POW

Capital-structure-agnostic valuation multiple. Useful for comparing levered companies because it adds debt and removes cash from the numerator and uses pre-interest, pre-tax, pre-depreciation earnings in the denominator.

Valuation expressed against the cash actually available to all capital providers. Often more honest than EV/EBITDA when capex is meaningful relative to D&A.

Adjusts the numerator for debt and cash so heavily-levered or cash-rich companies are comparable. Particularly useful for cross-industry valuation work.

The multiple equity analysts most commonly quote because it reflects expected earnings rather than the trailing window. Same caveats as trailing P/E - a depressed multiple may be a value trap if forward earnings are too optimistic.

Capital-structure-agnostic earnings yield. Pairs with Greenblatt ROC to compute the Magic Formula rank (the universe-rank of EY plus universe-rank of ROC). Pre-tax operating earnings divided by the full claim on the firm.

How many dollars of book equity each share represents. Useful for asset-heavy businesses (banks, industrials) where book value approximates liquidation floor; less informative for asset-light franchises whose value is in intangibles.

Multiple of trailing-twelve-month earnings the market has assigned to the company. Lower means cheaper relative to current earnings power, but a single low P/E can also mean the market expects earnings to fall.

Useful when earnings are negative or noisy (early-stage companies, restructurings). Works best within an industry because gross margin profiles vary wildly.

Divides P/E by the annualized EPS growth rate (in percent points). Below 1.0 is conventionally read as 'cheap relative to growth.' Sensitive to which growth window you use; can flip sign if earnings are negative.

Adds dividend yield to the growth denominator so mature dividend payers don't get unfairly punished by a low-growth PEG. Sweet spot ~1.0; below 0.5 is often a broken growth assumption, above 2 is over-paying.

Productivity of the asset base. Combined with net margin, this is the DuPont decomposition of ROA: ROA = net_margin * asset_turnover.

Lower is better for shareholder cash returns; very low values can flag under-investment in a capital-intensive business. Pairs with FCF margin to separate 'thin operating margin' from 'fat operating margin offset by heavy capex'.

Sanity-check on earnings quality. Persistently below 1 means working capital or capex is consuming earnings; persistently above 1 is unusual and may flag accounting conservatism or non-cash drags.

Easier to compare than operating_margin across firms with very different leverage / depreciation profiles. Software platforms commonly run above 30%; capital-light service businesses cluster around 20%.

End-to-end conversion ratio: of every dollar of revenue, how much falls through to genuine free cash flow available to capital providers? More honest than net margin because it accounts for capex needed to maintain the business.

FCF the business throws off relative to what you pay for the equity. Treats the equity as a perpetual claim on cash. Cyclicals can swing below zero in a downturn.

Joel Greenblatt's reformulation of return-on-capital that excludes goodwill, acquired intangibles, and financial assets, focusing instead on the tangible operating capital that actually generates EBIT. Pairs with Greenblatt's Earnings Yield (EBIT/EV) to produce the Magic Formula rank.

First-line profitability measure - how much revenue is left after the direct cost of producing it. Stable gross margin suggests pricing power and low input-cost exposure.

Operating margin minus interest, tax, and below-the-line items. Useful but noisy because tax rate and debt service distort year-to-year comparability.

Pre-capex version of cash conversion. Numbers persistently below 1 suggest accruals are doing the work; numbers persistently above 1 are a (mild) positive sign.

Captures the leverage between revenue and operating profit. Core test of whether a business converts sales into income at the operating level.

Capital-efficiency measure that ignores how the assets are financed. Useful for comparing within a sector but biased low for asset-heavy businesses (banks, utilities) and high for asset-light ones.

Pre-tax cousin of ROIC using operating capital employed (long-term debt + equity ≈ total assets less current liabilities). Damodaran publishes ROCE by industry, so it benchmarks cleanly.

Headline profitability metric. High ROE compounds book value if the business can reinvest at the same return. Beware of buybacks artificially inflating ROE by shrinking the denominator.

