Investing isn't Luck, It's Calculated.

Here are the exact 15 metrics I review before I invest

Hey there!

Welcome to the WOLF Financial Newsletter.

If you want to join over 13,000 other investors who want to build wealth and learn advanced investing strategies live on Twitter Spaces, subscribe below:

After working in finance over 6 years and hosting 5,000+ hours of Spaces...

I've found there are consistently 15 metrics I consider for each stock I invest in.

Hereโ€™s a breakdown of them in plain English:

๐Ÿญ) ๐—ฆ๐˜๐—ฟ๐—ผ๐—ป๐—ด ๐— ๐—ฎ๐—ป๐—ฎ๐—ด๐—ฒ๐—บ๐—ฒ๐—ป๐˜

Poor management can destroy great businesses.

And strong management can make an average company great.

Strong management looks like this:

โ€ขย CEOs w/ decades of experience

โ€ขย Compensation aligning with the industry

โ€ขย Management personally invests in company stock

๐Ÿฎ) ๐—š๐—ฟ๐—ผ๐˜„๐˜๐—ต ๐—ฝ๐—ฟ๐—ผ๐˜€๐—ฝ๐—ฒ๐—ฐ๐˜๐˜€

Figure out a companyโ€™s growth prospects by asking:

โ€ขย New industry?

โ€ขย Declining industry?

โ€ข Howโ€™s customer sentiment?

โ€ขย Howโ€™s customer acquisition?

โ€ขย What sales strategies are used?

โ€ข Will they stay in the same market?

Growth potential = Potential returns.

๐Ÿฏ) ๐—–๐˜‚๐˜€๐˜๐—ผ๐—บ๐—ฒ๐—ฟ๐˜€

Do they have a diversified customer base?


โ€ข Hedges against competition

โ€ข Allows company to reinvest

โ€ข Helps meet debt obligations

A business with multiple customers is safer than one thatโ€™s exposed to an unreliable market.

๐Ÿฐ) ๐—ข๐˜‚๐˜๐˜€๐—ถ๐—ฑ๐—ฒ ๐—ถ๐—บ๐—ฝ๐—ฎ๐—ฐ๐˜

What factors outside of the companyโ€™s control can impact it?


โ€ข Lawsuits

โ€ข Govt policy

โ€ข Competition

โ€ข The economy

Understand the impact they have to understand a companyโ€™s future.

๐Ÿฑ) ๐—œ๐—ป๐—ป๐—ผ๐˜ƒ๐—ฎ๐˜๐—ถ๐—ผ๐—ป

Businesses should improve with technology.

If it doesnโ€™t, it loses market share to a competitor.

Companies that leverage new tech are more versatile and adaptive.

This makes them attractive investments.

๐Ÿฒ) ๐— ๐—ผ๐—ฎ๐˜

Aka competitive advantage.

Here are some to consider:

โ€ข Size

โ€ข Patents and IP

โ€ข Barriers to entry

โ€ข Production costs

โ€ข Customer loyalty

A sustainable advantage increases your chances of profiting.

๐Ÿณ) ๐—ฆ๐˜๐—ฎ๐—ฏ๐—น๐—ฒ ๐—บ๐—ฎ๐—ฟ๐—ธ๐—ฒ๐˜

Volatile markets make it difficult to exit a position.

Itโ€™s hard to time it right.

And when itโ€™s hard to time an exit you risk compromising on your return.

Thatโ€™s why I prefer stable industries over cyclical ones.

๐Ÿด) ๐—–๐—ฎ๐˜€๐—ต ๐—ณ๐—น๐—ผ๐˜„

When evaluating cash flow, ask:

โ€ข Are they subject to economic cycles?

โ€ข Can the cash flow cover debts?

โ€ข Does the company have a subscription service and/or a low churn rate?

Questions like this will help you determine a companyโ€™s profitability.

๐Ÿต) ๐—ค๐˜‚๐—ถ๐—ฐ๐—ธ ๐—ฟ๐—ฎ๐˜๐—ถ๐—ผ

This will tell you if a business has enough assets to pay upcoming debts.


Current assets รท Current liabilities = Quick ratio

A quick ratio of 1 is normal.

But in general, you want a quick ratio above 1.

๐Ÿญ๐Ÿฌ) ๐—ก๐—ฒ๐˜ ๐—ฝ๐—ฟ๐—ผ๐—ณ๐—ถ๐˜ ๐—บ๐—ฎ๐—ฟ๐—ด๐—ถ๐—ป

This shows you how much money a company makes for every $1 in sales.

In other words... profit.

This helps you determine whether there are healthy profits and if operating costs are reasonable.


Net income รท Revenue = Net profit margin

๐Ÿญ๐Ÿญ) ๐—ฅ๐—ฒ๐˜๐˜‚๐—ฟ๐—ป ๐—ผ๐—ป ๐—”๐˜€๐˜€๐—ฒ๐˜๐˜€

ROA shows you how efficiently a company uses its resources to generate profits.

But it varies from industry to industry.

So the best way to find a good ROA is to compare it with companies in the same industry.


Net income รท Total assets = ROA

๐Ÿญ๐Ÿฎ) ๐—˜๐—ฎ๐—ฟ๐—ป๐—ถ๐—ป๐—ด๐˜€ ๐—ฝ๐—ฒ๐—ฟ ๐˜€๐—ต๐—ฎ๐—ฟ๐—ฒ

This shows how much money a company makes per share of stock.

The higher the EPS the more valuable the company.


Profit รท Outstanding shares = Earnings per share

๐Ÿญ๐Ÿฏ) ๐—ฃ/๐—˜ ๐—ฅ๐—ฎ๐˜๐—ถ๐—ผ

It shows how much a company is worth & how much investors are willing to pay for each $1 of earnings.

High P/E ratio = stock is overbought or investors are bullish.

Low P/E ratio = stock is oversold or investors are bearish.


Share price รท EPS = P/E ratio

๐Ÿญ๐Ÿฐ) ๐—ฃ๐—ฟ๐—ถ๐—ฐ๐—ฒ ๐˜๐—ผ ๐˜€๐—ฎ๐—น๐—ฒ๐˜€ ๐—ฟ๐—ฎ๐˜๐—ถ๐—ผ

Applies mostly to growth stocks with no profits.

The lower the price to sales ratio, the more attractive the investment is.


Market cap รท Annual sales = price to sales ratio

๐Ÿญ๐Ÿฑ) ๐—˜๐—ป๐˜๐—ฒ๐—ฟ๐—ฝ๐—ฟ๐—ถ๐˜€๐—ฒ ๐— ๐˜‚๐—น๐˜๐—ถ๐—ฝ๐—น๐—ฒ

Shows how a company would be viewed before a potential acquisition.

A good or bad multiple varies from industry to industry.

So compare it with other companies in the same industry.


Enterprise value รท EBITDA = Enterprise Multiple

๐—ง๐—ต๐—ฒ๐—ฟ๐—ฒ ๐˜†๐—ผ๐˜‚ ๐—ต๐—ฎ๐˜ƒ๐—ฒ ๐—ถ๐˜!

The 15 metrics I consistently review before investing in a particular stock.

If you enjoy this newsletter, here are some of my favorites Iโ€™d recommend you read each week:

Ace in the HoleYour Secret Weapon to Beat The Market
Finance VisualizedMaking the market easy to understand through exciting graphics.