Motley Fool Money Financial Metrics that Actually Drive Profits
Mar 12, 2022
Explore the fascinating world of financial metrics that reveal a company's growth potential. Discover how Starbucks serves as a case study in understanding the connection between sales and earnings. Learn about crucial components of a 10-K document and why they matter for investors. Key metrics like Return on Invested Capital and Return on Equity are highlighted as indicators of profitability and growth. This insightful discussion provides a roadmap for making informed investment decisions!
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Starbucks Example
- John Rotonti and Auri Hughes use Starbucks as an example to explain how sales translate into earnings.
- They break down the process from the point of sale to net income, highlighting various expense categories.
Analyze the MD&A
- To analyze a business, start with the 10-K, specifically the Management Discussion and Analysis (MD&A) section.
- Look for key drivers and metrics management emphasizes, like Apple's breakdown of iPhone sales.
Industry-Specific Metrics
- Key metrics vary across industries; net interest margin is crucial for banks, while combined ratio matters for insurance companies.
- Software companies prioritize sales growth, gross margins, recurring revenue, and the Rule of 40.