Financial Metrics Glossary

P/E Ratio (Price-to-Earnings)

Formula: Market Price per Share / Earnings per Share (EPS)

The P/E ratio measures how much investors pay for each dollar of a company's earnings. A P/E of 20 means investors pay $20 for every $1 of annual profit. Lower P/E generally suggests a cheaper stock, but comparisons should be made within the same sector — technology companies typically trade at higher P/E ratios than utilities due to faster growth expectations.

Good range: 10-25 for most sectors. Below 10 may signal distress or cyclical low. Above 30 may indicate overvaluation or high growth expectations.

In AlphaStocks: displayed on every stock page and used as an input to the Lynch PEG ratio model.

PEG Ratio (Price/Earnings-to-Growth)

Formula: P/E Ratio / Annual EPS Growth Rate

The PEG ratio adjusts the P/E for growth. A stock with a P/E of 30 and 30% EPS growth has a PEG of 1.0 — fairly valued relative to growth. A PEG below 1.0 suggests the market underprices the company's growth rate. Peter Lynch popularized this metric for finding growth-at-a-reasonable-price (GARP) stocks.

Good range: Below 1.0 is attractive. 1.0-1.5 is fairly valued. Above 2.0 suggests the growth premium is stretched.

In AlphaStocks: the core metric of the Lynch PEG model, contributing 25% of the Value axis.

Enterprise Value (EV)

Formula:Market Cap + Total Debt - Cash & Equivalents

Enterprise value represents the total cost of acquiring a company, including its debt obligations minus available cash. It provides a more complete picture of a company's price tag than market cap alone, because a buyer must also assume the company's debts.

In AlphaStocks: used to calculate Earnings Yield (EBIT/EV) in the Greenblatt Magic Formula.

Book Value per Share (BVPS)

Formula: (Total Assets - Total Liabilities) / Shares Outstanding

Book value represents the net asset value of a company on its balance sheet. BVPS is what each share would theoretically be worth if the company liquidated all assets and paid all debts. It serves as a floor for valuation, especially for asset-heavy businesses like banks and REITs.

In AlphaStocks: a core input to the Graham Number formula (sqrt(22.5 × EPS × BVPS)).

EPS (Earnings per Share)

Formula: Net Income / Weighted Average Shares Outstanding

EPS is the most widely cited profitability metric. It shows how much profit a company generates per share of stock. Consistent EPS growth over multiple years is a hallmark of a strong business.

In AlphaStocks: used in the Graham fair value model, P/E ratio calculation, PEG ratio, and Piotroski profitability signals.

ROE (Return on Equity)

Formula:Net Income / Shareholders' Equity

ROE measures how efficiently a company uses shareholder capital to generate profits. Warren Buffett considers ROE consistency one of the most reliable indicators of a durable competitive advantage. A company maintaining ROE above 15% for 5+ years likely has a moat.

Good range: Above 15% is strong. 10-15% is average. Below 10% may indicate poor capital efficiency. Very high ROE (above 40%) can signal excessive leverage.

In AlphaStocks: a primary metric in the Buffett quality assessment (65% of the Quality axis).

EBIT (Earnings Before Interest & Taxes)

Formula: Revenue - Operating Expenses (excluding interest and taxes)

EBIT isolates a company's operating profitability from its financing and tax decisions. This makes it useful for comparing companies across different countries (tax rates) and capital structures (debt vs equity financing).

In AlphaStocks:used in both Greenblatt metrics — Earnings Yield (EBIT/EV) and Return on Invested Capital (EBIT/Invested Capital).

ROIC (Return on Invested Capital)

Formula: EBIT / (Net Fixed Assets + Net Working Capital)

ROIC measures how effectively a company turns invested capital into operating profit. High ROIC means the company earns more per dollar of capital deployed. Joel Greenblatt uses ROIC as the quality dimension of his Magic Formula.

Good range: Above 20% is excellent. 12-20% is solid. Below 8% suggests the business is not generating adequate returns on capital.

In AlphaStocks: one of the two ranking dimensions in the Greenblatt Magic Formula.

Gross Margin

Formula: (Revenue - Cost of Goods Sold) / Revenue

Gross margin shows what percentage of revenue remains after direct production costs. Improving gross margins indicate pricing power or cost efficiency. Declining margins may signal competitive pressure.

In AlphaStocks: one of the 9 Piotroski F-Score signals (signal 8: improving gross margin).

Operating Margin

Formula: Operating Income / Revenue

Operating margin measures profitability after all operating expenses but before interest and taxes. Stable or expanding operating margins over 3-5 years signal a durable competitive position — the company can maintain profitability without cutting prices.

In AlphaStocks: used in the Buffett quality model to assess margin stability as an indicator of moat durability.

Debt-to-Equity Ratio

Formula:Total Liabilities / Shareholders' Equity

Measures how much a company relies on debt versus equity financing. Lower ratios indicate less financial risk. However, optimal leverage varies by sector — banks naturally operate at higher leverage than software companies. AlphaStocks uses sector-specific calibration to account for these structural differences.

In AlphaStocks: used in Piotroski F-Score (signal 5: declining debt ratio) and Buffett quality model (debt relative to owner earnings).

Current Ratio

Formula: Current Assets / Current Liabilities

Measures short-term liquidity — the ability to pay bills due within 12 months. A ratio above 1.0 means the company has more short-term assets than short-term obligations.

In AlphaStocks: Piotroski F-Score signal 6 (improving current ratio). For banks, this is replaced with capital adequacy metrics.

Free Cash Flow

Formula: Operating Cash Flow - Capital Expenditures

Free cash flow is the cash remaining after a company funds its operations and maintains its assets. It represents the true cash available for dividends, buybacks, debt reduction, or reinvestment. Companies with consistently positive free cash flow have more financial flexibility and lower risk.

In AlphaStocks: used in the Buffett quality model (owner earnings approximation) and Piotroski signal 4 (cash flow exceeding net income).

Dividend Yield

Formula: Annual Dividends per Share / Current Stock Price

Dividend yield shows the annual cash return as a percentage of the stock price. A 3% yield means $3 income per $100 invested annually. High yields (above 6-7%) can signal the market expects a dividend cut.

In AlphaStocks: displayed on every stock page, used in Lynch dividend-adjusted PEG, and featured in the dividend rankings.

Asset Turnover

Formula: Revenue / Total Assets

Asset turnover measures how efficiently a company uses its assets to generate revenue. Higher turnover indicates better asset utilization. Improving asset turnover over time signals operational efficiency gains.

In AlphaStocks: Piotroski F-Score signal 9 (improving asset turnover).

Market Capitalization

Formula:Current Stock Price × Total Shares Outstanding

Market cap represents the total market value of a company's outstanding shares. AlphaStocks covers 1,595 stocks spanning large-cap, mid-cap, and small-cap companies. Market cap is used as a screener filter, not a scoring input — bigger is not necessarily better.

In AlphaStocks: available as a screener filter and displayed on every stock page.