Fundamental Metrics Explained
Every metric on Dividend Line, in one place — with its formula, a worked example, a pro tip and the traps to avoid. No metric is judged alone; the skill is reading them together to form a picture of a whole business.
Metrics are questions, not verdicts
A single ratio never decides an investment. Each metric answers one narrow question — Is it cheap? Is it profitable? Is it growing? Can it pay its debts? Is the dividend safe? — and only the combination tells you whether a business is worth owning. A low P/E on a company with collapsing cash flow is a trap; a high P/E on a durable compounder can be a bargain.
Use this page as a reference. Each metric below shows how to calculate it, what a real example looks like, how professionals use it, and — just as important — where it misleads. For plain-English definitions of every term, see the full glossary.
Valuation
What you pay for a stream of earnings, assets or cash flow. Only meaningful versus peers and history.
P/E Ratio
How much investors pay for each $1 of earnings. The default valuation yardstick for profitable companies.
P/B Ratio
Market value versus accounting book value. Useful for asset-heavy businesses like banks and insurers.
EV/EBITDA
Values the whole business regardless of how it's financed. Lower is 'cheaper', all else equal.
PEG Ratio
Adjusts the P/E for growth. A staple for judging whether a growth stock is fairly priced.
Profitability
How efficiently a company turns capital and sales into profit. The heart of business quality.
EPS (Earnings Per Share)
Net profit attributable to each share — the basis for P/E, payout and growth metrics.
ROE (Return on Equity)
How efficiently the company turns shareholder capital into profit. A core quality signal.
ROA (Return on Assets)
Profit relative to the total asset base. Best for comparing similar, asset-heavy companies.
Gross Margin
Share of sales left after direct costs. A window onto pricing power.
Net Margin
Share of revenue left as profit after every expense, interest and tax.
Growth
The trajectory. For compounders, the rate and durability of growth drives long-run returns.
Revenue Growth
Year-over-year growth in sales. The top-line engine of every growth thesis.
EPS Growth
Year-over-year growth in per-share earnings — profitability actually reaching owners.
Dividends
Income and its safety — the core of Dividend Line. Yield without coverage is a trap.
Dividend Yield
The income return on today's price. The headline number for income investors.
Dividend Growth
How fast the payout is rising. A growing dividend lifts your yield-on-cost over time.
Dividend Payout Ratio
Share of earnings paid out as dividends. The single best first check of dividend safety.
Cash Flow
The truest measure of what a business earns. Harder to fake than accounting profit.
Free Cash Flow (FCF)
Cash left after running and maintaining the business. Fuels dividends, buybacks and debt repayment.
Operating Cash Flow (OCF)
Cash generated by core operations, before investing and financing.
Capital Expenditure (CapEx)
Money spent acquiring or upgrading physical assets (property, plant, equipment).
Liquidity & Balance Sheet
Financial strength and survivability — can the company pay its bills and its debt?
Current Ratio
Can short-term assets cover short-term liabilities? Above 1 is safer.
Quick Ratio
A stricter liquidity test that excludes inventory.
Debt / Equity Ratio
Leverage — how much debt funds the business versus equity.
Interest Coverage Ratio
How comfortably operating profit covers interest on debt.