Step 11 of 11

How to combine metrics without relying on one number

Every number answers one question. Understanding a company takes several.

Click any Tap any word with a dotted underline to see what it means.

Each metric on StockLab answers a different question. Revenue shows size, growth shows direction, margins show how much is kept, free cash flow shows real cash, cash and debt show the cushion, and valuation ratios show the price. Looking at only one of them can be misleading.

Examples of numbers that need context

• Fast revenue growth with falling margins: the company may be spending heavily to grow. Is that a deliberate choice, or a sign of pressure?
• Rising profit with falling free cash flow: profit on paper isn't turning into cash. Why?
• A low P/E with shrinking revenue: the price may reflect worries about the future.
• Rising earnings per share with flat net income: the increase may come from share buybacks rather than a bigger business.

All the steps, in short

• Understand the business: what it sells and how it makes money.
• See where the revenue comes from: products, regions and customers.
• Check growth: revenue over five years.
• Check profitability: net income and margins.
• Follow the cash: free cash flow.
• Check debt and cash: the financial cushion.
• See what shareholders get: dividends, buybacks and the number of shares.
• Compare with similar companies: the sector and direct competitors.
• Then look at the price: P/E, P/S and how they compare with the company's history and its sector.
• Think about risks: what could go wrong.
• Write down what you don't know, and what could change the picture.