Metrics Glossary

Plain-English definitions for every field you see on Equity Rank — what each number measures and how to read it. Educational reference only; nothing here is investment advice.

Strength & Scores

Fundamental Strength: Fundamental Strength grades how strong the underlying business is, independent of whether the stock looks cheap or expensive. It blends five fundamental pillars — Profitability, Financial Health, Earnings Quality, Capital Allocation, and Growth Durability — into a single 0–100 score and an A+ to F letter grade. Pillars with no available data are dropped and the rest re-weighted, so the grade always reflects real data rather than filled-in blanks.; How to read it: A higher grade means the business scores well across profitability, balance-sheet health, accounting quality, capital discipline, and durable growth. It is a measure of business quality, not a measure of whether the stock is cheap.
ER Score: The Equity Rank Score is our headline 0–100 composite. Unlike Fundamental Strength, it deliberately blends business quality WITH valuation cheapness, momentum, innovation exposure, and macro positioning, using weights tuned per sector. Quality gates prevent low-confidence or low-quality names from scoring highly.; How to read it: A higher score reflects a more favorable overall standing across all model pillars combined. It is informational and is not a recommendation to take any action.
Model Confidence: Model Confidence reflects how much trust to place in the valuation outputs. It rises when multiple valuation methods agree, the underlying data is complete and high-quality, and the best-fit method is well-suited to the company. It falls for thin data or wide disagreement between methods.; How to read it: Higher means the fair-value estimate rests on fuller, more consistent inputs. Lower means treat the estimate with extra caution.

Valuation

Model Fair Value: The model fair value blends the outputs of many independent valuation methods (P/E, P/B, P/S, EV/EBITDA, discounted cash flow, Graham number, and others) into a single trailing-twelve-month estimate. It is a current-snapshot model estimate of intrinsic value — not a forward projection of future trading levels.; How to read it: Comparing price to the model fair value gives the Margin of Safety. It is informational and not a recommendation.
MoS%: Margin of Safety expresses the gap between the model fair value and the current price as a percentage. A positive value means the price is below the model fair-value estimate; a negative value means it is above. It is a current-snapshot measure on a trailing-twelve-month basis, not a forward projection.; How to read it: Positive = price below the model estimate; negative = price above it. Informational only.
Combined MoS%: A variant of Margin of Safety calculated against the combined SAVE + Innovation fair-value estimate, which overlays sentiment and innovation signals onto the core valuation. Current-snapshot, trailing-twelve-month basis.
P/E: The trailing P/E ratio divides the share price by earnings per share over the last twelve months. It shows how much investors are paying for each dollar of recent earnings. "N/M" (not meaningful) appears when earnings are negligible or negative.; How to read it: A lower P/E means a lower price per dollar of trailing earnings; appropriate ranges vary widely by sector and growth rate.
Fwd P/E: The forward P/E divides the share price by the consensus estimate of next year’s earnings per share. It reflects expectations rather than reported results and depends on the accuracy of analyst estimates.
P/B: The price-to-book ratio compares the share price to the company’s book value (assets minus liabilities) per share. It is most informative for asset-heavy businesses such as banks and is less meaningful for asset-light or intangible-heavy firms.
EV/EBITDA: EV/EBITDA divides enterprise value (market cap plus net debt) by earnings before interest, taxes, depreciation, and amortization. Because it includes debt and ignores financing/tax differences, it allows comparison across companies with different capital structures.
PEG: The PEG ratio divides the P/E by the expected earnings growth rate, putting valuation in the context of growth. It helps compare companies growing at different speeds.
P/S: The price-to-sales ratio divides market value by revenue. It is useful for companies with little or no profit, where earnings-based multiples are not meaningful.

