Glossary

Every term the lessons and challenges use, in plain English. You can also tap any underlined word as you read — the definition opens without losing your place.

78 terms

Statements & accounting

10-K: The detailed annual report every US public company files with the SEC. Audited, and the most reliable single document about a company.A 10-K includes the full financial statements, a description of the business, and a risk-factors section where the company is legally required to say what could go wrong. It is long, but the numbers in these challenges come from filings like this one.See also: 10-Q, SEC
10-Q: The quarterly version of the 10-K. Shorter and unaudited, filed three times a year between annual reports.See also: 10-K
Accrual accounting: Recording revenue when it is earned and costs when they are incurred, not when cash actually moves. It is why a profitable company can run out of cash.Learn this →See also: Cash flow statement, Deferred revenue
Assets: Everything the company owns that has value — cash, inventory, buildings, patents. The left-hand side of the balance sheet.See also: Liabilities, Balance sheet
Balance sheet: A snapshot at a single instant: what the company owns, what it owes, and the difference. Not a period — a specific date.It is called a balance sheet because it must balance: assets always equal liabilities plus shareholders' equity. The balance sheet is where you look to answer 'can this company survive a bad year?' — cash on hand versus debt due.Learn this →See also: Assets, Liabilities, Shareholders' equity
Cash flow statement: Tracks actual cash moving in and out over a period. It exists because reported profit and real cash can differ a great deal.Learn this →See also: Free cash flow, Accrual accounting
Cost of goods soldalso: COGS, cost of revenue: What it cost to actually make or deliver what was sold — parts, manufacturing, server capacity. Subtract it from revenue and you get gross profit.See also: Gross margin
Deferred revenue: Money already collected for something not yet delivered — an annual subscription paid up front. It sits as a liability until the service is provided.See also: Accrual accounting
Depreciationalso: amortization: Spreading the cost of something long-lived across the years it is used, rather than expensing it all at once. It lowers reported profit without any cash leaving in that period.See also: Free cash flow, Accrual accounting
Earnings per sharealso: EPS: Net income divided by the number of shares outstanding — the slice of profit attached to one share. It is the denominator-adjusted figure that makes profit comparable to a share price.Learn this →See also: P/E ratio, Net income
Free cash flowalso: FCF: Cash generated by operations minus what had to be spent on property and equipment. Roughly: money the company could hand out without harming the business.Learn this →See also: Operating cash flow, Net income
Gross marginalso: gross profit: Revenue minus the direct cost of making the product, shown as a percentage of revenue. It tells you how much is left to cover everything else — a rough read on pricing power.A software company might run an 80% gross margin because copying software costs almost nothing. A supermarket runs closer to 25%. Comparing gross margins across different industries tells you very little; comparing one company's gross margin against its own history tells you a lot.Learn this →See also: Operating margin, Cost of goods sold
Income statementalso: profit and loss statement, P&L: Covers a period of time — a quarter or a year — and answers: did we make money over that stretch? Starts at revenue and works down to net income.Learn this →See also: Balance sheet, Cash flow statement
Liabilities: Everything the company owes — debt, unpaid bills, obligations to customers. Assets minus liabilities is what shareholders actually own.See also: Assets, Shareholders' equity
Net incomealso: net profit, bottom line, earnings: What is left after every cost, including interest and tax. The bottom line — literally the last line of the income statement.Learn this →See also: Earnings per share, Free cash flow
Operating cash flow: Cash produced by the day-to-day business, before spending on new buildings or equipment. Starts from net income and strips out non-cash items.See also: Free cash flow
Operating marginalso: operating income, operating profit: Profit left after both the cost of the product and the cost of running the business — salaries, marketing, research. It excludes interest and tax, so it isolates how well the actual operation performs.Learn this →See also: Gross margin, Net income
R&Dalso: research and development: Spending on developing future products. It reduces profit today, which means a company investing heavily can look worse than it is.
Revenuealso: top line, sales: The total amount a company billed customers over a period, before any costs are taken out. The first line of the income statement, which is why it is called the top line.Learn this →See also: Net income, Income statement
Shareholders' equityalso: shareholders equity, shareholder equity, book equity: Assets minus liabilities — the accounting value of what shareholders own. It can go negative, which means the company owes more than it owns on paper.See also: Book value, Balance sheet
Working capital: Short-term assets minus short-term liabilities — a rough measure of whether a company can pay its bills over the next year.

