Part 5 -Fundamentals Aren’t Just Numbers: They’re the Keys to Winning the Stock Game
A Look at the Metrics That Drive Company Share Prices Up (or Down)
I’m Michael and the founder of TheValueVantage.com and on a mission to make beating the stock market as easy for you as choosing your favorite ice cream. Take a look at the Return-Simulator on my website. How it all started.
Understanding beats gambling.
The Income Statement
Here's our next set of fundamentals you should understand. Let's dive into these metrics to understand more about the bigger picture of a company. Enjoy.
41. Revenue
The money a company earns from selling its products or services—before any expenses. Why does this matter? It's called the “top line” for a reason. Growth here shows market acceptance and pricing power, but watch the other metrics to see how well that revenue converts to profit.
42. Earnings Per Share (Diluted)
Net profit divided by all potential shares, including those that could exist if all convertible securities were converted. Why does this matter? It gives you the most conservative view of your piece of the profit pie, accounting for all possible future shares.
43. Net Income
What's left after all expenses, costs, and taxes—the famous “bottom line.” Why does this matter? This is the ultimate measure of profitability, though you'll want to compare it to revenue to understand profit margins and efficiency.
44. Weighted Average Shares (Diluted)
The total share count, including all potential shares from convertible securities. This is the divider for 42. Why does this matter? It shows you the full ownership picture if all convertible securities become shares. A rising number here means more hands on the table reaching for the profit pie.
45. Earnings Per Share
The basic version—net income divided by current outstanding shares. Why does this matter? It's your simplest measure of profitability per share, but check it against the diluted version for a complete picture of potential ownership claims.
46. EBITDA
Earnings before interest, taxes, depreciation, and amortization. Why does this matter? It's like X-ray vision for operating performance, stripping away accounting choices and financial structure to show the real core business strength.
47. Research & Development
Investment in innovation and product development. Why does this matter? This expense might hurt today's profits but could drive tomorrow's growth. Low R&D might mean better profits now but risks future competitiveness.
48. Selling, General & Administrative (SG&A)
The cost of running the business beyond making products—think salaries, marketing, and office expenses. Why does this matter? Rising SG&A without matching revenue growth in lockstep signals inefficiency or loss of cost control.
49. Operating Income
Profit from the core business, before interest and taxes. Why does this matter? This shows how well the main business generates profit, before financial engineering enters the stage. It's the purest measure of operational success.
50. Net Income to Non-Controlling Interests
Profit that belongs to minority shareholders in subsidiaries. Why does this matter? In companies with partially owned subsidiaries, this tells you how much of the profit actually belongs to someone else—reducing what's available for the parent company's shareholders.
That's it for today.
Next week we'll explore more about the Income Statement.
What I did
I continued to work with RTOS (real-time operating systems). I managed to get sensors synchronized in a secure, which is crucial for a reliable system.
What's On My Mind
Noting fancy this week.
Nuggets
I loved this Joe Rogan Podcast episode. Mike Benz shared some interesting insights about how governments changed the way of “doing influence.”
Take care,
Michael
Hit the heart if you want a life with purpose :-D
Disclaimer:
The information in this article is my personal opinion. I’m not a certified investment professional. It is not consulting, nor does it constitute investment recommendations.
I do my research carefully and follow my personal investment strategy.
The stock market is a complex building with its own rules. There are no rules set in stone, like the rules of physics.
Therefore, use the contents of this newsletter at your own risk and do your own research as well. Investing in the stock market can lead to a total loss of the capital invested.
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