Profitability

Profitability: The Profitability pillar combines return on equity, return on invested capital, net/operating/gross margins, free-cash-flow yield, and gross profitability. Together they describe how much profit and cash the business generates relative to its sales and the capital it employs.
ROE: Return on equity measures net income relative to shareholders’ equity — how much profit the company generates from the money shareholders have invested. Very high ROE can sometimes reflect heavy leverage rather than operating strength.; How to read it: Higher generally indicates more profit generated per dollar of equity.
ROA: Return on assets measures how efficiently a company turns its total asset base into profit, regardless of how those assets are financed.
ROIC: ROIC measures the after-tax return the business earns on all the capital (debt and equity) invested in operations. Compared against the cost of capital, it shows whether the company creates or destroys value.; How to read it: Higher means the business earns more on each dollar of capital it employs.
Net Margin: Net margin is the share of each dollar of revenue that remains as net profit after all expenses, interest, and taxes.
Operating Margin: Operating margin measures profit from core operations as a share of revenue, before interest and taxes. It isolates operating efficiency from financing and tax effects.
Gross Margin: Gross margin is the share of revenue left after the direct cost of producing goods or services. Higher gross margins often indicate pricing power or a differentiated product, though typical levels vary greatly by industry.
FCF Yield: Free-cash-flow yield expresses the cash a business generates (after capital spending) as a percentage of its market value. It shows how much actual cash the business produces relative to its price.
Rule of 40: The Rule of 40 is a software-industry convention: add the revenue growth rate to the free-cash-flow margin. The idea is that software businesses trade growth against profitability, and the SUM captures the balance — a company can score 40 by growing fast at break-even or growing slowly with rich margins. A combined reading above 40 meets the conventional industry benchmark for software businesses. Equity Rank computes it for software-sector stocks only and displays it for context; it is informational and is never an input to the fair value blend.; How to read it: Higher combined readings are conventionally associated with the industry benchmark; the 40 threshold is a rule of thumb, not a conclusion about any individual security.

Financial Health

Financial Health: The Financial Health pillar combines the Piotroski F-Score, leverage (debt-to-equity), and an estimated distress probability. It describes how resilient the balance sheet is and how comfortably the company can service its obligations.
Piotroski F-Score: The Piotroski F-Score (Piotroski, 2000) awards one point each for nine fundamental tests across profitability, balance-sheet leverage/liquidity, and operating efficiency, for a total of 0–9. It is a widely used quick read of fundamental health.; How to read it: Higher (closer to 9) indicates more of the financial-health checks are passing.
Debt/Equity: The debt-to-equity ratio compares total debt to shareholders’ equity. It shows how much the company relies on borrowing relative to equity financing. Acceptable levels vary widely by industry.; How to read it: Lower generally indicates a more conservatively financed balance sheet.
Interest Coverage: Interest coverage divides trailing-twelve-month operating profit (EBIT) by interest expense. Unlike EV/EBITDA it does not add depreciation back, which matters for asset-heavy businesses where depreciation is a genuine recurring cost rather than an accounting artifact. A reading below 1.0x means trailing operating profit did not cover the interest bill. No value is shown when interest expense is absent or zero — that is unknown coverage, not strong coverage.; How to read it: Higher indicates more operating profit available to service debt.
Distress Probability: Distress probability converts the Ohlson O-Score (Ohlson, 1980) — a bankruptcy-prediction model — into an estimated likelihood of financial distress over roughly two years. It is not calculated for banks, insurers, and REITs, where the model does not apply.; How to read it: Lower indicates less estimated distress risk based on the model’s inputs.

Earnings Quality

Earnings Quality: The Earnings Quality pillar combines the Beneish M-Score, accruals, cash-conversion ratio, receivables quality, and earnings-surprise consistency. It flags whether reported profits are well-supported by cash flow and conservative accounting, versus relying on aggressive estimates.
Cash Conversion: The cash-conversion ratio divides operating cash flow by net income. A ratio near or above 1.0 indicates earnings are well-backed by cash; persistently low ratios can signal earnings that rely on non-cash accruals.
Beneish M-Score: The Beneish M-Score (Beneish, 1999) combines eight financial ratios into a single number that estimates the likelihood of earnings manipulation. Readings above roughly −1.78 are commonly treated as a flag for further scrutiny. It is a screening signal, not a determination of wrongdoing.; How to read it: More negative readings indicate accounting that looks less likely to be manipulated.

