128 - Key Investing Ratios: P/E, P/S, ROA, ROE, Gross Margin

Mental Models discussed in this podcast:

• Investing Ratios
• Break Points

Please review and rate the podcast

If you enjoyed this podcast and found it helpful, please consider leaving me a rating and review. Your feedback helps me to improve the podcast and grow the show's audience. 

Follow me on Twitter and YouTube

Twitter Handle: @TreyHenninger

YouTube Channel: DIY Investing

Support the Podcast on Patreon

This is a podcast supported by listeners like you. If you'd like to support this podcast and help me to continue creating great investing content, please consider becoming a Patron at DIYInvesting.org/Patron.

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:
  • https://twitter.com/solvealways/status/1486992514196324354?s=20&t=xGDVCwWNDXmL9VM7hpQN2A

 

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.