Key metrics to analyze a stock: what they measure, how they are calculated and where they fail
By the MeridIAn Screener team · Published on 13 October 2026 · 7 min read
One metric on its own says little; several well-chosen ones tell a company’s story. This guide brings together the most widely used metrics for analyzing a stock, grouped into five questions: is it expensive, does it really make money, could its debt become a problem, is it growing and does it pay out. For each one you’ll see the formula, how to read it, where it fails and, with real data, what is normal in each sector.
Five questions, five families of metrics
| Question | Family | Main metrics |
|---|---|---|
| Is it cheap or expensive? | Valuation | P/E, forward P/E, PEG, EV/EBITDA, price/book, free cash flow yield |
| Does it really make money? | Profitability | Margins, ROE, ROA, ROIC |
| Could it get into trouble? | Financial strength | Net debt/EBITDA, interest coverage, current ratio |
| Is it growing? | Growth | Revenue, earnings per share, cash flow |
| Does it pay out, and can it keep doing so? | Dividend | Dividend yield, payout ratio, cash coverage |
If you haven’t seen a MeridIAn company page yet, start with how to read a company page, which explains the metrics on it with a real example. This guide goes one step further.
Valuation: is it cheap or expensive?
| Metric | How it’s calculated | How to read it | Where it fails |
|---|---|---|---|
| P/E | Price ÷ earnings per share (or market cap ÷ net income) | Years of current earnings you pay. Lower = cheaper | Misleading with an unusual year (very good or very bad). Useless with losses |
| Forward P/E | Price ÷ expected earnings for the next 12 months | Prices in what is expected, not what was | Depends on forecasts, which are often optimistic |
| PEG | P/E ÷ expected annual earnings growth (in %) | Around 1 = price in line with growth | Only as good as the growth forecast |
| EV/EBITDA | (Market cap + net debt) ÷ earnings before interest, taxes, depreciation and amortization | Compares companies with different debt | Ignores the investment the company needs to keep going |
| Price/book | Market cap ÷ shareholders’ equity | Useful for banks and insurers | Not very useful for companies whose value is in brands, patents or software |
| Free cash flow yield | Free cash flow ÷ market cap | What % of the price the company generates in hard cash each year | One year of heavy investment sinks it without the business doing badly |
Example: two companies trade at a P/E of 10. The first is a shipping company in its best year for freight rates in a decade; the second, a food company with steady earnings. The same P/E doesn’t mean the same thing: in cyclical companies a very low P/E tends to show up right at the top of the cycle, when earnings are about to fall.
Profitability: does it really make money?
| Metric | How it’s calculated | How to read it | Where it fails |
|---|---|---|---|
| Gross margin | (Revenue − cost of goods sold) ÷ revenue | Pricing power: what’s left after making or buying what it sells | Doesn’t compare well across sectors |
| Operating margin | Operating income ÷ revenue | Business efficiency before interest and taxes | Can include one-off items |
| ROE | Net income ÷ shareholders’ equity | What it earns for each dollar of shareholders’ money | Debt and buybacks inflate it without the business improving |
| ROA | Net income ÷ total assets | Return on everything it owns | Naturally low for banks |
| ROIC | After-tax operating income ÷ invested capital (equity + net debt) | The most complete: if it beats the cost of funding, growth creates value | Different ways of calculating it give different numbers |
A high ROE built on a lot of debt is less impressive than the same ROE with no debt. That’s why it’s worth reading it alongside ROIC and debt.
Financial strength: could its debt become a problem?
| Metric | How it’s calculated | Rough guide |
|---|---|---|
| Net debt/EBITDA | (Debt − cash) ÷ EBITDA | Below 1: comfortable. 1-3: normal. Above 3-4: watch it (utilities and real estate tolerate more). Negative: more cash than debt |
| Interest coverage | Operating income ÷ interest expense | Above 5 times is comfortable; below 2, worrying |
| Current ratio | Current assets ÷ current liabilities | Above 1, it can pay what falls due within the year |
| Debt/equity | Total debt ÷ shareholders’ equity | Depends a lot on the sector |
For banks and insurers these metrics don’t work (managing debt is their business): other measures are used instead, such as their highest-quality capital (CET1) or bad loans.
