Learn the metrics
Every number on Sixth Element has a plain-English definition. Start with the four groups that map to our scorecard.
Growth
Is the business getting bigger?
- Revenue growthHow much more (or less) the company sold than a year earlier.
- Revenue CAGR (3Y)The average yearly growth in sales over three years — it smooths out one unusually good or bad year.
- EPS growth (3Y CAGR)How fast profit per share has grown each year, on average, over three years.
- FCF growth (3Y CAGR)How fast the spare cash the business produces has grown each year, on average.
Profitability
How much of each sales dollar does it keep?
- Gross marginMoney left after the direct costs of producing the product or service.
- Operating marginMoney left after the costs of running the business, before interest and taxes.
- Net marginMoney left after the company's major costs, including interest and taxes.
- FCF marginCash left after running the business and paying for the investment it needs.
- ROICHow efficiently the company turns the money invested in it into profit.
- ROEProfit earned for every dollar shareholders have put into the company.
Financial health
Could it handle a bad year?
- Cash & investmentsMoney the company has in the bank, or in investments it can sell quickly.
- Total debtMoney the company has borrowed and must pay back.
- Net debtDebt minus cash. A negative number means the company has more cash than debt.
- Debt / EBITDARoughly how many years of operating earnings it would take to pay off all of its debt.
- Net debt / EBITDAYears of operating earnings needed to pay off debt after first using the cash on hand.
- Current ratioWhether the company has enough short-term money to cover bills due within a year. Above 1 means it does.
- Interest coverageHow many times over the company's profit covers the interest on its debt.
Valuation
What are investors paying for it?
- PriceLast closing stock price.
- Enterprise valueRoughly what it would cost to buy the whole company: its shares, plus its debt, minus its cash.
- P/EHow many dollars investors are paying for each $1 of the company's yearly profit.
- Forward P/EPrice relative to expected next-year earnings.
- P/SHow many dollars investors are paying for each $1 of the company's yearly sales.
- EV/SalesLike P/S, but it counts debt and cash too — the price of the whole business compared with its sales.
- EV/EBITDAThe price of the whole business (including debt) compared with its operating earnings.
- P/FCFHow many dollars investors are paying for each $1 of spare cash the business produced last year.
- FCF yieldLast year's spare cash as a percentage of the company's market value — a bit like an interest rate on the business.
- PEG (trailing)P/E divided by past profit growth — a rough check of whether the price already accounts for how fast the company has grown.
- Dividend yieldCash paid to shareholders last year as a percentage of the company's market value.
Income statement
Revenue, costs and profit for a period.
- RevenueAll the money customers paid the company for its products or services.
- Cost of revenueDirect costs of producing what was sold.
- Gross profitRevenue minus the direct cost of producing it.
- R&D expenseSpending on research and product development.
- SG&A expenseSelling, marketing and overhead costs.
- Operating incomeProfit from the core business before interest and taxes.
- Interest expenseCost of servicing the company's debt.
- Pre-tax incomeProfit before income taxes.
- Income taxIncome tax expense for the period.
- Net incomeThe final profit after every cost, interest payment and tax.
- EPS (diluted)The company's profit divided by its number of shares — the slice of profit behind each share.
- Diluted sharesWeighted average share count including dilution.
- D&ANon-cash expense spreading the cost of long-lived assets over time.
- EBITDAOperating income before depreciation and amortization.
Balance sheet
What it owns and owes at a point in time.
- Cash & equivalentsCash and very short-term liquid investments.
- Short-term investmentsMarketable securities the company could sell quickly.
- ReceivablesMoney customers owe the company.
- InventoryGoods held for sale.
- Current assetsAssets expected to turn into cash within a year.
- Total assetsEverything the company owns.
- Current liabilitiesObligations due within a year.
- Short-term debtBorrowings due within a year.
- Long-term debtBorrowings due after more than a year.
- Total liabilitiesEverything the company owes.
- Shareholders' equityAssets minus liabilities — the book value owned by shareholders.
- Shares outstandingHow many pieces the company is divided into.
Cash flow
Where the cash actually came from and went.
- Operating cash flowCash that came in from running the business day to day.
- Capital expenditureCash spent on property, equipment and other long-lived assets.
- Free cash flowMoney left after the company pays for the investments needed to run and grow the business.
- Stock-based comp.Employee pay in shares; a real cost that dilutes shareholders but isn't a cash outflow.
- Dividends paidCash returned to shareholders as dividends.
- Share buybacksCash spent repurchasing the company's own shares.