You don't need to be an accountant. A handful of numbers tells you most of what you want to know about a company — what it earns, how fast it's growing, how good the business is, and how safe it is. Here's what each one really means. Tap any card.
The Basic Price Tags
Share Price & Market Capmarket cap = share price × number of shares
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The share price alone tells you almost nothing — a $500 stock isn't "expensive" and a $5 stock isn't "cheap," because it depends on how many shares exist.
- What matters is market capitalization ("market cap") — price times the number of shares. That's the price tag on the whole company.
- Rough sizes: large-cap (over ~$10 billion), mid-cap (~$2–10B), small-cap (under ~$2B). Bigger tends to mean steadier; smaller can grow faster but swings more.
The point: to compare two companies, compare market caps, never share prices.
EPS — Earnings Per ShareEPS = net profit ÷ number of shares
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Earnings is another word for profit. EPS slices that profit across every share, so it's the profit attached to the one share you'd own.
- Rising EPS over the years is one of the clearest signs a business is genuinely getting more profitable.
- "Trailing" EPS is the last 12 months (actual); "forward" EPS is an estimate of the next 12 (a guess, so treat it with care).
The point: EPS is the engine. Most other ratios are built on top of it.
P/E Ratio — the "price of earnings"P/E = share price ÷ EPS
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The price-to-earnings ratio is the single most-quoted number in investing. It says: for every $1 of annual earnings, how many dollars does the market charge you?
- A P/E of 20 means you pay $20 for each $1 the company earns per year. A higher P/E means investors expect faster growth — and are paying up for it.
- There's no universal "good" P/E. Judge it against the company's own history and its direct competitors. A P/E only means something in context.
The point: a low P/E isn't automatically a bargain, and a high P/E isn't automatically overpriced — it's a starting question, not an answer.
How Fast It's Growing
Revenue & Earnings Growthgrowth % = (this year − last year) ÷ last year
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Revenue (also called "sales" or the "top line") is all the money coming in. Earnings is what's left as profit (the "bottom line"). You want to see both growing.
- Ideally, earnings grow at least as fast as revenue — that means the company is getting more efficient, not just bigger.
- Revenue growing while earnings shrink is a yellow flag: it's buying growth at the expense of profit.
- Look at the trend over 5–10 years, not one quarter. Steady beats spiky.
The point: growth is the fuel behind a stock's long-term return — but only profitable, durable growth.
How Good the Business Is
Profit Marginnet margin = profit ÷ revenue
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A margin is the share of each sales dollar the company keeps as profit. A 20% net margin means 20¢ of every dollar of sales becomes profit.
- Higher margins usually signal pricing power or a real cost advantage — a sign of a strong business.
- Compare margins within an industry. Software firms run high margins; supermarkets run thin ones. Neither is "better" out of context.
The point: steady or rising margins say the company controls its own destiny; falling margins deserve a "why?"
Return on Equity (ROE)ROE = profit ÷ shareholders' equity
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ROE measures how much profit management squeezes out of the money shareholders have put in. It's a report card on how well a company uses its own capital.
- A consistently high ROE (say, mid-teens percent or better) across many years is a classic marker of a quality company.
- One caveat: heavy borrowing can flatter ROE, so always read it alongside the debt level (next section).
The point: great businesses turn a dollar of shareholder money into a lot of profit — year after year.
How Safe It Is
Debt (Debt-to-Equity)D/E = total debt ÷ shareholders' equity
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Some debt is normal and even smart; too much is how good companies get into trouble when business slows.
- Debt-to-equity compares what a company owes to what shareholders own. Lower is generally safer, but "normal" varies a lot by industry (utilities carry more; software carries less).
- Also handy: can the company's profits comfortably cover its interest payments? If a downturn would threaten that, the debt is a risk.
The point: a strong balance sheet is what lets a company survive a bad year — and pounce while weaker rivals struggle.
Free Cash FlowFCF = operating cash − capital spending
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Free cash flow is the real cash left over after a company pays its bills and reinvests in itself. It's the money available for dividends, buying back shares, or paying down debt.
- Reported "earnings" involve accounting judgment; cash is harder to fudge. When earnings look great but cash flow doesn't, ask why.
- Consistent, growing free cash flow is one of the most reassuring things you can find.
The point: profit is an opinion; cash is a fact. Follow the cash.
What You Get Paid to Wait
Dividend & Dividend Yieldyield = annual dividend per share ÷ share price
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A dividend is a slice of profit the company pays out to shareholders, usually every quarter. The yield expresses it as a percentage of the price — so a $2 dividend on a $50 stock is a 4% yield.
- A steady, growing dividend often signals a mature, cash-generating business and disciplined management.
- Beware a very high yield — it can mean the price has fallen because the market fears the dividend will be cut. Check whether earnings comfortably cover the payout (the "payout ratio").
The point: total return = price change plus dividends. For many long-term investors, the dividends do a lot of the quiet heavy lifting.