Capital Allocation

Capital Allocation: The Capital Allocation pillar combines economic spread (returns above the cost of capital), total shareholder yield, share issuance/dilution, and an overall capital-allocation composite. It describes how productively management invests and whether capital is returned without excessive dilution.
Economic Spread: Economic spread is ROIC minus the cost of equity capital. A positive spread means the business earns more than its capital costs (value creation); a negative spread means the opposite.
Shareholder Yield: Total shareholder yield captures all the ways cash is returned to (or raised from) shareholders: dividends plus net share buybacks minus net debt issuance, relative to market value. A negative figure indicates a net issuer of stock or debt.
Capital Allocation Score: The capital-allocation score combines economic spread, the sustainable growth rate, and the trend in goodwill (a proxy for acquisition discipline) into a 0–100 read of management’s capital stewardship.

Growth

Growth Durability: The Growth Durability pillar combines revenue growth, 3-year free-cash-flow CAGR, the multi-year trend in return on equity, and the multi-year change in gross margin. It describes whether the business is sustaining and broadening its growth rather than relying on one-off jumps.
Rev Growth: Revenue growth measures the year-over-year change in sales, showing how quickly the top line is expanding or contracting.
FCF 3yr CAGR: The 3-year free-cash-flow CAGR measures the compound annual growth rate of free cash flow over three years. It is left blank when an endpoint is non-positive, since a growth rate is undefined for a sign-flipping series.
ROE 3yr Δ/yr: This is the linear slope of return on equity over three years, expressed in percentage points per year. A positive value indicates ROE has been expanding; negative indicates contraction. Informational trend signal only.
GM Δ 3yr: This is the end-to-end change in gross margin over three years, in percentage points. Positive values indicate margin expansion; negative values indicate compression. Informational trend signal only.

Risk & Market

SAVE Δ30d: The change in the SAVE composite (a sentiment-adjusted signal blending news, social, analyst, and search data) over the last 30 days. Larger positive values indicate improving sentiment momentum. Informational only.
Risk: The risk score summarizes a stock’s market sensitivity (beta) and price volatility into a 0–100 scale, where higher means more volatile/sensitive. It is labeled Low, Mid, or High.
Beta: Beta measures one thing: how much a stock’s past returns moved together with the broad market — its sensitivity to market-wide moves. A beta of 1.0 means it tended to move with the market; above 1.0 means it amplified market swings; below 1.0 means it dampened them; a negative beta means it tended to move opposite the market. Three common misreadings to avoid: (1) Beta is backward-looking — it is estimated from historical returns and can drift over time, so it is not a forecast. (2) It captures only market-linked (systematic) movement, not company-specific risk, business quality, or valuation — a stock can be very volatile on its own yet still carry a low beta if that volatility is unrelated to the market. (3) A high beta is not inherently “bad” and a low beta is not inherently “safe”; beta describes direction-of-move relative to the market, nothing more. It says nothing about whether a stock is cheap, expensive, or how its price will move next.; How to read it: A higher beta means the stock has historically magnified the market’s up-and-down moves; a lower beta means it moved less than the market. It describes co-movement with the market — not how risky the company is overall, and not a prediction of returns.
Mkt Cap: Market capitalization is the total market value of a company’s equity, calculated as share price multiplied by shares outstanding.
Dividend Yield: Dividend yield expresses the annual dividend as a percentage of the current share price — the income return from dividends alone.
AI Impact: The AI impact score estimates how artificial-intelligence trends may affect the company’s revenue model, on a 0–100 scale where lower indicates a likely beneficiary and higher indicates a likely headwind. It is a directional research signal, informational only.