Measures how productive the actual operating capital base is, independent of capital structure. The benchmark is the company's cost of capital - sustained ROIC above WACC creates value, below WACC destroys it.

Bottom-line growth on a per-share basis, capturing both operating progress and any net buyback effect. The denominator uses absolute prior EPS so a turnaround from negative to positive earnings reads with the conventional sign.

Top-line growth - the cleanest way to see whether the franchise is expanding. Best read alongside margin trend; revenue rising while margin compresses is often discount-driven volume rather than real growth.

Strips out receivables and inventory, leaving only cash and equivalents over current liabilities. Stress-tests whether the business can meet obligations even if collections seize up.

Whether the company can cover near-term obligations from near-term assets. Below 1.0 doesn't mean insolvent (cash flow can cover the gap) but is worth a closer look.

Useful complement to debt-to-equity. Banks, REITs, and post-buyback firms can have small or negative book equity, which makes D/E unstable; D/A stays well-behaved because the denominator is always positive. Industry context still matters - utilities run higher than software.

How much the company funds itself with debt vs. equity. Higher leverage amplifies both returns and risks; the appropriate level varies wildly by industry.

Solvency-under-stress measure. A ratio of 1x means EBIT exactly covers interest with nothing left over; 5x is comfortable for an industrial; below 2x is a credit-watch level. Especially important when leverage is rising or profits are cyclical.

Strips out short-term operating debt and revolver use to focus on permanent capital structure. Useful when comparing companies that fund working capital differently.

Bond covenants are commonly written against this ratio. Above ~5x is high-yield territory; investment-grade industrials typically run below 3x. Negative net debt (more cash than debt) means the firm could pay off its bonds and still hold cash.

The acid-test variant of current ratio strips inventory from current assets, since inventory can be stale or written down before it becomes cash. Sweet spot 1.2x; below 0.5x signals liquidity stress, above 3x signals trapped working capital.

The single best operations-quality metric. Negative CCC means the firm is funded by suppliers (Apple, Costco). Long CCC ties up working capital and forces operating-loan dependence.

Earnings-quality flag. Receivables growing faster than revenue is one of the cleanest tells for revenue recognition stretching. Beneish-style.

DuPont productivity measure. Combined with margin it tells the asset-light vs asset-heavy story. Very high turnover in retail can flag stockouts — the metric reads best industry-relative.

Direct income from holding the share. Stable dividend yield often signals capital discipline; abnormally high yield can be a warning that the dividend isn't covered by FCF and may be cut.

Lets you compare equity earning power directly to bond yields. A 6% earnings yield is the equity-side analog to a 6% coupon, with the difference being earnings can grow (or contract).

Sustainability check on the dividend yield. Below 30% means the dividend has room to grow; 30-60% is the conventional sweet spot; above 85% is stretched and frequently precedes a cut. REITs and utilities run higher than the broad market by design.

Captures the full cash return to shareholders. Buyback-heavy issuers (AAPL, GOOGL) hide their real cash return inside a low dividend yield; total yield surfaces it.

Five-factor distress signal originally calibrated for US public manufacturers. Above 3.0 is the conventional 'safe' zone, 1.8-3.0 is the grey zone, below 1.8 historically associates with elevated bankruptcy risk.

Beneish (1999) calibrates eight financial-statement indices against a sample of known manipulators. M < -2.22 reads as unlikely manipulator; M >= -1.78 as likely manipulator; the gap is grey. Companion to Altman Z but for fraud risk rather than bankruptcy.

Joseph Piotroski's score for distinguishing winners from losers among low-P/B stocks. Each of 9 questions answers 0 or 1; the more 'yes' answers, the higher quality the recent year-over-year improvements.

Richard Sloan's accruals-quality measure. Persistent positive accruals (NI exceeds OCF) tend to mean-revert via earnings disappointments. Large negative values are usually fine but can flag one-time working-capital releases or non-cash drags. Phase D-2 made this a target-window metric centred at zero.