Financial metrics are the key numbers that you can focus on in financial statements. There are three financial statements, the balance sheet, the income statement and the cash flow that we like to look at to find important metrics. http://bit.ly/2xOCmRl
Were going to look at some of the most important financial metrics that you as investors can use to evaluate a company.
The first important number we look at on the balance sheet is liquidity. Can the company you’re looking at really cover everything that they need to cover in the next year? Or have they somehow overloaded themselves with short term debt and obligations that they could really run out of cash in the next year?
In order to evaluate this, we want to look at the current ratio. Essentially it is a measure of working capital. It compares the current assets, which are assets that can be turned into cash in the next year, with current liabilities, which are obligations that have to be paid in the next year.
What you want to look for when evaluating a company is a 2:1 ratio of liquidity to debt. Some companies are very well run that have a lower ratios than that, because they are controlling their cash very well, or they are in an industry that isn’t growing fast so they don’t need as much liquidity.
These companies work their capital down so they don’t need as much cash on hand all the time and they can give that money to their shareholders. You will know that these companies are very well run because, they are really big companies.
Most companies, particularly smaller companies need at least a 2:1 ratio between current assets and current liabilities. That’s a great measure of liquidity. We call that the liquidity metric.
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When someone uses the word “Really” repetitively it is a red flag that cautions the listener of the speaker’s difficulty with the subject.
Can you do a video of 30 companies that return at least 30 per year? Would be so helpful!
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Simple and straightforward! Great video
Thank you so much sir. I have not seen such an exhaustive explanation ever.
“Except we don’t want to see 1% we want to see thirty and a great company can do that”
(5:38)
Thank you for sharing, it is very enlightful.
Thank you very much sir, really valuable information.
visual example would have been great
finally found a guy who speaks my language
Bryan Cranston can really do finance stuffs
Thank you!
This is very helpful. I owe you one Phil when you come to Kenya for Safari
Thank You
You Sir are a awsome man sharing your wealth of knowledge.
you have to evaluate a company's like a bank would evaluate giving you a business loan because that's basically what you're doing you're giving the companies you invest in money to grow their business and you as the investor have to do your due diligence like a bank would do on you
Honestly after reading his book I made $11,000.00 off of stocks in 2017! His book is great
Great video! Which ratios do you think are the most important ones when picking stocks? I've found this article here https://www.stockmetrix.net/blog/post/070318/5-most-accurate-financial-ratios?t=gauYT#17a Do you agree with what they say there?
Dca might not give u maximum profit, but it takes zero energy to perform.
Thank you for the video. Good points but why ask people to go and look at balance sheets, cash flow statements and do the math on their own? All that stuff is already calculated for you and available for free on websites like Morningstar.
I watch your videos all the time. You explained it much better than the graduate professors who were not really into teaching or explaining
Great program, thanks
This guy's alright. Coulda saved me that $90K I spent on an MBA
This guy is great! Gives free advice just because it is the right thing to do…
Excellent explanation thank you very much.
He is awesome!
You explain everything clear and simple. Love this channel Phil, you’ve taught me a lot!
Great video. It rare to find a decent investing tips video on the internet these days.
Great video. It rare to find a decent investing tips video on the internet these days.
explain the difference between earnings and revenue please. I thought earnings just calculates in the liabilities.
I'm glad that I took accounting course in grade 11, last year. Thank you Phil, I learnt a lot from you on how to look at a company!
Found it I think.
The cash conversion cycle is a much better liquidity metric than the current ratio.
Amazing explanation. Really very very very very good explanation
new subscriber, great video
am sorry but i dont like numbers
Sorry what's the Fourth one may I ask?
Amazing piece of info…
Thank you!
First of all , thank you very very much for taking some time out and explaining the things. It's very helpful for me in understanding the concepts. I d started working in current ratio , it's been consistently as low as 0.03 to 0.06 for banks. If you can explain me why , I would be very thankful to you. Regards
Sir, pls can you shade more light on "return on assets" ?
Great advice! Very well explained.
Thanks Mr Phil. I think i am on a play now
Thanks Phil for this video! I'm learning a lot and feeling empowered while investing.