post-2014.
Analyst Note
FPI flows are a key macro indicator in India. Net FPI buying correlates with rupee strength and market momentum; FPI selling often precedes corrections. Monthly FPI data is published by SEBI and tracked obsessively by Indian market participants.
Free Cash Flow (FCF) Margin
Free cash flow as a percentage of revenue. The truest measure of a technology company's cash generation because it strips out non-cash accounting items.
Analyst Note
Apple and Microsoft sustain 25–30% FCF margins. A company with 30% revenue growth and 5% FCF margin is less valuable than one with 15% growth and 25% FCF margin.
Free Cash Flow Yield
Free cash flow per share divided by share price. Tells you how much cash return you are receiving relative to what you are paying — the earnings yield equivalent for cash investors.
Analyst Note
A 4–5% FCF yield on a growing business is compelling versus a 4% bond yield with no growth. Meta and Alphabet both generate FCF yields above 4% while growing earnings double digits.
Gross Margin
Revenue minus cost of goods sold, divided by revenue. The first profitability line that reveals pricing power and cost structure.
Analyst Note
ARM's 96% gross margin reflects a pure IP licensing model. Retailers like Costco operate at 12–13%, relying on volume.
Gross Merchandise Volume (GMV)
The total value of goods sold through a marketplace over a given period, before any deductions.
Analyst Note
GMV is a volume metric, not a revenue metric. Always compare take rate alongside GMV to understand the actual revenue opportunity.
Interest Coverage Ratio
Earnings before interest and taxes (EBIT) divided by interest expense. Measures how comfortably a company can service its debt from operating earnings.
Analyst Note
Below 3x signals elevated credit risk; investment-grade companies typically maintain 8x+. During rate hike cycles, companies with floating-rate debt see coverage ratios compress rapidly.
Inventory Turnover
Cost of goods sold divided by average inventory. Measures how efficiently a retailer converts inventory into sales — high turnover means less capital tied up in stock.
Analyst Note
Costco turns inventory 12–13x per year versus department stores at 3–4x. Fast fashion retailers turn 6–8x but face markdown risk when trends shift.
Lifetime Value (LTV)
The total revenue a business expects to generate from a single customer over the entire relationship. Paired with CAC to assess unit economics health.
Analyst Note
A healthy SaaS business targets LTV/CAC above 3x. Adobe's (ADBE) Creative Cloud model achieves exceptional LTV through deep workflow lock-in and annual price increases.
Loan-to-Deposit Ratio (LDR)
Total loans divided by total deposits. Measures how aggressively a bank is deploying its deposit base into loans.
Analyst Note
Above 100% means the bank is funding loans from wholesale markets, increasing liquidity risk. Most regulators prefer 80–90%.
Medical Loss Ratio (MLR)
The percentage of premium revenue spent on medical claims and healthcare quality improvement. Regulated at minimum 80–85% in the US.
Analyst Note
UnitedHealth targets 84–85%. Rising MLR above guidance is the primary earnings risk signal for managed care companies.
Monthly Active Users (MAU)
Unique users active on a platform within a 30-day window. Broader than DAU and typically used for platforms with lower-frequency engagement patterns.
Analyst Note
Snapchat and Pinterest report MAU because daily engagement is lower than Meta's core apps. Always compare DAU/MAU ratio alongside MAU to assess stickiness.
Net Interest Margin (NIM)
The difference between interest income generated and interest paid out, expressed as a percentage of interest-earning assets.
Analyst Note
Indian private banks (HDFC, ICICI, Kotak) typically run NIMs of 4–5%, significantly above US and European peers at 1.5–3%.
Net Profit Margin
The percentage of revenue that remains as profit after all expenses, taxes, and interest. The bottom-line measure of overall profitability.
Analyst Note
JPMorgan runs ~30% net margins through the cycle; Indian private banks like HDFC Bank (HDB) typically achieve 20–25%.
Net Revenue Retention (NRR)
Revenue from existing customers in the current period divided by their revenue in the prior period, including expansions and churn. Above 100% means the existing customer base grows without any new customer acquisition.
Analyst Note
Snowflake and Datadog have historically run 130%+ NRR. ServiceNow (NOW) sustains 120%+ through upsell into workflow automation. NRR above 120% is the clearest signal of product-market fit in enterprise software.
