Stock Metrics, Explained

Market cap = share price × number of shares. It tells you how big the company is, not how expensive one share is.

Bigger companies (large-cap) are usually more stable; smaller ones (small-cap) can grow faster but swing harder. It frames how risky and how mature a business is.

Apple has topped $3 trillion in market cap — larger than most national economies — despite a modest per-share price.

P/E = price ÷ earnings per share. A P/E of 20 means you pay $20 for every $1 of annual profit.

High P/E means the market expects strong growth (or the stock is pricey). Low P/E can mean a bargain — or a struggling business. Always compare to industry peers.

A fast-growing tech firm may trade at 40x earnings while a steady utility trades at 15x — both can be fair for their growth.

Same idea as P/E, but it uses analysts' forecast of future earnings. If it's lower than the trailing P/E, earnings are expected to grow.

It hints at where profitability is heading, but it relies on estimates that can be wrong.

If a stock's trailing P/E is 30x but its forward P/E is 22x, the market expects earnings to rise meaningfully next year.

PEG = P/E ÷ earnings growth rate. It fixes P/E's blind spot: a high P/E can be justified by fast growth.

It answers whether you're paying a fair price for the growth you're getting — useful for comparing growth stocks.

A stock at 30x earnings growing profits 30% a year has a PEG of 1.0 — often seen as fair despite the high P/E.

EV = market cap + total debt − cash. It's the true takeover price: a buyer inherits the debt but also pockets the cash.

EV is a fairer size measure than market cap when comparing companies with very different debt loads, and it's the base for ratios like EV/EBITDA.

A $10B market-cap company with $4B of debt and $1B of cash has an enterprise value of $13B.

Enterprise value ÷ EBITDA. Like P/E, but it accounts for debt and ignores accounting depreciation — the standard multiple in buyouts.

It lets you compare companies with different debt loads and tax situations fairly — often better than P/E for capital-heavy industries.

Private-equity firms famously screen for businesses trading under ~8x EV/EBITDA as buyout candidates.

Market cap ÷ annual revenue. Useful when there are no profits yet to build a P/E on.

It's the go-to multiple for young or loss-making growth companies — but remember a dollar of low-margin revenue is worth less than a dollar of high-margin revenue.

In the dot-com bubble, stocks traded at 50x+ sales — a level almost none ever grew into.

Market cap ÷ shareholder equity. Below 1.0 means the market prices the company under its book value.

A classic value metric, most meaningful for banks and asset-heavy firms. For software or brand-driven companies, book value misses most of what matters.

Bank investors watch P/B closely: buying a solid bank under book value has historically been a strong setup.

Free cash flow ÷ market cap. The cash "interest rate" the business earns on its own valuation — the inverse of a price-to-FCF multiple.

It makes valuation tangible: a 5% FCF yield means the business generates $5 of spendable cash per $100 of stock you own.

A 6% FCF yield beats most bond yields — if the cash flow holds up, the stock pays you more than the bond market.

Earnings Per Share = net profit ÷ number of shares, over the trailing twelve months. Positive means the company is profitable.

Rising EPS over time is one of the strongest drivers of a stock's long-term price. Negative EPS means the company is losing money.

When a company "beats earnings," its EPS came in above analyst estimates — often sending the stock up the next day.

Gross profit ÷ revenue. An 80% gross margin means only $0.20 of each dollar goes to making the product.

High gross margins signal pricing power and scalability — more of every new sales dollar can become profit. Low margins leave little room for error.

Software firms often run 70–90% gross margins, while grocery stores live near 25%.

Operating income ÷ revenue. It shows how much of each sales dollar survives after both production costs and overhead.

It's a favorite efficiency gauge: rising operating margins mean the business scales well; falling ones can flag rising costs or price pressure.

Microsoft's operating margin above 40% is a big reason it's one of the most valuable companies on earth.

Net profit ÷ revenue, as a percent. A 20% margin means the company keeps $0.20 of every sales dollar after all costs.

Higher margins mean a more efficient, often higher-quality business with pricing power. Negative margins mean it loses money on its sales.

Software companies often post 20%+ net margins, while grocery chains operate on razor-thin margins of 1–3%.

Net income ÷ revenue. The all-in profitability measure after every single cost.

It summarizes the whole business model in one number. Compare across years: expanding margins are a quality signal, eroding ones a warning.

