PTC

Lower is generally better for shareholder cash returns — less of every dollar of revenue gets reinvested in maintaining the asset base. But very low values can flag under-investment in a capital-intensive business, which catches up later via deteriorating capacity or competitiveness. Pairs with FCF margin to separate 'thin operating margin' from 'fat operating margin offset by heavy capex'.

Sanity-check on earnings quality — a ratio of 1.0 means every dollar of GAAP earnings shows up as free cash flow. Persistently below 1.0 means working-capital build or capex is consuming earnings; persistently above 1.0 is unusual and may flag accounting conservatism (heavy non-cash charges) or a one-time release. Trend matters more than absolute level.

Easier to compare than operating margin across firms with very different leverage and depreciation profiles, because it adds D&A back. Software platforms commonly run above 30%; capital-light service businesses cluster around 20%; capital-intensive industrials sit below 15%. The weakness: ignores the cash needed to maintain the asset base — pair with FCF margin for a complete profitability picture.

End-to-end conversion ratio: of every dollar of revenue, how much falls through to genuine free cash flow available to all capital providers? More honest than net margin because it accounts for the capex needed to maintain (and grow) the business. The single best indicator of whether the business is a quality compounder or a GAAP-earnings illusion.

Joel Greenblatt's reformulation of return-on-capital, designed to filter for businesses that earn high pre-tax returns on the tangible operating capital that actually generates EBIT. Excludes goodwill, acquired intangibles, and financial assets so that two firms with the same operating economics rank similarly regardless of acquisition history. Pairs with Greenblatt's Earnings Yield (EBIT/EV) to produce the famous 'Magic Formula' rank — quality stocks at value prices.

First-line profitability measure — how much revenue is left after the direct cost of producing it. Stable or rising gross margin signals pricing power and low input-cost exposure; falling gross margin is one of the earliest reliable signals of competitive pressure or commodity-input squeeze. Industry context is everything: 30% gross margin is excellent for a grocery chain and disastrous for a software company.

Operating margin minus interest, tax, and below-the-line items. Useful but noisier than operating margin: tax rate changes, debt-service shifts, and one-time items can move net margin year-over-year even when the operating business is unchanged. Always pair with operating margin and FCF margin — divergence between them is a tell about leverage, tax structure, or earnings quality.

Captures the leverage between revenue and operating profit — the core test of whether a business converts sales into income at the operating level. Independent of capital structure (excludes interest) and tax-jurisdiction noise. Trend matters as much as level: an improving operating margin indicates pricing power or operational efficiency gains; a falling margin signals input-cost pressure, wage inflation, or competitive erosion.

Capital-efficiency measure that ignores how the assets are financed. Useful for comparing within a sector but heavily biased by industry — banks and utilities run low ROA by design (huge balance sheets), software and franchise businesses run high ROA (asset-light). The DuPont decomposition links it to ROE: ROE = ROA × (assets / equity) × (1/(1-tax)), so leverage inflates the gap between ROA and ROE.

Bottom-line growth on a per-share basis — captures both operating progress and any net buyback effect. The denominator uses the absolute value of prior EPS so a turnaround from negative to positive earnings reads with the conventional sign rather than producing arithmetic nonsense. Pair with revenue growth to separate real franchise expansion from buyback-driven per-share lift.

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, and can mask underlying weakness. Compare to industry peers — what looks weak in absolute terms can be best-in-sector if the industry is contracting.

Useful complement to debt-to-equity. Banks, REITs, and post-buyback firms can carry small or even negative book equity, which makes D/E unstable; D/A stays well-behaved because total assets is always positive. Industry context still matters — utilities run higher than software by design — but the comparability across capital structures is much better.

How much the company funds itself with debt vs. equity. Higher leverage amplifies both returns (through ROE) and risk (through interest coverage and refinancing exposure). The 'right' level varies enormously by industry — utilities and REITs run higher than industrials, software runs near zero. Becomes unstable when book equity is small or negative; complement with debt-to-assets in those cases.

Strips out short-term operating debt and revolver use to focus on the permanent capital structure. Useful when comparing companies that fund working capital differently — a high D/E that's mostly short-term commercial paper means something different from a high D/E that's mostly long-dated bonds. Watch refinancing maturities alongside the level.

Bond covenants are commonly written against this ratio because it directly answers 'how many years of operating cash earnings would it take to retire all the debt?' Above ~5x is high-yield territory for industrials; 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 — a common position for mature tech.

Edward Altman's 1968 five-factor distress signal, originally calibrated against US public manufacturers that went bankrupt vs. those that didn't. 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 within two years. Less reliable for non-manufacturing businesses, financial firms, and asset-light franchises — but the conceptual frame (liquidity + profitability + leverage cushion) translates broadly.

Joseph Piotroski's 2000 score for distinguishing winners from losers among low-P/B value stocks. Asks nine yes/no questions across profitability (4 questions), leverage and liquidity (3 questions), and operating efficiency (2 questions); each 'yes' adds one point. The original study found that high-F-score value stocks meaningfully outperformed low-F-score value stocks, suggesting it's a useful filter for separating real value from value traps.

Richard Sloan's 1996 accruals-quality measure. Persistent positive accruals (net income meaningfully exceeds cash flow) tend to mean-revert via earnings disappointments — Sloan documented that high-accruals firms underperform low-accruals firms over the following year. 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 on zero.

Fires on the bar where the MACD line (EMA12 minus EMA26) crosses through the signal line (EMA9 of MACD). Bullish when MACD crosses up through signal, bearish when it crosses down. Far more commonly used as a trade trigger than divergence — see macd_divergence for the slower confirmatory tell. Whipsaws in chop; cleanest when combined with a trend-regime filter.

+1 on bullish cross (MACD crosses up through signal); -1 on bearish cross (MACD crosses down through signal); 0 otherwise.

+1 = bullish MACD-signal cross, -1 = bearish MACD-signal cross.