Learn the basics

Shows the share price relative to the company's earnings per share.

Example (made-up numbers): A share price of $100 and annual earnings of $5 per share gives a P/E of 20.

Helps you understand: Gives a rough idea of how much investors pay for each dollar of profit. Here it is based on trailing (past twelve months) earnings, not forecasts.

What it doesn't tell you: A low P/E does not automatically mean the stock is cheap – expected growth, risk and industry all matter. When a company makes a loss, P/E is usually not meaningful. Compare with similar companies and the company's own history.

The price of all outstanding shares added together.

Example (made-up numbers): 100 million shares at $50 each gives a market cap of $5 billion.

Helps you understand: Shows how large the company is in the eyes of the market.

What it doesn't tell you: A low share price does not mean the company is cheap or small – it depends on how many shares exist. Shown in the company's reporting currency.

Shows how much the company's sales have increased or decreased.

Example (made-up numbers): Sales rising from $200 million to $220 million is 10% growth.

Helps you understand: Indicates whether demand for the company's products is growing. Here: the last twelve months compared with the twelve months before.

What it doesn't tell you: Growing sales do not automatically mean growing profits. One year can be unusual – look at several years.

The share of sales left after the direct costs of making the product.

Example (made-up numbers): Sales of $100 and direct costs of $60 gives a gross margin of 40%.

Helps you understand: Shows how much room the company has to cover other costs and make a profit.

What it doesn't tell you: Normal levels differ a lot between industries – software is often high, retail low. Compare within the same industry.

The share of sales left as profit from the core business, before interest and taxes.

Example (made-up numbers): Sales of $100 and an operating profit of $15 gives an operating margin of 15%.

Helps you understand: Shows how profitable the day-to-day business is.

What it doesn't tell you: Different industries have different normal levels. One-off items can make a single year look better or worse.

The share of sales that ends up as final profit after all costs, interest and taxes.

Example (made-up numbers): Sales of $100 and a net profit of $8 gives a net margin of 8%.

Helps you understand: Shows how much of every dollar of sales the owners keep.

What it doesn't tell you: Can be affected by one-off gains, losses and tax effects. Compare with the industry and with earlier years.

The yearly dividend as a percentage of the share price.

Example (made-up numbers): An annual dividend of $4 and a share price of $100 gives a 4% dividend yield.

Helps you understand: Shows how much cash the company currently pays out to shareholders relative to the price.

What it doesn't tell you: Dividends can be cut or stopped. Dividend yield is not the same as total return, which also includes price changes.

Total borrowings divided by the owners' equity in the company, from the latest quarterly report.

Example (made-up numbers): Debt of $50 million and equity of $100 million gives 0.5.

Helps you understand: Shows how much the company relies on borrowed money.

What it doesn't tell you: Normal levels differ by industry – banks and utilities often borrow more. It does not show when the debt must be repaid or what interest it carries.

Money left over from operations after investments, relative to the market cap (free cash flow ÷ market cap, last twelve months).

Example (made-up numbers): Free cash flow of $2 billion and a market cap of $40 billion gives a 5% yield.

Helps you understand: Cash is harder to adjust with accounting choices than reported profit, so it shows how much real money the business generates.

What it doesn't tell you: Cash flow and reported profit differ: profit includes non-cash items like depreciation, cash flow tracks actual money in and out. Large investment years can make it temporarily low.

Net profit as a percentage of the owners' equity.

Example (made-up numbers): Profit of $10 million and equity of $100 million gives 10%.

Helps you understand: Shows how efficiently the company uses the owners' money.

What it doesn't tell you: Can look very high if equity is small, for example after large share buybacks or with high debt.

How much the stock has tended to move compared with the overall market.

Example (made-up numbers): A beta of 1.5 means the stock has historically moved about 1.5% when the market moved 1%.

Helps you understand: A rough guide to how sensitive the stock is to market swings.

What it doesn't tell you: Based on the past and does not capture company-specific risks like a failed product.

How strongly the share price has moved up and down, here over the last three months (annualized).

Example (made-up numbers): Volatility of 30% means the price has swung roughly twice as much as a stock with 15%.

Helps you understand: Larger swings mean more uncertainty in the short term.

What it doesn't tell you: Does not capture all types of risk, such as debt problems or a business losing customers. Calm periods can end suddenly.

Price change only measures how the share price moved; total return also includes dividends received.

Example (made-up numbers): A stock rising from $100 to $105 that paid a $3 dividend has a 5% price change but about 8% total return.

What it doesn't tell you: Charts here show price change only. Share splits do not change the percentages.

Trailing twelve months – the most recent four quarters added together.

A certificate traded in the US that represents shares of a foreign company. Its price is affected both by the home-market share and by exchange rates.

The short code a stock trades under, for example AAPL for Apple.

If you invest in a currency other than your own, exchange rate moves can increase or reduce your return even if the share price stays the same.

A list of companies you want to follow. Adding a company does not mean you own any shares.

Trading outside regular US hours (9:30–16:00 New York time). Prices can move more and with fewer trades.

Annual (10-K) and quarterly (10-Q) reports US companies file with the SEC. Foreign companies file 20-F and 6-K.