Why each figure matters, an example with numbers, and one line to keep. The same cards that turn over on each dossier.
Shows company size and stability. Value investors prefer large-cap companies with proven track records.
A $100B company is like a massive ship - slow to turn but steady in storms. A $1B company is more like a speedboat - faster but riskier.
Size buys staying power, not a discount.
Reveals if stock is cheap or expensive relative to profits. Value investors hunt for low P/E with strong fundamentals.
P/E of 10 means you pay $10 for every $1 of profit. P/E of 30 means $30 for every $1. Lower can mean better value (if quality is high).
A low multiple is only cheap if the earnings are real.
Compares price to net asset value. Graham used this to find stocks trading below liquidation value.
P/B of 1.5 means you pay $1.50 for every $1 of company assets. Below 1.0? You might buy a dollar for 90 cents!
Buy when the price is below intrinsic value.
Steady dividends signal financial health and management confidence. Compound these over decades.
3% yield on $10,000 = $300/year passive income. Reinvest for 30 years, and you'll see the magic of compounding.
A dividend is only as safe as the cash that pays it.
Shows how efficiently management uses shareholder money. Value investors seek ROE > 15% sustained over years.
ROE of 20% means for every $100 shareholders invested, the company generates $20 profit annually. High ROE = capital allocation mastery.
Look for businesses with high returns on equity.
Measures financial risk. Low debt means the company can survive recessions without bankruptcy risk.
D/E of 0.5 means $1 debt for every $2 equity. D/E of 2.0 means $2 debt for every $1 equity - risky in downturns!
Debt is quiet in good years and loud in bad ones.
Tests short-term liquidity. Can the company pay bills next year? Above 1.5 is generally safe.
Current Ratio of 2.0 means $2 in current assets for every $1 in current liabilities. Like having $200 in your wallet with $100 in bills due.
The bills due this year do not wait for next year's sales.
Tracks profit growth trajectory. Consistent 10%+ growth compounds wealth over decades.
EPS growing 15% annually for 5 years means profits doubled. This often leads to stock price doubling too!
Growth is worth paying for only when it needs little capital to happen.
Cash is what a company survives on when sales fall. It pays wages and debt while the downturn lasts, and it is the one line on the balance sheet nobody can argue with.
A company burning $200M a year with $1B in cash has five years of runway. With $150M it has nine months, and its next move is to sell shares.
Cash is the only asset that is worth exactly what it says.
Debt has to be repaid whatever happens to sales. It magnifies good years and turns bad years into crises, and its interest is a cost that comes before shareholders see a cent.
$40B of debt at 5% costs $2B a year in interest. If operating profit is $4B, half of it goes to lenders before anything reaches you.
Leverage is the reason good businesses go bankrupt.
Gross debt overstates the risk of a company sitting on a pile of cash. Net debt is what it would still owe after handing over every dollar in the bank.
$100B of debt with $60B in cash is $40B of net debt. If the business earns $30B a year, that is barely more than one year of profits.
Look at what is owed after the cash, not before.
A company that could repay every loan tomorrow and still have money left is very hard to kill. It can buy competitors in a crisis instead of being bought.
With $50B in cash and $20B of debt, the company has $30B of net cash: a downturn is an opportunity for it, not a threat.
A fortress balance sheet turns recessions into shopping trips.
How much of the debt the company could repay today without earning another dollar. Below 20%, a bad year and a tight credit market can meet at the worst moment.
$10B in cash against $50B of debt is 20%. Against $8B of debt it is 125%: the debt is a choice, not a burden.
Debt is only dangerous when you cannot refinance it.
Like the current ratio, but without inventory, which can take months to sell or may never sell at all. It asks whether the company can pay this year's bills with what it can turn into cash fast.
Current assets $10B minus $4B of inventory, against $6B of short-term liabilities: a quick ratio of 1.0. Just enough, with nothing to spare.
Inventory is only cash once somebody buys it.
The part of the debt that is not due this year, against what shareholders own. It shows how the company is financed for the long haul: with its own capital or with borrowed money.
