Reading Key Financial Metrics

Introduction

Numbers are the language of company analysis. This lesson covers the key financial metrics to read — growth, profitability, cash flow, and financial health.

Revenue and Growth

Revenue is the top line — what the company sells. Look at:

• Growth rate over several years
• Which segments drive it and whether growth is durable

Profitability and Margins

Margins show how much of each sale becomes profit:

• Gross margin — after direct costs
• Operating margin — after operating costs
• Net margin — after everything

Cash Flow

Free cash flow (FCF) = cash generated after capital spending. It matters more than reported profit alone:

• Positive, growing FCF funds growth, dividends and buybacks
• Profit without cash flow can be a warning sign

Financial Health

To gauge risk:

• Debt/equity — how leveraged the company is
• Interest coverage — can it easily pay its interest?
• Current ratio — can it cover short-term obligations?

Returns on Capital

• ROE / ROA / ROIC — how efficiently it turns capital into profit
• Enterprises that earn high returns and reinvest at those returns compound well

Compare, Don't Just Read

A single number means little. Compare metrics over time and against peers.

Summary

• Revenue shows top-line growth
• Margins show profitability per sale
• Free cash flow shows real cash generation
• Debt/leverage and coverage show financial health
• ROE/ROIC show capital efficiency
• Compare trends and peers, not single numbers

Next Lesson

Beyond the numbers: qualitative factors and industry.