Options & Derivatives

Delta: Delta has two common readings. First, it approximates how much the option’s price changes for a $1 change in the underlying stock — a 0.30-delta call gains roughly $0.30 per $1 rally, before other effects. Second, its absolute value is widely used as a rough, market-implied probability that the option expires in the money: a 0.30-delta option carries roughly a 30% implied chance of finishing in the money under the pricing model’s assumptions. Both readings are approximations of the same underlying math, not guarantees.
Gamma: Gamma measures how much an option’s delta shifts for a $1 move in the underlying. High gamma means delta — and therefore the position’s directional exposure — changes quickly, so the option accelerates into and out of the money fast. Gamma is largest for at-the-money options and rises sharply as expiration approaches; deep in- or out-of-the-money options carry little gamma.; How to read it: High gamma means the position’s exposure can swing quickly on small stock moves — most pronounced near the strike and close to expiration.
Theta: Theta is the option’s time decay: the premium it tends to lose for each day that passes, holding the stock price and volatility constant. A long option has negative theta — time works against it — while a short option position has positive theta. Theta is concentrated in the extrinsic (time-value) portion of the premium and accelerates as expiration nears, especially for at-the-money options.; How to read it: A −0.05 theta means the option tends to shed about $0.05 of value per day from time alone; that decay speeds up close to expiration.
Vega: Vega measures sensitivity to implied volatility: the change in an option’s price for a 1 percentage-point change in IV, with all else held constant. Both calls and puts gain value when implied volatility rises and lose value when it falls. Vega is largest for at-the-money options with more time to expiration and shrinks as expiration approaches.; How to read it: A vega of 0.10 means the option’s price tends to move about $0.10 for each 1-point change in implied volatility.
Rho: Rho measures sensitivity to interest rates: the change in an option’s price for a 1 percentage-point change in the risk-free rate, all else equal. Calls generally gain value as rates rise and puts generally lose value. Rho is the smallest of the major Greeks for short-dated options and matters most for long-dated contracts such as LEAPS.
Call Option: A call option gives its holder the right, but not the obligation, to buy 100 shares of the underlying at the strike price on or before expiration. The buyer pays a premium for that right; the seller (writer) receives the premium and takes on the obligation to deliver shares if assigned. A call’s value rises as the underlying moves above the strike. One standard contract represents 100 shares.
Put Option: A put option gives its holder the right, but not the obligation, to sell 100 shares of the underlying at the strike price on or before expiration. The buyer pays a premium and gains value as the underlying falls below the strike; the seller receives the premium and is obligated to buy shares at the strike if assigned. Puts are commonly used for downside protection or to profit from a decline in the underlying’s price. One standard contract represents 100 shares.
Strike Price: The strike price is the predetermined price at which the option can be exercised — where a call holder may buy, or a put holder may sell, the underlying. The relationship between the strike and the current stock price determines an option’s moneyness and how much of its premium is intrinsic value versus time value.
Premium: The premium is the market price of the option itself — what the buyer pays and the seller collects. It is quoted per share, so a premium of $1.50 costs $150 for one standard 100-share contract. Premium is the sum of intrinsic value (the in-the-money amount, if any) and extrinsic value (time and volatility value).
Days to Expiration (DTE): Days to expiration (DTE) counts the calendar days left until the option expires and ceases to exist. Shorter DTE means faster time decay (theta) and higher gamma, so near-dated options are more sensitive to both the passage of time and short-term price moves. At expiration, an in-the-money option is typically exercised or settled and an out-of-the-money option expires worthless.
Intrinsic Value: Intrinsic value is the amount by which an option is in the money. For a call it equals the stock price minus the strike (when positive); for a put, the strike minus the stock price (when positive). It can never be negative — an out-of-the-money option has zero intrinsic value, and its premium is entirely time value.