Growth: is it getting bigger?
- Revenue. The basis of everything. Better if it grows from the business itself (organic) than only through acquisitions.
- Earnings per share. It can grow because the business improves or because the company buys back shares: the second isn’t bad, but it isn’t the same.
- Free cash flow. The money left after investment. If earnings grow for years and cash doesn’t, something doesn’t add up.
- Look at several years. A single year misleads; the compound annual growth rate over 3 to 5 years says more.
Dividends: does it pay out, and can it keep doing so?
| Metric | How it’s calculated | How to read it |
|---|---|---|
| Dividend yield | Annual dividend per share ÷ price | What you receive a year for every $100 invested |
| Payout ratio | Dividends ÷ earnings | What share of earnings it pays out. Above 80-90% for years leaves little room (except REITs, which must pay out most of their income) |
| Cash coverage | Free cash flow ÷ dividends paid | Above 1, the dividend is paid with cash the company generates |
The high-yield trap: a 10% yield often doesn’t mean the company is generous, but that its price has fallen because the market expects a cut. Before trusting a very high yield, check the payout ratio and cash coverage.
What’s normal in each sector, with real data
A P/E of 25 can be expensive for a bank and normal for a tech company. That’s why metrics are compared within the sector. This table shows the median value (the middle one, which isn’t dragged by extremes) of each metric across the 2,120 companies in the MeridIAn ranking, with data from the analysis of October 13, 2026. It is updated with every analysis.
| Sector | Companies | P/E | EV/EBITDA | ROE | Operating margin | Net debt/EBITDA | Dividend |
|---|---|---|---|---|---|---|---|
| Industrials | 388 | 25.3 | 14.4 | 17% | 13% | 1.6 | 1.3% |
| Financial Services | 349 | 13.8 | 10.1 | 14% | 39% | 0.3 | 2.8% |
| Technology | 282 | 31.1 | 19.1 | 17% | 16% | 0.2 | 0.0% |
| Consumer Cyclical | 228 | 17.8 | 11.4 | 16% | 11% | 1.9 | 1.4% |
| Healthcare | 217 | 27.0 | 14.5 | 11% | 16% | 1.5 | 0.2% |
| Basic Materials | 141 | 18.6 | 10.0 | 11% | 16% | 1.4 | 1.8% |
| Consumer Defensive | 124 | 20.3 | 11.0 | 14% | 11% | 2.4 | 2.9% |
| Energy | 102 | 16.1 | 8.1 | 15% | 24% | 1.3 | 2.8% |
| Communication Services | 99 | 16.5 | 9.1 | 14% | 17% | 2.1 | 2.2% |
| Real Estate | 98 | 21.6 | 18.5 | 8% | 42% | 6.0 | 4.4% |
| Utilities | 92 | 19.1 | 12.3 | 10% | 22% | 5.3 | 3.5% |
Sector median of the companies with data available; values that make no sense (a negative P/E or one above 200, for example) are left out. Sectors with fewer than 12 companies don’t appear. In financial services (banks and insurers), net debt/EBITDA and operating margin aren’t comparable with the rest. A rough guide: each sector contains very different businesses.
Five common mistakes
- Comparing across sectors. A P/E of 12 doesn’t mean the same in a bank as in a software company.
- Looking at a single metric. A low P/E with high debt and falling sales is not a bargain.
- Trusting one year. A one-off gain (selling a business, a subsidy) distorts every ratio that year.
- Forgetting the cycle. In cyclical companies (commodities, shipping, autos), peak earnings come with the lowest P/Es.
- Ignoring the country and the currency. Each country’s market trades at different multiples because of its growth, interest rates and risk.
- Group metrics into five questions: valuation, profitability, strength, growth and dividends.
- Every metric has its trap: combine them and look at several years.
- Always compare with companies in the same sector: what is expensive in one is normal in another.
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General information for educational purposes. Not financial or tax advice, nor a recommendation to buy or sell securities. Investing in shares involves the risk of loss. · Contact: info@meridianscreener.com