Investing frameworks
Finrys education
TTM, P/E, FCF, ROIC: Every Investing Abbreviation, Explained in Plain English
Investing has a vocabulary problem. Open any stock report and you are hit with TTM, P/E, EV/EBITDA, ROIC, CapEx — a wall of abbreviations that makes a simple subject feel like a secret club. It isn’t. Every one of these terms stands for an idea you can explain to a friend over coffee. This post is the dictionary we wish we had when we started: every abbreviation you’ll meet on Finrys, in plain English, with a number in the example wherever possible. Skim it once, then come back whenever a term trips you up.
Time words
TTM, YTD, YoY — which twelve months are we talking about?
Before any number means anything, you need to know which period it covers. These four little words do that job everywhere on Finrys — and in every annual report you will ever read.
- TTMtrailing twelve months
- Instead of waiting for the year to end, add up the last four reported quarters. A company whose fiscal year ended eight months ago still gets a fresh number. Whenever you see "(TTM)" next to a metric on Finrys, it means "the most recent twelve months we know about", regardless of the calendar.
- YTDyear to date
- From 1 January until today. A YTD return of +8% means the price is up 8% since the year began.
- YoYyear over year
- Compared with the same period a year ago. It cancels out seasonality — the Christmas quarter is compared with a Christmas quarter, not with a sleepy summer one.
- QoQquarter over quarter
- Compared with the previous quarter. The freshest possible change, but seasonality can distort it — a retailer will almost always look bad in the quarter after Christmas.
- CAGRcompound annual growth rate
- The steady yearly pace that would take a number from where it started to where it is now. Revenue that went from $100M to $200M over 5 years grew at a CAGR of about 15% — even if the individual years were bumpy. It smooths good and bad years into one honest rate.
Price tags
Market Cap, EV, EPS — what a company actually costs
A share price on its own tells you nothing. A $900 stock can be "cheaper" than a $5 one. These three numbers turn a share price into a real price tag.
- Market Capmarket capitalization
- The price of every share added together: shares outstanding × current price. It is what it would cost to buy the whole company at today's price — the real "price tag", which is why comparing share prices between companies is meaningless but comparing market caps is not.
- EVenterprise value
- Market cap plus debt minus cash. Buying a whole company means inheriting its debts — but also pocketing the cash in its account. EV is what the purchase would really cost. On the rare occasion EV is lower than market cap, you are looking at a company with more cash than debt.
- EPSearnings per share
- The company's whole yearly profit divided by the number of shares. It tells you how much profit sits behind each share you own — and it is the "E" in P/E.
Valuation multiples
P/E, P/S, P/FCF — how expensive is it, really?
A multiple answers one question: how many dollars are you paying for one dollar of something — profit, sales, cash flow? Lower usually means cheaper, but never forget the second half of the story: a fast grower deserves a higher multiple than a company standing still. Two identical companies with the same P/E are not equally cheap if one grows earnings at 20% a year and the other at 5%.
- P/Eprice to earnings
- How much you pay for one dollar of yearly profit. A P/E of 20 means $20 for every $1 of profit — at unchanged profit the company would earn its price back in 20 years. The most quoted multiple in investing, and still only half the story: it says nothing about quality or growth.
- P/FCFprice to free cash flow
- Same idea as P/E, but using the cash the company actually keeps instead of accounting profit. Cash is much harder to dress up with accounting choices, so many value investors trust this number more.
- P/Sprice to sales
- How much you pay for one dollar of yearly revenue. Useful for companies with sales but no profit yet — and for comparing companies within the same industry, where profit margins are similar. If two peers have very different P/S ratios, find out why before assuming the cheap one is a bargain.
- P/Bprice to book value
- How many times the company's net assets you are paying. Book value is what it owns minus what it owes; a P/B of 3 means $3 for $1 of assets. Most useful for banks and asset-heavy businesses.
- PEGP/E divided by growth
- Tries to answer whether a high P/E is justified by fast growth. A PEG around 1 means the price roughly matches the growth rate; well below 1 can mean growth is going cheap.
- EV/EBITDAenterprise value to operating profit
- Like P/E, but the price includes the debt. If you bought the whole company you would take on its loans too — this multiple remembers that, P/E does not. Standard tool for comparing companies that carry very different amounts of debt.
- EV/FCFenterprise value to free cash flow
- Like P/FCF with debt counted into the price. The fairest single multiple for comparing a heavily indebted company with a debt-free one.
The income statement
COGS, SG&A, EBITDA, EBIT — profit, layer by layer
An income statement is a staircase: revenue at the top, and at every step some cost walks out. Each abbreviation below names one step. Read them once and every income statement — and every Finrys statement table — becomes easy to follow.
- COGScost of goods sold
- What it directly cost to make the things sold: materials, factory labour, shipping. Revenue minus COGS is the gross profit — and gross margin is the single best clue to how a business scales. Software companies keep ~80–90 cents of each extra revenue dollar; a supermarket keeps ~25.
- SG&Aselling, general & administrative
- The everyday running costs not tied to a single product: managers' salaries, marketing, offices, accounting.
- R&Dresearch & development
- Spending on inventing and improving products. A cost today, but it is where tomorrow's profits come from — which is why heavy R&D can make a great business look "expensive" on current profit.
- D&Adepreciation & amortisation
- The accounting way of spreading the cost of buildings and machines over the years they are used. The cash left when they were bought — here it is a paper cost, not money going out the door. Real, though: worn-out machines eventually need replacing.