Valuation & ratios

Book value: What the accounts say the company's net assets are worth. For an asset-light business it can badly understate reality, since brands and software rarely appear on the balance sheet.See also: Shareholders' equity
Consensusalso: analyst estimate, consensus estimate: The average of professional analysts' forecasts. It matters because a stock moves on results relative to expectations, not on whether the results were good in absolute terms.See also: Guidance
Debt-to-equityalso: debt to equity, D/E ratio: Total debt divided by shareholders' equity — how much of the business is funded by borrowing. Higher means both larger potential returns and less room for error.Learn this →See also: Leverage
Economic moatalso: moat: Something structural that stops competitors from copying a company's profits away — a network effect, a switching cost, a scale advantage, a genuine brand.Moats are usually invisible while they are being built, because building one looks like unprofitable spending. They only become obvious afterwards, which is exactly what makes them hard to price in advance.Learn this →See also: Network effect, Switching costs
Enterprise value: Market cap plus debt, minus cash — what it would really cost to buy the whole business outright, since you would inherit its debts.See also: Market capitalization
Guidance: The company's own forecast for the coming quarter or year, given alongside results. Markets often react more to guidance than to the results themselves.See also: Consensus
Leverage: Using borrowed money to increase the size of a position or fund a business. It multiplies gains and losses equally, and decides whether you survive long enough to be right.Learn this →See also: Debt-to-equity, Margin call
Market capitalizationalso: market cap: Share price multiplied by the number of shares — the price tag on the whole company. The figure to use when comparing company sizes, not share price.See also: Enterprise value
Network effect: When a product becomes more valuable the more people use it. It makes an early lead compound into a durable one.Learn this →See also: Economic moat
P/E ratioalso: P/E, price-to-earnings ratio, price to earnings: Share price divided by earnings per share — how many years of current profit you are paying for one share. A high P/E means the market expects growth.A P/E is only meaningful in comparison: against the company's own history, against direct competitors, or against the market. On its own, a number like 43 is neither expensive nor cheap. And a company with no profits has no P/E at all — the ratio simply goes silent exactly when the decision is hardest.Learn this →See also: Earnings per share, Valuation multiple
Price-to-salesalso: P/S ratio, price to sales: Market cap divided by revenue. Used when a company has no profits yet, so a P/E cannot be calculated.See also: P/E ratio
Return on equityalso: ROE: Net income divided by shareholders' equity — how much profit the company squeezes out of the money shareholders have in it.See also: Shareholders' equity
Switching costs: The hassle, expense or lost data involved in moving to a competitor. High switching costs let a company raise prices without losing customers — up to a point.Learn this →See also: Economic moat
Valuation: An estimate of what a business is actually worth, which you then compare against what it costs. The gap between those two is the whole basis of a decision.Learn this →See also: P/E ratio, Market capitalization
Valuation multiple: Any ratio of price to a business figure — earnings, sales, cash flow. Saying a stock trades at a high multiple means it is expensive relative to that figure.See also: P/E ratio

Market mechanics

Bear marketalso: bearish: Conventionally a fall of 20% or more from a peak, and by extension a pessimistic view on a stock.See also: Bull market, Market correction
Bid-ask spreadalso: bid/ask spread: The gap between the highest price a buyer will pay and the lowest a seller will accept. You cross it on every trade, so it is a real cost.See also: Liquidity
Bull marketalso: bullish: A sustained period of rising prices, and by extension an optimistic view on a stock.See also: Bear market
Dividend: Cash paid directly to shareholders out of profits, usually quarterly. Growing companies often pay none, preferring to reinvest.See also: Share buyback
IPOalso: initial public offering: The first sale of a company's shares to the public, turning a private company into a listed one.
Liquidity: How easily you can buy or sell without moving the price. Large companies are highly liquid; small ones can be difficult to exit in a hurry.See also: Bid-ask spread, Volume
Market correction: A fall of roughly 10% from a recent high — smaller and more common than a bear market.See also: Bear market, Drawdown
Quarterly earningsalso: earnings report, earnings release: The results a public company reports every three months. Note the timing carefully — a figure is not available to you until the day it is actually published.See also: 10-Q, Consensus
SECalso: Securities and Exchange Commission: The US regulator that requires public companies to file standardised, audited financial reports. It is the reason reliable historical data exists at all.See also: 10-K
Share buybackalso: stock buyback, share repurchase: A company buying its own shares on the market, which reduces the share count and lifts earnings per share without profit changing at all.See also: Earnings per share, Dividend
Short sellingalso: shorting, short position: Borrowing shares, selling them, and hoping to buy them back cheaper. Losses are theoretically unlimited, because a price can keep rising indefinitely.See also: Margin call
Stock split: Dividing existing shares into more, smaller ones. Nothing about the business changes, but every historical price before the split has to be adjusted to stay comparable.This is why the prices in these challenges can look strange. Apple has split several times since 2008, so one share bought then is many shares now. A challenge tracks what your original share is worth, which will not match the price quoted on that later date.
Tickeralso: ticker symbol: The short code identifying a stock on an exchange — AAPL for Apple, NVDA for NVIDIA.
Volume: The number of shares traded in a period. It is usually read as a measure of conviction — a move on heavy volume carries more weight than the same move on light volume.Learn this →See also: Liquidity

