Key Metrics for Valuing a Company Before You Invest
Free cash flow shows how much cash a company generates after covering working-capital needs and capital expenditure. This cash can support debt repayments, dividends and future growth. Rising free cash flow may signal a financially stronger business. The debt-to-equity ratio shows how much a company relies on borrowing compared with shareholders' equity. A high ratio can mean greater financial risk, especially when earnings or cash flow fall. Compare this ratio with similar companies in the same industry. Earnings per share, or EPS, measures the profit attributable to each outstanding share. It is calculated by dividing net income by the number of shares outstanding. Higher EPS can indicate stronger profitability, but investors should review it alongside cash flow, debt levels and industry trends.
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