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The multiple equity analysts most commonly quote because it reflects expected earnings rather than the trailing window. Same caveats as trailing P/E plus one extra: the denominator depends on consensus estimates, which can be systematically optimistic going into a downturn or pessimistic at a cyclical trough. Worth cross-checking against trailing P/E and sell-side estimate trend.

An ABSOLUTE intrinsic-value signal, distinct from the relative multiples (PE, EV/EBITDA) which only compare a stock to its industry peers. Intrinsic value comes from the Residual Income Model: book value plus the present value of the residual income (earnings above a charge for the cost of equity) the firm is forecast to generate. This is the best-VALIDATED absolute value signal in the academic literature (Frankel & Lee 1998, replicated through 2026): the value-to-price ratio robustly predicts 1-3 year cross-sectional returns, survives every major factor model, and subsumes book-to-market. Because it is scored across the WHOLE universe (not within-industry), it complements the relative multiples rather than double-counting them. Pair it with a quality screen (Piotroski) to avoid value traps, and read the EPV decomposition to see whether a discount is unpriced earnings power or just speculative growth coming out of the price. One caveat: the model anchors on book equity, so for low-book, buyback-heavy, or asset-light firms (think Apple or Coca-Cola) book is a poor floor and the model can read durable franchises as wildly overvalued. Readings are clamped, and the metric is currently shadow-scored — shown for context, with zero weight in the fundamentals grade — pending validation.

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.

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.

Peter Lynch's adjustment to PEG: adds the dividend yield to the growth rate in the denominator so that mature dividend payers don't get unfairly punished by a low growth rate alone. Sweet spot is 1.0 (P/E equals growth plus yield); below 0.5 often signals a broken growth assumption rather than genuine value; above 2 is over-paying.

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.

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.

Pre-capex version of cash conversion: compares operating cash flow directly to net income, before subtracting capex. Numbers persistently below 1.0 suggest accruals are doing the work (revenue recognised before cash collected, or expenses deferred). Numbers above 1.0 are typically driven by D&A exceeding true economic depreciation — a mild positive sign but not always meaningful.

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), 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.

The headline profitability metric. Net income divided by average book equity tells you how productive each dollar of shareholders' capital is. High sustained ROE compounds book value when the business can reinvest at a similar return. Two warnings: ROE rises mechanically with leverage (high D/E inflates ROE without making the business better), and aggressive buybacks can shrink the equity denominator faster than they shrink earnings, artificially boosting ROE even as fundamental returns are flat.

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.

Direct cash income from holding the share. Stable dividend yield over time often signals capital discipline and predictable cash generation; abnormally high yield is frequently a warning that the dividend isn't covered by free cash flow and may be cut. Always read alongside payout ratio and FCF coverage.

Net income divided by market cap, expressed as a percent. 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 that earnings can grow (or contract) while a bond coupon is fixed. The standard 'is the equity risk-premium adequate?' framing.

Captures the full cash return to shareholders — dividends plus share repurchases, expressed as a percentage of market cap. Buyback-heavy issuers (Apple, Alphabet) hide their real cash return behind a low headline dividend yield; total shareholder yield surfaces it. Increasingly the right lens for evaluating capital-return quality, especially for tech-era large-caps that prefer buybacks to dividends.