Glossary
The numbers investors use, explained
What each metric measures, how it is calculated, where it misleads, and what it looks like across the S&P 500 today.
Valuation
P/E ratioHow many dollars investors pay for each dollar of a company's yearly profit.Forward P/EThe P/E ratio using next year's expected earnings instead of last year's.Price to free cash flowMarket value divided by the cash the business generated after investing in itself.Free cash flow yieldThe cash a business produced last year as a percentage of what the stock market values it at.Earnings yieldThe inverse of the P/E ratio: yearly profit as a percentage of the share price.EV/EBITDAThe whole business's value, debt included, divided by its operating earnings before non-cash charges.Price to salesMarket value divided by yearly revenue.Price to bookMarket value divided by the accounting value of what shareholders own.
Profitability
Gross marginThe share of revenue left after the direct cost of making what was sold.Operating marginThe share of revenue left as profit from the business itself, before interest and tax.Net marginThe share of revenue that ends up as profit for shareholders.Return on equity (ROE)Profit as a percentage of the money shareholders have in the business.Return on assets (ROA)Profit as a percentage of everything the company owns.