Metrics 101
Understanding the key financial metrics used to evaluate companies. These are the building blocks of fundamental analysis.
Valuation
Stock Price QoQ
Formula:
Current quarter end price / Previous quarter end price - 1
Growth
Revenue YoY
Formula:
Current quarter revenue / Same quarter revenue last year - 1
Benchmarks:
| >30% | High growth |
| 10-30% | Healthy growth |
| <10% | Mature / slow growth |
Rule of 40
Formula:
Revenue YoY + Operating Margin
Benchmarks:
| >=40% | Great — growth + profitability balance |
| <40% | Growing too slowly or spending too much |
Profitability
Operating Margin
Formula:
Operating Income / Revenue
Benchmarks:
| >30% | Excellent |
| 20-30% | Good |
| 10-20% | Acceptable |
| <10% | Weak |
TTM OP QoQ
Formula:
Sequential % change in trailing-twelve-month Operating Profit
Benchmarks:
| >10% | Strong momentum |
| 5-10% | Good momentum |
| 0-5% | Mature / steady |
| <0% | Challenged |
Cash & Health
TTM FCF/OP
Formula:
TTM Free Cash Flow / Operating Profit
Benchmarks:
| >80% | Strong cash conversion |
| 60-80% | Acceptable |
| <60% | Cash flow issues |
Debt/EBITDA
Formula:
(Short-term debt + Long-term debt) / EBITDA
Benchmarks:
| 0-2x | Conservative leverage |
| 2-3.5x | Moderate leverage |
| >3.5x | High leverage |