Nifty 50
The benchmark index of the National Stock Exchange (NSE) of India, comprising the 50 largest and most liquid Indian companies across 13 sectors. The primary reference index for institutional investors tracking Indian equities.
Analyst Note
The Nifty 50's sector composition is heavily weighted toward Financial Services (~35%), IT (~13%), and Energy (~12%). Understanding the index's sectoral skew is critical when interpreting India-specific FPI flows and comparing an Indian company's performance versus the benchmark.
Non-Performing Loans (NPL) Ratio
The percentage of a bank's loan book where borrowers have stopped making payments for 90+ days. The primary asset-quality stress indicator for banks.
Analyst Note
Indian banks historically carried 8–10% NPL ratios post-2016 stress cycle; JPMorgan targets below 1%. Rising NPL is the earliest warning sign of a credit cycle turning.
NSE/BSE
National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) — India's two primary stock exchanges. NSE's benchmark index is the Nifty 50; BSE's is the Sensex (30 companies). Most large-cap Indian companies are listed on both.
Analyst Note
NSE accounts for approximately 90% of India's equity trading volume due to its superior technology infrastructure and liquidity. BSE is older (est. 1875, the first stock exchange in Asia) and has a larger number of listed companies — over 5,000 versus NSE's ~2,000.
Operating Margin
Operating income as a percentage of revenue. Measures the profitability of core business operations before interest and taxes.
Analyst Note
Software companies (MSFT, ADBE, NOW) sustain 30–45% operating margins. Retail (WMT, TGT) typically earns 3–6%.
Patent Cliff
The revenue loss a pharmaceutical company faces when a blockbuster drug's patent expires and generic competitors enter the market. The primary structural risk in pharma valuation.
Analyst Note
AbbVie's Humira faced its US patent cliff in 2023, triggering a multi-billion revenue decline. Investors price patent cliffs 2–3 years in advance, creating predictable valuation compression.
Pipeline Coverage Ratio
The ratio of late-stage drug candidates to near-term patent expiries. Measures whether a pharma company has enough innovation in development to replace revenue at risk.
Analyst Note
Eli Lilly's GLP-1 pipeline (tirzepatide, orforglipron) gives it exceptional coverage for the next decade. A company with one blockbuster and no late-stage pipeline is a value trap.
Price-to-Book (P/B)
Share price divided by book value per share. The primary valuation anchor for banks and financial institutions where assets are marked to market.
Analyst Note
US money-centre banks trade at 1.2–1.8x book; high-ROE banks like JPM command premiums. A P/B below 1x signals the market doubts the stated asset values.
Price-to-Earnings Growth (PEG)
P/E ratio divided by the earnings growth rate. Adjusts the P/E for growth to identify whether a high multiple is justified by the underlying growth trajectory.
Analyst Note
A PEG below 1 is traditionally considered undervalued. NVIDIA's P/E looks extreme in isolation but its PEG normalises if the AI earnings ramp sustains. Always specify the growth rate period used — trailing versus forward PEG give very different readings.
Price-to-Sales (P/S)
Market capitalisation divided by annual revenue. Used for high-growth companies with minimal or negative earnings where P/E is meaningless.
Analyst Note
NVIDIA traded at 30–40x sales at peak AI enthusiasm; mature tech like MSFT trades at 12–15x. P/S compresses rapidly as growth decelerates, making entry valuation critical.
Promoter Holding
The percentage of a company's shares held by its founders, founding families, or controlling entities (promoters). Disclosed quarterly in Indian regulatory filings. High promoter holding (above 50%) often signals founder confidence but reduces the free float available to public investors.
Analyst Note
A declining promoter holding — especially via pledged share sales — is a key risk signal in Indian markets. Promoter pledge percentage (shares pledged as collateral for loans) is disclosed separately; above 30% pledged is considered high risk. SEBI mandates disclosure of promoter holding and pledge data.
Quick Ratio
Current assets minus inventory, divided by current liabilities. A stricter liquidity test that excludes inventory, which may not be quickly convertible to cash.
Analyst Note
Pharmaceutical and technology companies typically show strong quick ratios above 2x. Retailers show weak quick ratios because inventory dominates current assets — always pair with inventory turnover when assessing retail liquidity.
R&D as Percentage of Revenue
Research and development spend divided by revenue. Measures the innovation investment intensity relative to the business scale.