A 25% net margin means a quarter of every sales dollar drops through to shareholders.

ROE = net profit ÷ shareholder equity. It shows how effectively the company turns invested capital into profit.

Consistently high ROE often signals a strong, well-run business. Very high ROE can sometimes come from heavy debt, so check context.

A company with 25% ROE turns every $100 of shareholder money into $25 of annual profit.

A rough proxy for cash operating profit that ignores financing choices and accounting depreciation. Widely used to compare companies and in EV/EBITDA.

It makes capital-heavy and capital-light businesses easier to compare, but it flatters companies with big real equipment costs — Buffett famously distrusts it.

Two factories with identical operations show identical EBITDA even if one financed with debt and the other with cash.

What's left of revenue after absolutely everything is paid. This is the "earnings" in earnings per share and P/E.

It's the profit that ultimately belongs to shareholders — funding dividends, buybacks and reinvestment.

Apple's ~$100B of annual net income is the largest of any public company — the fuel for its massive buybacks.

Net income ÷ diluted shares outstanding for the fiscal year. "Diluted" counts stock options and convertibles as if exercised.

The multi-year EPS path is what long-term investors watch most: steadily rising EPS compounds into share-price gains.

A stock whose EPS goes $2 → $3 → $4 over three years will usually see its price follow, even if the P/E never changes.

The "top line" — all sales over the trailing twelve months. It says nothing about profit, only scale of business.

Growing revenue shows rising demand. But a company can have huge revenue and still lose money if costs are higher.

Amazon had massive revenue for years while reporting tiny profits, because it reinvested almost everything into growth.

The percent change in total revenue from one fiscal year to the next. Positive means the business sold more; negative means sales shrank.

Growth is the engine behind most long-term stock gains. Steady growth suggests rising demand; shrinking revenue usually needs a good explanation.

A company that grew revenue from $10B to $11.5B posted 15% year-over-year growth.

Compound Annual Growth Rate: the single steady yearly rate that would take revenue from the first year's level to the latest. It smooths lumpy years into one number.

It cuts through one-off spikes and dips to show the underlying growth trajectory — the cleanest quick read on whether a business is expanding.

Revenue going $100M → $180M over 4 years is a 15.8% CAGR, even if individual years were bumpy.

The compound annual growth rate of earnings per share across the available years. It needs profitable start and end years to be computable.

Long-run share prices tend to follow EPS growth more closely than any other single number. Double-digit EPS CAGR is the hallmark of compounders.

A stock compounding EPS at 15% doubles its earnings power roughly every five years.

The change in net margin from the earliest to the latest fiscal year shown, in percentage points.

Expanding margins mean the business gets more profitable as it grows — operating leverage. Eroding margins can flag rising costs or price competition.

Amazon's net margin expanding from ~1% to ~10% as AWS grew transformed how the market valued it.

Cash that actually arrived from operations during the year — profits adjusted for non-cash items and working capital. Harder to manipulate than net income.

Profits are an opinion, cash is a fact. Companies whose cash flow persistently lags reported profit deserve skepticism.

Enron reported strong profits while operating cash flow told the true, much uglier story.

Investment in property, plants, equipment and technology. Shown as a negative number because it's cash going out.

CapEx is tomorrow's growth bought with today's cash. Heavy CapEx suits expanding businesses; watch whether it earns good returns.

Chipmakers spend tens of billions on fabrication plants years before the first chip ships.

Operating cash flow minus capital expenditure. The truly "free" cash available for dividends, buybacks, debt paydown or acquisitions.

Many professionals consider FCF the single most important number in investing — it's what a business actually produces for its owners.

Warren Buffett's "owner earnings" concept is essentially free cash flow — what you could take out without harming the business.

Free cash flow ÷ revenue. It shows how efficiently sales convert into cash owners could actually withdraw.

High FCF margins mean the business model itself mints cash. It's a favorite quality screen for long-term investors.

Visa converts roughly half of every revenue dollar into free cash flow — one of the best FCF margins anywhere.

Bank balances plus near-cash investments (T-bills, money-market funds). The most liquid line on the balance sheet.

Cash is survival: it funds operations through downturns, pays for acquisitions, and buys time for unprofitable companies to reach profitability.

Loss-making startups are often valued partly on "runway" — how many quarters their cash pile can cover.

