Financial metric glossary
16 metrics, each with its formula, a worked example, how investors read it, and where it misleads. Every example describes the same imaginary company, so the figures join up as you move between them.
Each page also says whether this product uses the metric and where. Two of them say it does not, which is the more useful answer.
Profitability
Revenue growth
How fast the top line is expanding, usually compounded across several years.
Gross margin
What share of revenue survives the direct cost of producing it.
Operating margin(EBIT margin)
Profit from running the business, before interest and tax, as a share of revenue.
EBITDA(Earnings before interest, tax, depreciation and amortisation)
Operating profit with depreciation and amortisation added back.
Return on equity(ROE)
Profit earned per dollar of shareholders' capital.
Return on invested capital(ROIC)
Profit earned per dollar of all capital in the business, debt and equity together.
Cash
Balance sheet
Valuation multiples
Free cash flow yield
Free cash flow as a percentage of what the company costs to buy.
Enterprise value(EV)
What it would cost to buy the whole business, debt included.
EV/EBITDA
What the whole business costs, per dollar of pre-depreciation operating profit.
Price to earnings(P/E ratio)
What you pay per dollar of annual profit.
Shares
For how these are calculated on real filings rather than in the abstract, see the methodology. To put your own numbers through them, see the calculators.