Financial Glossary
54 key financial terms, metrics, and concepts explained
Valuation
Price-to-Earnings (P/E) Ratio
Measures how much investors pay per dollar of earnings.
Price-to-Book (P/B) Ratio
Compares stock price to the book value of equity per share.
Forward P/E Ratio
P/E ratio using estimated future earnings instead of trailing earnings.
Enterprise Value (EV)
Total value of a company including debt and excluding cash.
Market Capitalization
Total market value of a company's outstanding shares.
Book Value Per Share
Stockholders' equity divided by shares outstanding.
Profitability
Return on Equity (ROE)
Measures how much profit a company generates per dollar of shareholder equity.
Return on Assets (ROA)
Measures profit generated per dollar of total assets.
Gross Margin
Percentage of revenue remaining after cost of goods sold.
Net Profit Margin
Percentage of revenue that becomes net income after all expenses.
Banking
Net Interest Margin (NIM)
Spread between interest earned on loans and interest paid on deposits.
Efficiency Ratio
Measures operating costs as a percentage of revenue.
Net Interest Income (NII)
Revenue from interest earned minus interest paid.
Noninterest Income
Revenue from fees, trading, and services rather than lending.
Total Loans
Aggregate value of all outstanding loans on a bank's balance sheet.
Total Deposits
All customer deposits held by a bank.
Loan-to-Deposit Ratio
Total loans divided by total deposits.
Tangible Book Value (TBV)
Book value excluding intangible assets like goodwill.
Cost of Deposits
Average interest rate a bank pays on its deposit base.
Yield on Earning Assets
Average interest rate earned on loans, securities, and other earning assets.
Balance Sheet
Total Assets
Everything a company owns or is owed.
Total Liabilities
Everything a company owes to creditors and depositors.
Stockholders' Equity
Net worth of a company — assets minus liabilities.
Cash and Cash Equivalents
The most liquid assets on the balance sheet.
Total Debt
All borrowed money including short-term and long-term obligations.
Debt-to-Equity Ratio
Total debt divided by stockholders' equity.
Common Equity
Ownership capital held by common shareholders.
Income Statement
Risk
Dividends
Market
Regulatory
CET1 Capital Ratio
Core equity capital as a percentage of risk-weighted assets.
Tier 1 Capital Ratio
Tier 1 capital (CET1 plus preferred stock) relative to risk-weighted assets.
Total Capital Ratio
All regulatory capital as a percentage of risk-weighted assets.
Tier 1 Leverage Ratio
Tier 1 capital divided by total average assets, without risk weighting.
Bank Stress Test
Regulatory examination of a bank's ability to survive economic crises.
Systemically Important Financial Institution (SIFI)
A bank deemed 'too big to fail' by regulators.
Basel III
International banking regulation framework for capital and liquidity.
Risk-Weighted Assets (RWA)
Total assets adjusted for their risk level.
Credit
Provision for Credit Losses (PCL)
Expense set aside to cover expected loan defaults.
Nonperforming Loans (NPLs)
Loans where the borrower has stopped making payments.
Net Charge-Offs (NCOs)
Loans written off as uncollectible minus recoveries.
Allowance for Loan Losses (ALL)
Reserve set aside on the balance sheet to cover expected loan losses.