There are hundreds of stock ratios out there, but most beginners only need a few to start seeing companies differently. Here are 5 metrics that’ll help you understand whether a business is actually worth owning👇 1️⃣ P/E & Forward P/E — What Am I Paying for Earnings? The P/E ratio shows how much investors are paying for $1 of a company’s earnings right now. The forward P/E uses next year’s expected earnings. If the forward P/E is lower than the current one, it usually means analysts expect profits to rise, which can signal growth ahead. 2️⃣ P/S Ratio — What Am I Paying for Sales? Best used when a company isn’t profitable yet. It tells you how much investors are paying for every $1 of sales. Lower is better if revenue is growing and margins are improving... think of it as a quick check on valuation before profits kick in. 3️⃣ FCF Yield — The Cash Power of a Business 💵 Free Cash Flow Yield = (Free Cash Flow ÷ Market Cap). It shows how much actual cash a company produces compared to what it’s worth. Think of it like this: if a stock has a 5% FCF yield, it’s generating 5% of its market value in real cash every year. It’s one of the best ways to see through accounting tricks and focus on real cash generation. - High FCF yield = efficient, cash-rich company. - Low FCF yield = less cushion, less flexibility. 4️⃣ PEG Ratio — Valuation Adjusted for Growth 📈 PEG = (P/E ÷ Expected Earnings Growth). It takes the P/E ratio and adjusts it for how fast the company is growing. A company with a high P/E might still be a good buy if its growth rate is even higher — that’s what PEG helps you see. Generally: PEG ≈ 1 → fair value PEG < 1 → potentially undervalued for its growth PEG > 1 → possibly overvalued unless growth accelerates further 5️⃣ Profit Margin — What’s Left After Everything? Profit Margin = (Net Income ÷ Revenue). It shows how efficiently a company turns sales into profit. Rising margins mean the business is scaling well & costs aren’t growing as fast as revenue. That’s what drives consistent long-term returns. ⭐ Save this post: these five metrics alone can tell you more about a stock than 90% of the noise online. Learn them and you’ll start seeing businesses the way real investors do. Are there any other metrics that you always check before buying a stock? Let me know in the comments below!
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Ronan @ronan · 11moEdited
Metrics depend on the company I’m looking at, will be different in every case If I use FCF yield on an O&G producer like $CNQ I’m going to think the business is beyond fantastic and give great returns, and yet it’s not reflected in the stock price and on par for the industry. If I use Forward P/E to check a hot tech company it might be completely overpriced but lead to even more returns Its company dependant and I need to actually know more about the business before I get information from the ratios
Jesse Franklin@pinnaclewealth · 11mo
Peggy ratio Rule of 40 DCF Instric value RSI MACD Moving averages
Bradley @bradleytalksmoney · 11mo
I don't like forward metrics because they rely solely on someone else's opinion. P/S is largely not useful because businesses can't spend sales. FCF Yield is very helpful and puts you in the mindset of a business owner. PEG ratios also often use someone else's opinions rather than our own. Charlie Munger said it best, a crowd is never rich. Just treating analyst numbers/assumptions as law is a form of ignorance, and it's best to not even put yourself in a position where that's a possible weakness
Catherine D
@cat777 · 11mo
All metrics are important to evaluate in your research, but if I were to pick one, it would be Free Cash Flow Yield. Free Cash Flow Yield often gives the clearest picture of a company’s financial health and real investor return. It captures both profitability and cash efficiency, making it more reliable than earnings-based ratios that can be affected by accounting adjustments. I also check the P/E ratio; however, this metric can be misleading if earnings are cyclical or negative.
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