Standard margins (gross, operating, net) plus advanced earnings quality signals most retail investors never look at: FCF Conversion (are profits real cash?), SBC Dilution (hidden shareholder cost), Operating Leverage (is the business scalable?). Annual trend data for every S&P 500 stock.
Open Profitability Report â Also try: FCF YieldGross Profit Ãˇ Revenue. Most important margin for pricing power and brand strength. Buffett threshold: >40%. Software: 60â80%; Retail: 25â35%; Manufacturing: 20â40%.
Operating Income Ãˇ Revenue. Core business profitability before interest and taxes. Measures how efficiently management runs the business. Consistently above 20% suggests structural advantages.
Net Income Ãˇ Revenue. Bottom line after everything. A gap between operating and net margin usually means heavy debt interest payments. Software: 20â40%; Retail: 2â5%.
Return on Equity (Net Income Ãˇ Equity) and Return on Assets (Net Income Ãˇ Total Assets). ROE >15% good. Warning: very high ROE can be artificially inflated by heavy debt or buybacks.
These metrics reveal whether reported profits are backed by real cash â the most important question in fundamental analysis.
FCF Ãˇ Net Income à 100. The most important earnings quality metric. >100% exceptional (more real cash than accounting profit). <70% warning sign â investigate working capital or revenue recognition. Below 50% for multiple years = serious red flag.
Stock-Based Compensation Ãˇ Net Income. Hidden cost Wall Street often ignores. >20% significant; >30% red flag. Many "profitable" tech companies have negative real earnings after SBC.
% change in Op. Income Ãˇ % change in Revenue. >1 = scalable model where revenue growth amplifies profit growth. Identifies businesses where fixed costs create leverage.
Days Sales Outstanding (how long to collect receivables) and Days Inventory Outstanding (how long inventory sits). Rising DSO = cash flow problems or aggressive revenue recognition.
Capex Ãˇ Revenue. Asset-light software: <3%; Telecom: 15â20%; Manufacturing: 8â15%. Low capex intensity = business doesn't need heavy reinvestment to grow.
Capex Ãˇ Operating Cash Flow. Fraction of operating cash reinvested into assets. Low % = capital-light, lots of free cash. High % = capital-intensive, little cash left for shareholders.