$30B of long-term debt on $60B of equity is 0.5: lenders put in one dollar for every two from owners. At 2.0 the lenders own most of the business in all but name.
A business financed by owners bends; one financed by lenders breaks.
Profit divided by everything the company uses to make it: factories, inventory, cash, receivables. Unlike ROE it cannot be flattered by piling on debt.
$10B of profit on $200B of assets is 5%. A software company may earn 20% on very few assets; a utility 3% on enormous ones. Compare within the industry.
Asset-light businesses compound faster because they need less to grow.
How many cents of every dollar of sales end up as profit after every cost, tax and interest payment. A thin margin leaves no room for a bad year.
On $100B of sales, a 25% margin is $25B of profit; a 3% margin is $3B, and a 3-point rise in costs wipes it out entirely.
A wide margin is a cushion; a thin one is a tightrope.
What is left of each dollar of sales after the direct cost of the product. It is the purest measure of pricing power: a company that can charge well above cost has something customers cannot easily get elsewhere.
A phone sold for $1,000 that costs $600 to make has a 40% gross margin. Software sold for $1,000 that costs $100 to deliver has 90%.
Gross margin tells you whether the product is special or a commodity.
Tracks profit growth trajectory. Consistent 10%+ growth compounds wealth over decades.
EPS growing 15% annually for 5 years means profits doubled. This often leads to stock price doubling too!
Five years of history say more than one year of headlines.
What analysts expect profits per share to grow over the next five years. It is a forecast, not a fact, and the price often already assumes it: the more optimistic the estimate, the less room for error.
A 20% estimate means profits are expected to more than double in five years. If they only grow 10%, a stock priced for 20% has a long way to fall.
Forecasts are where the optimism hides.
Profits can be engineered for a while; sales are harder to fake. Five years of growing revenue means customers keep coming back and paying more, which is the foundation of everything else.
Sales growing 8% a year for five years means the business is 47% bigger than it was. Flat sales with rising profits usually means cost cuts, which run out.
Revenue growth is the only growth that does not run out of room.
The latest quarter against the same quarter a year ago. It catches a turn in the business months before the annual figures do, in both directions.
Sales up 12% in the quarter after five years at 4% means something changed: a new product, a price rise, or a competitor stumbling. Worth finding out which.
One quarter is a data point; three in the same direction is a trend.
Larger AUM means better liquidity and lower risk of ETF closure. Size matters for stability.
$10B AUM vs $100M AUM - the bigger fund trades easier, has tighter spreads, and won't suddenly shut down.
A big fund is a liquid fund, not a better one.
Fees compound against you. A 1% fee over 30 years can cost you 25% of your portfolio!
0.03% fee vs 0.50% fee on $100K over 30 years = $15K difference. Every basis point matters.
Every fee comes out of your return, every year, compounded.
ETF dividends provide passive income. Reinvesting distributions supercharges compounding.
2% yield on $50K = $1,000 yearly income. Reinvest automatically for 20 years = massive wealth.
Check what the yield is made of before you count on it.
Recent performance context, but don't chase hot funds. Past returns don't guarantee future results.
+25% last year looks great, but mean reversion is real. Focus on long-term consistency over short-term spikes.
One year of returns is mostly noise.
Better gauge of consistency through market cycles. Smooths out one-year flukes.
10% annualized over 3 years beats 30% one year then -10% two years. Consistency wins.
Three years start to separate the strategy from the luck.
Captures full market cycle performance. This is the minimum timeframe serious investors should consider.
12% annualized over 5 years = money doubled. That's real wealth creation, not speculation.
Five years include at least one bad stretch. Look at how it held up.
Shows investor confidence. Consistent inflows suggest institutional trust. Massive outflows? Red flag.
+$5B net inflows mean smart money is buying. -$2B outflows? Institutions are exiting. Follow the whales.
Money arriving late is rarely a reason to follow it.
More holdings = more diversification but potential dilution. 30-500 holdings hits the sweet spot.
50 holdings = diversified. 5,000 holdings = you own the whole market (index fund). Both strategies work for different goals.
Owning more funds spreads the risk; it does not remove it.