LMB

What it would cost to take over the entire firm (equity plus debt, less cash) per dollar of pre-interest, pre-tax, pre-depreciation operating earnings. Capital-structure-agnostic — directly comparable across heavily and lightly levered businesses, which a P/E can't do. The weakness: EBITDA ignores capex, so capital-intensive businesses look artificially cheap on this metric. Cross-check with EV/FCF when capex is meaningful.

Adjusts the numerator for debt and cash so heavily-levered or cash-rich companies become comparable on a revenue-multiple basis. Particularly useful for cross-industry valuation work where some firms run net cash and others carry meaningful debt loads. Same caveats as P/S: best read alongside gross margin to translate the multiple into expected steady-state earnings power.

Share price divided by per-share book value of common equity — what the market values the franchise at versus what the accountants say it's worth on paper. Most informative for asset-heavy businesses (banks, insurers, industrials) where book value approximates a liquidation floor; far less informative for asset-light franchises whose value sits in brand, software, or other intangibles that GAAP under-states or excludes entirely.

How many dollars of share price the market is willing to pay for one dollar of trailing-twelve-month earnings. The universal valuation anchor for profitable companies — useful for cross-sector comparison and as a quick read on whether the market expects earnings growth, decline, or a quality re-rating. Sensitive to one-off items in the denominator (write-downs, tax holidays, share buybacks); pair with EV/EBITDA when capital structure or non-cash charges look noisy.

Useful when earnings are negative, noisy, or one-time-distorted (early-stage growth, restructurings, cyclical troughs). Works best within an industry, not across — gross margin profiles vary so wildly that 1x P/S for a software company means something completely different from 1x P/S for a grocery chain.

Divides the trailing P/E by the year-over-year EPS growth rate (in percentage points). Below 1.0 is conventionally read as 'cheap relative to growth'; above 2 implies the multiple is well ahead of recent growth. Sensitive to which growth window you choose and unstable when earnings cross zero — flips sign or explodes when prior EPS is negative.

Productivity of the asset base — how efficiently the firm converts assets into sales. Combined with net margin, this is the core of the DuPont decomposition: ROA = net margin × asset turnover. Two businesses can land at the same ROA via opposite paths: thin-margin / high-turnover (Costco, supermarkets) vs. fat-margin / low-turnover (luxury, software).

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.

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 and acquired intangibles 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.

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), so leverage inflates the gap between ROA and ROE.

Pre-tax cousin of ROIC using operating capital employed (long-term debt plus equity, approximately equal to total assets minus current liabilities). Damodaran publishes ROCE by industry annually, so it benchmarks cleanly against sector norms. Particularly useful for capital-intensive businesses where you want to see pre-tax returns on the long-term capital base.

Measures how productive the actual operating capital base is, independent of capital structure. Strips out the effects of cash, leverage, and below-the-line items so you see the underlying economic engine. The benchmark is the firm's weighted-average cost of capital (WACC) — sustained ROIC above WACC creates value, sustained ROIC below WACC destroys it. The single most important profitability metric for long-term compounding.

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.