Short-term plus long-term borrowings. Debt must be repaid with interest regardless of how the business performs.

Debt magnifies both good and bad outcomes. Manageable debt is cheap fuel; too much becomes existential in a downturn. Judge it against equity and cash flow.

Airlines carry heavy debt to buy planes — fine in good years, brutal when travel demand collapses.

Cash, inventory, factories, patents, receivables — everything of value the company controls, at accounting book value.

It's the scale of the resource base the company works with. Compare with liabilities: assets minus liabilities is shareholder equity.

Banks have enormous total assets (loans they own) — which is why asset size, not revenue, ranks the biggest banks.

All obligations — debt, unpaid bills, deferred taxes, lease commitments. The claim others hold on the company's assets.

Liabilities get paid before shareholders in any trouble. The gap between assets and liabilities (equity) is your buffer as an owner.

If liabilities exceed assets, equity is negative — the accounting version of owing more than you own.

Total assets minus total liabilities. What would in theory be left for shareholders if everything were sold and all debts paid.

Growing equity means the company is building value. Negative equity can be a red flag — though buyback-heavy companies (like some blue chips) show it harmlessly.

Home Depot shows negative equity purely because it returned so much cash via buybacks — context matters.

Total debt ÷ shareholder equity. A ratio of 1.0 means debt and equity are equal; 2.0 means twice as much debt as equity.

It's the classic leverage gauge. More leverage boosts returns in good times and losses in bad times. Capital-heavy industries naturally run higher.

Utilities routinely run D/E near 1.5 thanks to steady cash flows, while many tech firms sit near zero.

Current assets ÷ current liabilities. Above 1.0 means short-term resources cover short-term obligations.

It's the standard liquidity check. Below 1.0 doesn't guarantee trouble (fast-turnover businesses run lean), but it removes the margin of safety.

A current ratio of 2.0 means $2 of near-term assets for every $1 of near-term bills.

Beta of 1.0 moves with the market. Above 1.0 swings more than the market; below 1.0 swings less. It measures volatility, not quality.

Higher beta means bigger gains in rallies and bigger losses in crashes. It tells you how bumpy the ride is likely to be.

A beta of 1.5 tends to move 50% more than the market: up more in rallies, down more in downturns.

The portion of available shares sold short — i.e. investors betting the price will fall.

A high short float signals heavy pessimism, but can also fuel a sharp "short squeeze" rally if the stock rises unexpectedly.

GameStop's extremely high short float in 2021 set up a famous short squeeze that sent the stock soaring.

Yield = annual dividend ÷ share price. It's the income you receive each year just for holding the shares.

Steady, growing dividends signal a stable business. But an unusually high yield can be a warning the payout may be cut.

Coca-Cola has paid and raised its dividend for 60+ straight years, a classic income stock.

A consensus estimate of where analysts think the stock is headed. The gap vs. today's price is the implied upside or downside.

It reflects professional expectations, but analysts are often wrong and tend to be optimistic. Treat it as one input, not a promise.

If a $100 stock has a $120 average target, analysts imply about 20% upside — but consensus targets miss often.

The annualized standard deviation of daily price moves over the last 12 months. Higher means bigger day-to-day swings in both directions.

It's the statistical version of "bumpy ride." High volatility demands stronger conviction and smaller position sizes to hold through the swings.

A stock with 60% volatility can easily move 3–4% in a single ordinary day — before any news.

The largest percentage drop from a high to a subsequent low over the last 12 months. It's the pain you'd have felt buying the exact top.

It shows realistic downside, not theoretical risk. If a stock's recent drawdown would make you sell in panic, the position is too big for you.

A −50% drawdown needs a +100% rally just to get back to even — the brutal math of big losses.

Revenue minus cost of goods sold (materials, manufacturing, delivery). It's the profit before overhead, R&D, marketing and taxes.

It shows how much room the core product leaves to fund everything else. Without healthy gross profit, nothing further down the income statement works.

If a phone sells for $1,000 and costs $600 to build and ship, gross profit is $400 per phone.

Gross profit minus operating expenses (R&D, marketing, salaries). It measures whether the day-to-day business itself makes money.

It strips out financing and tax effects, so it's the cleanest view of how the actual business is performing.

A company can post positive operating income but a net loss if heavy debt interest eats the profit below the line.