Extrinsic (Time) Value: Extrinsic value, also called time value, is the premium remaining after subtracting intrinsic value. It reflects the chance the option gains intrinsic value before expiration, driven mainly by the time remaining and implied volatility. Extrinsic value decays toward zero as expiration approaches (theta) and shrinks when implied volatility falls.
Moneyness (ITM / ATM / OTM): Moneyness describes the strike’s relationship to the current stock price. A call is in-the-money (ITM) when the stock is above the strike, at-the-money (ATM) when they are roughly equal, and out-of-the-money (OTM) when the stock is below the strike; for puts the directions reverse. ITM options carry intrinsic value; ATM and OTM options are pure time value. Moneyness shapes an option’s delta, gamma, and risk profile.
Exercise: Exercise is the act of using an option’s right: a call holder buys, and a put holder sells, 100 shares at the strike price. American-style options can be exercised any time before expiration; European-style only at expiration. Most options are closed by trading rather than exercised, but in-the-money options are typically exercised automatically at expiration.
Assignment: Assignment is the flip side of exercise: when a holder exercises, a short option is assigned and the seller must meet the obligation — delivering 100 shares at the strike (assigned call) or buying 100 shares at the strike (assigned put). Assignment can occur any time for American-style options, most often when an option is deep in the money or near expiration. It is the key risk for option sellers to plan around.
Implied Volatility (IV): Implied volatility is the volatility figure that, fed into an option pricing model, reproduces the option’s current market price. It reflects the market’s collective expectation of how much the underlying will move over the option’s life, annualized. Higher IV raises option premiums for both calls and puts; IV often climbs into earnings and other known events and falls afterward (an “IV crush”). IV is an expectation of magnitude, not a forecast of direction.; How to read it: Higher IV means richer premiums and a wider expected range; it tends to spike before scheduled events and collapse once the uncertainty resolves.
IV Rank: IV Rank places the current implied volatility within its own one-year range: 0 means IV is at its 52-week low, 100 means its 52-week high, and 50 means halfway between. It answers “is volatility high or low for this stock right now?” relative to its own history, which is more comparable across names than the raw IV number. Premium-selling approaches tend to favor a higher IV rank; premium-buying the opposite.; How to read it: An IV rank of 80 means IV is near the top of its past-year range — option premiums are relatively rich for this stock by its own standard.
IV Percentile: IV Percentile is the percentage of trading days over the past year that implied volatility closed below today’s level. An IV percentile of 70 means IV was lower than now on 70% of the past year’s days. It is a close cousin of IV Rank but less sensitive to a single extreme spike, because it counts days rather than measuring distance to the range’s endpoints.
Implied Move: The implied move is derived from at-the-money option prices: implied volatility × √(days ÷ 365) × stock price. It represents a one-standard-deviation range — under the pricing model’s distributional assumptions, a stock has historically stayed inside ±1 implied move roughly two-thirds of the time and exceeded it roughly one-third of the time. It is a market-implied magnitude, not a direction and not a limit.
Probability of Profit (PoP): Probability of profit (PoP) estimates the likelihood that a position finishes at or above its breakeven at expiration, derived from the option pricing model’s distribution of outcomes. It is evaluated at the breakeven rather than at the strike, so it reads higher than the chance the option simply expires worthless — the premium received is part of the profitable region. Selling options generally shows a higher PoP paired with a smaller maximum gain and a larger potential loss; buying options the reverse. The distribution is a zero-drift curve with a fatter left tail than a lognormal, calibrated on long-run SPY returns, so downside-exposed positions score lower than plain Black-Scholes math would give them. PoP is a model estimate under constant-volatility assumptions — not a guarantee, and real outcomes can differ.; How to read it: A 70% PoP means the model assigns roughly a 70% chance of the position being profitable at expiration — typically alongside a capped gain and a larger possible loss.