Charts & indicators

Breakout: Price moving decisively through a level it previously respected. Many breakouts fail and reverse immediately, which is why volume is usually checked alongside.Learn this →See also: Support and resistance, Trend line
Candlestickalso: candle: A chart bar showing four prices for one period: open, high, low and close. The thick body spans open to close; the thin wicks reach the extremes.Learn this →See also: Volume
Divergence: When price makes a new high or low but the indicator does not follow. Read as the move losing conviction — the more defensible use of an oscillator.Learn this →See also: RSI, MACD
Golden crossalso: death cross: When a short moving average crosses above a long one, read as a bullish signal. The reverse crossing is a death cross. Both confirm a move that has already happened.Learn this →See also: Moving average
Head and shoulders: A three-peak shape with a higher middle peak, read as a possible trend reversal once price closes below the neckline joining the two troughs.Learn this →
MACD: The gap between a fast and a slow moving average, plotted against a signal line. It is a momentum reading derived entirely from past prices.Learn this →See also: Moving average, RSI
Moving averagealso: simple moving average: The average closing price over the last N periods, redrawn each day. It smooths noise into a trend, at the cost of always lagging behind the actual turn.Learn this →See also: Golden cross
RSIalso: relative strength index: An indicator from 0 to 100 comparing the size of recent gains to recent losses. Above 70 is called overbought and below 30 oversold — though a strong trend can stay overbought for months.Learn this →See also: Divergence, MACD
Support and resistancealso: support level, resistance level: Price levels where buying has repeatedly stopped falls (support) or selling has repeatedly capped rises (resistance). They describe past behaviour, and hold only until something changes that behaviour.Learn this →See also: Breakout
Trend line: A straight line drawn along a run of rising lows or falling highs, used to make the direction of a move explicit.Learn this →See also: Breakout
Volatility: How much a price swings around, in either direction. Higher volatility means a wider range of outcomes, not necessarily a worse one.See also: Drawdown

Risk & trading

Buy and hold: Buying and simply not selling, regardless of what happens in between. It is the benchmark every more active approach has to beat.Learn this →See also: Position trading
Call option: A contract giving the right, not the obligation, to buy at a set price before a set date. Used to bet on a rise with a capped downside — the premium paid.Learn this →See also: Put option, Time decay
Day trading: Opening and closing positions within a single session, holding nothing overnight. Costs and spreads matter enormously at this frequency.Learn this →See also: Swing trading
Drawdown: The fall from a peak to the following trough, as a percentage. It measures the worst stretch you would have had to sit through.See also: Volatility, Market correction
Expectancy: The average result per trade once win rate and size of wins and losses are combined. It is the number that decides whether an approach makes money over time.Learn this →See also: R-multiple
Futuresalso: futures contract: An agreement to trade something at a set price on a future date, settled daily and usually heavily leveraged.Learn this →See also: Leverage, Margin call
Hindsight bias: The feeling that an outcome was obvious once you know it. It is the main reason reading history teaches less than deciding before the reveal does.Learn this →
Margin call: A demand to add money when a leveraged position has lost too much. If you cannot, the position is closed at a loss whatever happens next.This is the mechanism that turns a survivable decline into a permanent loss. An unleveraged holder who is down 50% still owns the shares and can wait. A leveraged holder can be forced out at the bottom, and never participates in the recovery.Learn this →See also: Leverage
Position sizing: Deciding how much to put into a single trade. It usually matters more to your overall outcome than picking the right stock does.Learn this →See also: Stop loss, R-multiple
Position trading: Holding for months to years on a view about the business rather than the chart. The horizon these challenges are built around.Learn this →See also: Buy and hold
Put option: The mirror of a call: the right to sell at a set price before a set date. Used to bet on a fall, or to insure a holding.Learn this →See also: Call option
R-multiple: A result expressed in units of what you risked. Risk $100 and make $300, and that is a 3R win — which lets you compare trades of different sizes.Learn this →See also: Risk/reward ratio, Expectancy
Risk/reward ratioalso: risk-reward, risk to reward: How much you stand to gain compared with how much you have put at risk. A 3:1 setup can be profitable while being wrong most of the time.Learn this →See also: R-multiple, Expectancy
Stop lossalso: stop order: A standing instruction to sell if price falls to a set level. It caps a loss, and can equally remove you from a position that later recovers.Learn this →See also: Position sizing, Drawdown
Survivorship bias: Studying only the companies that made it, and drawing conclusions that the failures would have contradicted. Every company in these challenges survived — remember that when generalising.Learn this →See also: Hindsight bias
Swing trading: Holding for days to weeks to capture one move. Long enough to carry overnight risk, short enough that fundamentals rarely change.Learn this →See also: Day trading, Position trading
Time decay: An option loses value as its expiry approaches, because there is less time left for the price to move. Being right too late is the same as being wrong.Learn this →See also: Call option