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[Sticky] Which metric is THE most important?


Topic starter

I got this question and although I responded via email to the individual, I thought I would share this with everyone as it is important to conceptualize:

Hi D,
I’m trying to compare different companies with the metrics from your web site.
Different companies have different strengths reflected in the metrics so my question is how would you rate the following metrics from most important to least important, all things being equal.
Operational efficiency trend
Gross Margins trend
Revenue growth rate
EBITDA growth rate
Net earnings growth rate
Debt/Asset ratio
Cash/Debt ratio
My Repsonse:
My Econ 101 A&B professor is about to be done proud with my answer to your question: It depends.  
An early stage company would be interested in a rapid development of sales and the move higher upwards in margins.  Every company has a plan.  But, execution is left to the success of the product and management.  Getting a rapid growth rate in revenues is crucial.  But, these will all dissipate over time as companies get to a certain saturation in a new area.  That’s why you also need to look at the absolute size of revenue and the rate of growth.  A Trulieve is going to have a steady, consistent growth rate whereas Vext is expanding into new markets with licensing out their name.  These are completely different foundations to start from.  So, you cannot look at these variables in a linear fashion.  
Also, to me, EBTIDA is huge for a new company.  Any company that is outperforming the broader S&P 500 averages with margins & EBITDA is a solid performing company that has the ability to outperform the broader market.  
Revenue per share is a metric that I like a lot simply because it shows you the size of the pie you are getting for what you are paying.  It is sort of the bang-for-the-buck look.  
In general, at various stages, certain metrics will outweigh other metrics.  You have to look forward to what each individual company is doing in order to figure out which will be the better performing.  
Ultimately, look for a complete/full-package company that is performing well in all metrics and has solid revenue growth.  I majored in applied mathematics (statistics) & macroeconomics and theoretically, could put together a model to measure this.  But, every quarter, we get new information.  So, it would be a constant headache trying to measure everything up along with the fact that every company is at a different stage.  

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