Earning per share stands (EPS) - stands for company's total earnings divided by the total number of shares outstanding. It is the most important variable used by investor when determining share's price, and is calculated by the following formula:

EPS = (Net Income - Dividends on preferred stocks) / Average Outstanding Shares

Note that companies are using weighted average number of shares outstanding over the reporting term, rather than actual number, because the number of shares changes over time. The higher EPS, the better. Earnings per share can be a great indicator when comparing two companies in the same industry. EPS can be calculated for the previous, current and for the upcoming year.

- Trailing EPS - last year's calculation, and the only actual EPS
- Current EPS - this year's calculation, which is still just a projection
- Forward EPS - future calculation, which are obviously projections

Forward Price to Earnings (P/E) ratio - also referred to as "estimated price to earnings" - using earnings estimates for the next four quarters. A forward PE evaluates the current stock price against what is expected to happen to earnings in the near future.

It is calculated by dividing "Market Price per Share" by "Expected Earnings per Share". Forward P/E will be lower than current P/E if earnings are expected to grow in the future. If earnings are expected to slow in the future, Forward P/E will be higher than current P/E.

Generally Accepted Accounting Principles (GAAP) - Rules, standards and procedures that are accepted and used in the accounting community for reporting financial information. In the US, GAAP standards are set by the Financial Accounting Standards Board (FASB). Financial statements submitted to the SEC by publicly traded companies are required to meet GAAP standards.

Leverage - Use of borrowed funds to increase purchasing power and, ideally, to increase profitability of an investment business. Or, the amount of debt used to finance firm's assets. A firm with much more debt than equity is considered to be highly leveraged.

Market Capitalization - Often called MCAP or Market Cap, stands for aggregate value of company. The sum is calculated multiplying the number of issued stocks by their current price on the market. There is a diverse market cap classification across the globe, but in US, companies worth less than $1 billion is considered small cap, $1 to $5 billion is considered mid cap, and above $5 billion is usually considered large cap.

Operating Cash Flow (OCF) -  is the cash generated out of the revenues, excluding costs associated with operating expenses. It should be a better measure of profits than earnings, because a company can show positive net earnings (on the income statement) and still not be able to pay its debts. Cash is very important for the company to be able to pay off its debts.

Operating Margin - calculated by dividing Operating income (the pre-tax, pre-interest profit from the company's "operations") with revenues, expressed as a percentage.

Investment Dictionary

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