Analyst Note
Pharmaceutical companies invest 15–20% of revenue in R&D; semiconductor firms like ASML and AMD invest 15–18%. Microsoft spends ~13% but benefits from scale that makes each dollar of R&D more productive.
Return on Assets (ROA)
Net income divided by total assets. For banks, a more comparable metric than ROE because leverage structures differ significantly across institutions.
Analyst Note
US large-cap banks target 1–1.5% ROA; Indian private banks like ICICI and HDFC consistently run 1.8–2.1%, reflecting higher-margin lending books.
Return on Equity (ROE)
Net income divided by shareholders' equity. Measures how efficiently a company uses equity capital to generate profit.
Analyst Note
Banks target 12–15% through the cycle. Technology and payment companies often exceed 30% due to asset-light models.
Return on Invested Capital (ROIC)
Net operating profit after tax divided by invested capital. The best single measure of whether a business creates or destroys value relative to its cost of capital.
Analyst Note
Walmart (WMT) generates 14–16% ROIC through scale and supply chain discipline. A ROIC consistently above the cost of capital (typically 8–10%) is the hallmark of a compounding business.
Revenue per Square Foot
Annual revenue divided by total retail floor space. The density metric that separates efficient retailers from capital-heavy underperformers.
Analyst Note
Apple Stores generate $5,000+ per square foot, the highest in retail. Costco runs $1,500+ through warehouse-format high volume. Declining revenue per square foot precedes store closure cycles.
Rule of 40
Revenue growth rate plus free cash flow margin should equal or exceed 40%. The balanced scorecard for SaaS — penalises burning cash to grow and rewards efficient scaling.
Analyst Note
Microsoft (MSFT) scores 50+; early-stage hypergrowth SaaS often sacrifices FCF margin to score high on growth alone. Below 40 signals the business is neither growing fast enough nor profitable enough.
Same-Store Sales Growth (SSSG)
Revenue growth from stores open for at least 12 months, excluding new openings. Isolates organic demand from expansion-driven growth.
Analyst Note
Costco (COST) consistently delivers 4–7% SSSG through membership loyalty and pricing discipline. Negative SSSG at an established retailer signals demand erosion, not just a tough comparison.
SEBI
Securities and Exchange Board of India — India's capital markets regulator, established in 1992 under the SEBI Act. Equivalent to the SEC in the United States. Regulates stock exchanges, brokers, mutual funds, investment advisors, and listed companies.
Analyst Note
SEBI's regulatory actions directly affect listed Indian companies. Key areas: insider trading enforcement, promoter disclosure norms, IPO regulations, and increasingly, algorithmic trading oversight. SEBI circulars and consultation papers are primary sources for understanding regulatory risk for Indian-listed companies.
Take Rate
The percentage of total transaction value that a marketplace or platform retains as revenue.
Analyst Note
Visa earns approximately 0.3% on payment volume; Booking Holdings earns 14–15% of booking value; DoorDash earns around 15%.
Terminal Value
The estimated value of a business beyond the explicit forecast period in a DCF model. Represents the present value of all cash flows after year N. Typically calculated using either the Gordon Growth Model (TV = FCF_N × (1 + g) / (WACC − g)) or an exit multiple method (TV = EBITDA_N × EV/EBITDA_peer).
Analyst Note
Terminal value typically accounts for 60–80% of total DCF enterprise value. Two methods: (1) Gordon Growth Model — sensitive to the terminal growth rate assumption; never use a growth rate above long-run GDP. (2) Exit multiple — anchors to current market prices and may embed the same overvaluation you are trying to avoid. Cross-check both.
WACC
Weighted Average Cost of Capital — the blended rate a company must earn on its assets to satisfy all its capital providers. Formula: (E/V × Re) + (D/V × Rd × (1 − Tc)), where E is equity, D is debt, V is total capital, Re is cost of equity, Rd is cost of debt, and Tc is the corporate tax rate.
Analyst Note
WACC is the discount rate in a DCF model. A higher WACC lowers the present value of future cash flows. Use Damodaran's sector-level WACC estimates (pages.stern.nyu.edu/~adamodar) as a calibration starting point. For emerging-market companies, add a country risk premium of 1–3%.
Working Capital
Current assets minus current liabilities. Negative working capital is a structural advantage for retailers — it means suppliers fund the business.
Analyst Note
Walmart and Amazon operate with negative working capital, collecting from customers before paying suppliers. This is a competitive moat, not a solvency risk, when driven by payables management.