Curated List: The 40 Most Important Financial Measures Every Investor Should Know
Read time: 2 minutes
Key Takeaways
- Use financial metrics to get familiar with the numbers of a business.
- Financial metrics are only the start of your analysis - never take investment decisions merely on a financial measure.
- You can download the cheat sheet with the 40 most important metrics for financial analysis when you sign up for my weekly newsletter.
How do you distinguish good companies from bad ones based on the limited information that is available publicly?
You x-ray the company through financial analysis. I curated a list of 40 financial measures at that I use to investigate a company's profitability, solvency, liquidity and efficiency.
You can download it when you sign up here.
Why you should use financial metrics
Most market participants don't even look at the balance sheet.
Maybe they consider the income statement, but for sure most of them don't care about cash balances and minority interests.
They should.
How on earth will you understand a company by ignoring the financial statements?
And that should be our goal. We want to learn about the business and how it is run to understand the company. That's where financial metrics come into play.
How to use the list
One single metric does not explain everything by its own.
Only from the combination of multiple financial measures can you derive the correct conclusion about a company's state. Also, it's crucial to compare those metrics over an extended period of financial history of the company you are researching. You want to see how certain metrics have changed over time.
I suggest to use Excel to model the last 10 years business history.
What looking at financial metrics will achieve
They will help you to get a grasp on
- what the profitability looks like
- how good the management allocates capital
- how efficiently revenue is converted into cash
- how a company manages its assets and liabilities
- if the company has enough liquidity to continue to operate
Looking at the measures on the list will provide you with a first starting point in your analysis. But there is more to consider...
What this list will not help you with
Understanding the business model in-depth is a crucial part of any (fundamental) investment analysis.
This is not done by just plugging some numbers into an Excel file. You have to read up on the company and look at the unit economics, for example. How often do customers make a purchase? What's the basket size? How much do customers churn? And then go and answer those questions about the competition, too.
Also, financial metrics can only provide a historical perspective.
But still, these 40 metrics are a start in your analysis and will help you quickly familiarize yourself with the company at hand.
Subscribe below to get the download link to the list of the most important financial metrics as a PDF. 👇
I did not explain each metric or what its limitations are in detail here. But if you have any questions, remarks or feedback, I am happy to discuss them via email (alex@stoicvalue.com).
Happy investing.