- EBITDAearnings before interest, taxes, depreciation & amortisation
- Profit before interest, taxes and wear-and-tear are subtracted. It shows how the operation itself earns — but beware: those worn-out machines are a real cost even if this number pretends otherwise.
- EBITearnings before interest & taxes
- Profit from the core business before interest on debt and taxes. One step more honest than EBITDA, because depreciation has already been counted.
- EBTearnings before tax
- Profit after all costs and interest, just before income tax. Compare it with net income and you can see the company's tax bill.
Cash flow
OCF, CapEx, FCF — the money that is actually real
In the long run, profit and cash should tell the same story. In the short run, profit is shaped by accounting rules — cash is not. If net income and free cash flow drift far apart for years, that is your cue to dig in and ask why.
- OCFoperating cash flow
- The cash the day-to-day business brought in, before any spending on buildings and machines.
- CapExcapital expenditures
- Money spent on buildings, machines and equipment — Tesla building a factory, Amazon a warehouse. It leaves the account as real cash, which is why it is subtracted on the way to free cash flow.
- FCFfree cash flow
- Operating cash flow minus CapEx: the cash left after the company has paid for everything it needs to run and maintain itself. This is the money that can actually reach you as an owner — the lifeblood every valuation on Finrys ultimately rests on.
- PP&Eproperty, plant & equipment
- The company's physical assets: land, buildings, machinery, vehicles. The hard stuff the business runs on — and the thing CapEx buys.
Why does free cash flow matter so much? Because it is the menu. There are exactly five things a company can do with the cash it generates — and watching which ones management picks tells you more about them than any interview:
Returns on capital
ROIC, ROE, ROA — the quality test
These three ask the most important question in business: for every dollar tied up in the company, how many cents of profit come back each year? Companies that reinvest at high rates compound wealth dramatically faster — a business earning 16% on its capital doubles its profits in about 4.5 years; one earning 8% needs 9.
- ROICreturn on invested capital
- How many percent a year the company earns on all the money tied up in it — shareholders' and lenders' alike. A ROIC of 15% means every $100 invested produces $15 of yearly profit. High, stable ROIC is the best single proof that a company has something rivals cannot copy.
- ROEreturn on equity
- How much the company earns on the money shareholders put in. Careful: it can be inflated simply by borrowing a lot — which is exactly why ROIC, which counts the debt too, is the sharper tool.
- ROAreturn on assets
- How much the company earns on everything it has, no matter whether shareholders or the bank paid for it. The most conservative of the three.
4.7×
8% ROIC — profit after 20 yrs
19.5×
16% ROIC — profit after 20 yrs
Debt & discipline
D/E, MoS, MARR — the value investor's guardrails
Great analysis still needs discipline at the moment of purchase. One abbreviation measures how fragile the company is; the other two protect you from your own optimism.
- D/Edebt to equity
- How many dollars of debt sit on every dollar of the company's own money. A D/E of 2 means twice as much debt as equity — the higher it is, the more one bad year hurts.
- MoSmargin of safety
- The discount you demand against your own estimate of value. If you think a company is worth $100 and want a 30% margin, you only buy below $70 — a cushion for the day your estimate turns out too rosy. The single most important idea in value investing; we wrote a whole post on it.
- MARRminimum acceptable rate of return
- The yearly return you demand before an investment is worth your while. Value investors often use 15% — the price paid has to promise at least that. Counter-intuitively, a higher required return is more conservative: it forces a lower buy price today.
Valuation methods & special cases
DCF, DDM, NAV, FFO — how a number becomes a fair value
Multiples compare; these methods value. Each one turns a stream of future money into a single "worth this much today" figure — and each fits a different kind of business.
- DCFdiscounted cash flow
- Add up the cash the company will earn in the years ahead, counting distant years for less — a dollar ten years from now is worth less than a dollar today. This is the engine behind every fair value on Finrys.
- DDMdividend discount model
- Values a company purely by the dividends it will pay out, with distant years counting for less. Makes sense for stable, reliable dividend payers.
- NAVnet asset value
- What the company owns minus what it owes. The go-to yardstick for property and investment companies, where the assets themselves are the value.
- FFO/AFFOfunds from operations
- The profit measure for real-estate companies (REITs). Accounting profit subtracts depreciation on buildings even though a well-kept property does not wear out like a machine — FFO adds it back and shows the real earning power.
- TERtotal expense ratio
- The yearly fee of an ETF or fund, quietly deducted from its value. A TER of 0.2% costs you $2 a year on every $1,000 invested — small numbers, but they compound against you for decades.
- DCAdollar-cost averaging
- Investing the same amount at regular intervals no matter the price. When shares are cheap you automatically buy more of them, when expensive fewer — and timing stops mattering.
On Finrys
You don't have to memorise any of this
Every abbreviation in this post lives inside Finrys as a built-in glossary. Wherever a term appears — a screener filter, a metric label, a valuation verdict — it carries a dotted underline. Hover it (or tap it on your phone) and the plain-English explanation appears right there, so you never have to leave the page to look something up. This post is the long-form version; the tooltips are the pocket edition.
Bottom line
Learn the words once, use them forever
The vocabulary is the smallest part of investing, but it is the gate everything else stands behind. Once TTM is just “the last four quarters” and ROIC is just “cents of profit per dollar tied up”, annual reports stop being intimidating and start being readable. Bookmark this page, open any stock on Finrys, and start asking the metrics your own questions.