Sometimes, investment talk can sound like teenage texting lingo. While the conversation topics might be a bit heavier, the acronyms can make both languages equally confusing for those not “in the know.”
So to help you out, we’ve made a list of some of the most common investing acronyms:
- CCC: Cash conversion cycle. The number of days it takes a company to run cash through the sales process — from sitting in the bank, buying inventory, selling that inventory, to receiving the cash from the sale. Shorter is better. More here.
- CD: Certificate of deposit. A savings certificate that entitles the purchaser to receive a specified interest rate for a specific period of time. Generally a low-risk, low-return investment. Usually considered in cash and cash equivalents on a company’s balance sheet. More here.
- COGS: Cost of goods sold. The costs directly tied to the production of a company’s products. More here.
- DCF: Discounted cash flow. A method of investment valuation. Based on future cash flow and the time value of money. More here.
- DIO: Days inventory outstanding. How many days it takes a company to sell inventory. Shorter is better. More here.
- DJIA: Dow Jones Industrial Average. The oldest and most widely used stock index in the world. Includes 30 companies. Also known as the ‘Dow.’ More here.
- DSO: Day sales outstanding. The average number of days it takes for a company to collect revenue following a sale. Helps measure the company’s liquidity. More here.
- EBITDA: Earnings before interest, taxes, depreciation, and amortization. Used as an indicator of the profitability of a business. The higher the EBIDTA, the better. More here.
- ETF: Exchange traded fund. A fund that tracks an index but trades like a common stock on a stock exchange. Typically has higher liquidity and lower fees than a mutual fund share. More here.
- FCF: Free cash flow. The cash a company produces from its operations minus asset maintenance expenses and taxes. More here.
- FIFO: First in, first out. A general Internal Revenue Service rule that states if you sell shares purchased at different times, the first ones you sell are the first ones you bought, unless you instruct your broker to sell a different lot at the time of the sale. Once the sale has been consummated, it’s too late. Also used in inventory management. More here.
- GAAP: Generally accepted accounting principles, as defined by the Financial Accounting Standards Board (FASB). The standard set of accounting principles and procedures that companies use to create their financial statements. More here.
- LIFO: Last in, first out. Opposite of FIFO. More here.
- OTC: Over the counter. Refers to securities that are not listed on an exchange. More here.
- PP&E: Property, plant, and equipment. Any long-term asset that a company uses to make its products or provide services (e.g., factories, ships, administrative buildings).
- REIT: Real estate investment trust, or “real estate stock.” Any company that owns, operates, leases, or finances income-producing real estate. More here.
- ROA: Return on assets. A measure that indicates how profitable a company is relative to its total assets. The higher the ROA number, the better the company is doing. More here.
- ROE: Return on equity. An indicator of a corporation’s profitability based on how much a company makes with investments from shareholders. The higher, the better. More here.
- ROIC: Return on invested capital. Measures how effectively a company uses the money invested in its operations. The higher, the better. More here.
- S&P 500: A stock index of 500 large-cap companies maintained by Standard and Poor’s. Commonly used as a benchmark for stock prices. More encompassing than the DJIA. More here.
- SG&A: Selling, general, and administrative expenses. An income statement item that sums up these expenses in a given company.
- TTM: Trailing 12 months. Shows a company’s performance over the past 12 months. Gives a more accurate picture of how the company is doing than do interim reports. Also known as LTM (last 12 months).
- EPS: Earnings per share. Serves as a measure of a company’s profitability. Found by taking a company’s net income and dividing it by its shares outstanding. Considered among the most important variables in determining a share’s price. More here.
- P/B ratio: Price-to-book ratio. Used to compare a stock’s market value to its book value. A low ratio could indicate undervaluation, or that there are problems with the company. More here.
- P/CF ratio: Price-to-cash flow ratio. A valuation method that compares a stock’s price to its per-share cash flow. Again, lower ratios often indicate undervaluation.
- P/E ratio: Price-to-earnings ratio. A stock valuation measure that compares a stock’s price to its company’s earnings per share. Higher P/E ratios tend to predict higher earnings. More here.
- P/FCF ratio: Price-to-free cash flow. Compares a company’s share price to its per-share free cash flow. Low ratios often indicate undervaluation. Gives a more complete picture than the P/CF because it only measures free cash flow (cash flow minus capital expenditures).
- P/S ratio: Price-to-sales ratio. A valuation ratio that shows the relationship between a company’s stock price and its revenues. A low ratio could mean that a stock is undervalued. Also known as a “sales multiple.” More here.
- PEG ratio: Price/earnings to growth ratio. Another useful tool for determining the value of a stock. Gives a more complete picture that the P/E ratio because it takes the company’s earnings growth into account. A PEG ratio below one is typically desirable. More here.
Major stock exchanges
- LSE: London Stock Exchange
- NASDAQ: National Association of Securities Dealers Automated Quotation. More here.
- NYSE: New York Stock Exchange. More here.
Foolish acronyms (to help decipher our discussion boards)
- BBN: Best buys now
- CAPS: A Motley Fool community-based stock rating service. See here for more details.
- IMFO: In my Foolish opinion
- IMHO: In my humble opinion
- OP: Original poster. The person who started that particular thread.
- RB: Rule breaker(s). A Motley Fool investing service, a member of this service, or a company that takes an existing industry by storm. Check out the service here.
- SA: Stock Advisor. Our flagship premium investing service. Check it out here.
- TMF: The Motley Fool. Used in usernames to signify our employees.
We hope that helps! If you have any questions or suggestions on new acronyms to add to the list, please leave them in the comments section below. Until then, FO (Fool on)!