Mental Models discussed in this podcast:
- Investing Ratios
- Break Points
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Show Outline
The full show notes for this episode are available at https://www.diyinvesting.org/Episode128
Key Investing Ratios
- P/E:
- Goal: <10
- Max: <15
- P/S
- Max: <10
- ROA:
- Goal: >10%
- Ideal: >15%
- ROE:
- Min: 10%
- Goal: >15%
- Ideal: >20%
- Gross Margin:
- Higher the better (>50%)
- Stability is more important than the absolute number
- Focus: Limits and Break Points
- Source:
Summary:
The important thing to remember about the key investing ratios is to understand that they are always relative. What you're looking for is understanding the limits you don't want to pass, and key break points that signify certain things about the business. Above all, stability is critical when evaluating a high quality business.
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