Investing in a new company is like welcoming a new member to the family;

Emotion alone is not enough, and data is the only language of truth.

Financial statements may seem like a maze to some, but 6 indicators are enough to reveal the entire investment picture.

1. Earnings Per Share (EPS):
The point is not the total profit size, but the "piece" of the cake.
A company earning a million with 500,000 shares has twice the profitability of a company earning the same million with a million shares.
Look for the share’s profit, it’s the number that doesn’t lie.

2. Price-to-Earnings Ratio (P/E):
The value scale that tells you: Is the stock an opportunity or a trap?
A (10) P/E ratio means you pay 10 riyals for every 1 riyal of profit, making it a more affordable investment than a (20) P/E ratio.
The price is what you pay, and the value is what you get.

3. Net Profit Margin (Net Margin):
Growth without margins is running in place.
If a company achieves a 10% profit from small sales, it indicates efficiency more than a company selling billions with only 4% remaining.
True strength lies in what remains in the treasury after the storm.

4. Return on Equity (ROE):
The ultimate measure of management intelligence.
It’s the "fuel" that turns shareholders’ money into a cash-generating machine.
Management that achieves a 20% return with half the capital of its competitors is the management you can trust.

5. Debt to Asset Ratio (Debt to Asset):
The compass of financial sovereignty.
A low ratio (like 20%) means flexibility and opportunity grabbing,
while a high ratio (like 70%) indicates dependence on lenders’ decisions.
Sovereignty begins with owning assets, not renting them.

Bonus Gift
6. Free Cash Flow (FCF):
The true oxygen for companies.
It’s the cash remaining "actually" after paying costs and developing factories.
Accounting profits attract investors, but free cash is what keeps them and ensures dividends.

For a more detailed explanation with practical examples in numbers,
Check out this article
And share your opinion:
What is the financial indicator that for you is the "red line" before making a purchase decision?

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