Open Interest: Open interest counts the outstanding option contracts that remain open — neither closed out, exercised, nor expired — for a specific strike and expiration. Unlike volume, which resets every day, open interest accumulates and reflects how much live positioning exists. Higher open interest generally signals deeper liquidity and tighter bid-ask spreads, making a contract easier to enter and exit.
Bid-Ask Spread: The bid-ask spread is the difference between the best bid and best ask for an option. It is an immediate cost of trading: enter at the ask, exit at the bid, and the spread is lost to friction. Tight spreads indicate liquid, actively quoted contracts; wide spreads — common in low-volume or far-dated options — raise the cost of getting in and out and make fair-value execution harder.
Breakeven: The breakeven is the stock price at expiration at which a position’s profit is exactly zero. For a long call it is the strike plus the premium paid; for a long put, the strike minus the premium. Multi-leg strategies can have one or two breakevens that bound their profit zone. Comparing the breakeven to the current price shows how far the underlying must move for the position to pay off.
Max Profit: Maximum profit is the most a position can make, set by its structure. A long call’s max profit is theoretically unlimited; a long put’s is capped at the strike minus premium (the stock can only fall to zero). Defined-risk spreads such as verticals and iron condors cap max profit at the net premium or the spread width minus cost. Knowing max profit up front frames the reward side of a trade’s reward-to-risk.
Max Loss: Maximum loss is the most a position can lose, set by its structure. A long option’s max loss is limited to the premium paid. A defined-risk spread caps loss at the spread width minus the net credit. Some short positions — such as a naked call — carry theoretically unlimited loss, while a cash-secured put’s loss runs down to the strike minus premium (if the stock goes to zero). Knowing max loss before entering is the foundation of position sizing and risk control.; How to read it: Defined-risk structures let you know the worst case in advance; naked short options can lose far more than the premium collected.
Covered Call: A covered call pairs 100 shares of stock with one short call at a higher strike. The premium collected adds income and lowers the effective cost basis, while the short call caps gains above the strike — if the stock rises past it, the shares may be called away (assigned). It is a common income approach on shares already held; the main trade-off is forgone upside in a strong rally.
Cash-Secured Put: A cash-secured put is a short put fully backed by cash equal to the strike × 100. The seller collects premium and agrees to buy 100 shares at the strike if assigned. If the stock stays above the strike, the put expires and the premium is kept; if it falls below, the shares are bought at the strike, with the premium lowering the effective cost basis. It is the entry leg of the wheel strategy.
Vertical Spread: A vertical spread combines a long and a short option of the same type (both calls or both puts) and expiration, at different strikes. The short leg partly funds the long leg, which caps both the maximum profit and maximum loss — a defined-risk structure. Examples include the bull call and bull put spreads (positioned for an upward move) and bear call and bear put spreads (positioned for a downward move). Verticals trade away some upside for lower cost and bounded risk.
Iron Condor: An iron condor sells an out-of-the-money put spread and an out-of-the-money call spread on the same underlying and expiration, collecting premium from both. It profits when the stock stays between the two short strikes through expiration and reaches max loss if the stock breaks outside either spread. It is a defined-risk, range-bound approach that benefits from time decay and falling volatility.
Straddle: A straddle holds a call and a put at the same strike and expiration. A long straddle profits from a large move in either direction, with losses limited to the combined premium if the stock sits still; it needs a move bigger than the total premium to pay off and is hurt by time decay and falling IV. It is a volatility position — the bet is on magnitude, not direction.
Strangle: A strangle holds an out-of-the-money call and an out-of-the-money put at different strikes, same expiration. It costs less than a straddle because both legs start out of the money, but the stock must move further before the position profits. Like a straddle, a long strangle is a position on the magnitude of a move rather than its direction and is hurt by time decay and falling implied volatility.

Equity Rank provides research information and is not a registered investment adviser. The metrics described here are informational and do not constitute investment advice or a recommendation regarding any security.