Investing isn't Luck, It's Calculated.

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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.

Here’s a breakdown of them in plain English:

𝟭) 𝗦𝘁𝗿𝗼𝗻𝗴 𝗠𝗮𝗻𝗮𝗴𝗲𝗺𝗲𝗻𝘁

Poor management can destroy great businesses.

And strong management can make an average company great.

Strong management looks like this:

• CEOs w/ decades of experience

• Compensation aligning with the industry

• Management personally invests in company stock

𝟮) 𝗚𝗿𝗼𝘄𝘁𝗵 𝗽𝗿𝗼𝘀𝗽𝗲𝗰𝘁𝘀

Figure out a company’s growth prospects by asking:

• New industry?

• Declining industry?

• How’s customer sentiment?

• How’s customer acquisition?

• What sales strategies are used?

• Will they stay in the same market?

Growth potential = Potential returns.

𝟯) 𝗖𝘂𝘀𝘁𝗼𝗺𝗲𝗿𝘀

Do they have a diversified customer base?

This:

• Hedges against competition

• Allows company to reinvest

• Helps meet debt obligations

A business with multiple customers is safer than one that’s exposed to an unreliable market.

𝟰) 𝗢𝘂𝘁𝘀𝗶𝗱𝗲 𝗶𝗺𝗽𝗮𝗰𝘁

What factors outside of the company’s control can impact it?

Think:

• Lawsuits

• Govt policy

• Competition

• The economy

Understand the impact they have to understand a company’s future.

𝟱) 𝗜𝗻𝗻𝗼𝘃𝗮𝘁𝗶𝗼𝗻

Businesses should improve with technology.

If it doesn’t, it loses market share to a competitor.

Companies that leverage new tech are more versatile and adaptive.

This makes them attractive investments.

𝟲) 𝗠𝗼𝗮𝘁

Aka competitive advantage.

Here are some to consider:

• Size

• Patents and IP

• Barriers to entry

• Production costs

• Customer loyalty

A sustainable advantage increases your chances of profiting.

𝟳) 𝗦𝘁𝗮𝗯𝗹𝗲 𝗺𝗮𝗿𝗸𝗲𝘁

Volatile markets make it difficult to exit a position.

It’s hard to time it right.

And when it’s hard to time an exit you risk compromising on your return.

That’s why I prefer stable industries over cyclical ones.

𝟴) 𝗖𝗮𝘀𝗵 𝗳𝗹𝗼𝘄

When evaluating cash flow, ask:

• Are they subject to economic cycles?

• Can the cash flow cover debts?

• Does the company have a subscription service and/or a low churn rate?

Questions like this will help you determine a company’s profitability.

𝟵) 𝗤𝘂𝗶𝗰𝗸 𝗿𝗮𝘁𝗶𝗼

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

Equation:

Current assets ÷ Current liabilities = Quick ratio

A quick ratio of 1 is normal.

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

𝟭𝟬) 𝗡𝗲𝘁 𝗽𝗿𝗼𝗳𝗶𝘁 𝗺𝗮𝗿𝗴𝗶𝗻

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.

Equation:

Net income ÷ Revenue = Net profit margin

𝟭𝟭) 𝗥𝗲𝘁𝘂𝗿𝗻 𝗼𝗻 𝗔𝘀𝘀𝗲𝘁𝘀

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.

Equation:

Net income ÷ Total assets = ROA

𝟭𝟮) 𝗘𝗮𝗿𝗻𝗶𝗻𝗴𝘀 𝗽𝗲𝗿 𝘀𝗵𝗮𝗿𝗲

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

The higher the EPS the more valuable the company.

Equation:

Profit ÷ Outstanding shares = Earnings per share

𝟭𝟯) 𝗣/𝗘 𝗥𝗮𝘁𝗶𝗼

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.

Equation:

Share price ÷ EPS = P/E ratio

𝟭𝟰) 𝗣𝗿𝗶𝗰𝗲 𝘁𝗼 𝘀𝗮𝗹𝗲𝘀 𝗿𝗮𝘁𝗶𝗼

Applies mostly to growth stocks with no profits.

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

Equation:

Market cap ÷ Annual sales = price to sales ratio

𝟭𝟱) 𝗘𝗻𝘁𝗲𝗿𝗽𝗿𝗶𝘀𝗲 𝗠𝘂𝗹𝘁𝗶𝗽𝗹𝗲

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.

Equation:

Enterprise value ÷ EBITDA = Enterprise Multiple

𝗧𝗵𝗲𝗿𝗲 𝘆𝗼𝘂 𝗵𝗮𝘃𝗲 𝗶𝘁!

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

If you enjoy this newsletter, here are some of my favorites I’d recommend you read each week:

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