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Metrics and Ratios Explained

How Metrics and Ratios Are Calculated

This page explains how the financial metrics and ratios displayed on ClarityVesting are calculated. All data is sourced from the EODHD financial API and processed using automated systems to provide consistent, comparable metrics for long-term investment analysis.

Historical Graphs

The historical graphs on each stock page are built from quarterly or annual financial data. These graphs show trends over time, allowing you to see how a company's financial health has evolved. Where a sector median line is shown, it plots the median of the same metric across all stocks in the company’s sector over time (subject to data coverage rules), so you can see whether the company is tracking above or below a typical peer in that sector.

Stock Prices

Stock price graphs use adjusted closing prices from the EODHD API. Adjusted prices account for corporate actions such as stock splits, dividends, and other distributions, ensuring that historical price movements are comparable over time. This adjustment is critical for accurate long-term analysis, as it removes distortions that would otherwise make historical comparisons misleading.

How to use it: Adjusted prices allow you to see the true performance of a stock over time, free from the noise of corporate actions. Use this graph to understand long-term price trends and identify periods of significant appreciation or decline.

Revenue Growth (Year-over-Year)

Revenue growth is calculated by comparing a company's quarterly revenue to the same quarter from the previous year. The formula is:

Revenue Growth YoY = (Current Quarter Revenue - Previous Year Same Quarter Revenue) / Previous Year Same Quarter Revenue

This metric is expressed as a percentage, showing how much revenue has increased or decreased compared to the same period one year earlier.

How to use it: Consistent positive revenue growth indicates a company's ability to expand its business. Look for trends: accelerating growth is positive, while decelerating or negative growth may signal challenges. Compare revenue growth to other companies in the same sector to assess relative performance.

Free Cash Flow

Free cash flow represents the cash a company generates after accounting for capital expenditures necessary to maintain or expand its asset base. For the graphs, Free Cash Flow TTM (Trailing Twelve Months) is calculated by summing the free cash flow from the four most recent quarters.

The calculation uses quarterly cash flow statements, where free cash flow is derived from operating cash flow minus capital expenditures.

How to use it: Free cash flow is a key indicator of a company's financial strength and ability to invest in growth, pay dividends, or reduce debt. Positive and growing free cash flow is generally a positive sign. Companies with strong free cash flow have more flexibility to weather economic downturns and invest in future growth opportunities.

Debt to Equity Ratio

The debt-to-equity ratio measures a company's financial leverage by comparing its total debt to shareholders' equity. It is calculated as:

Debt to Equity = Total Debt / Total Stockholders' Equity

For historical graphs, quarterly balance sheet data is used. Total debt includes both short-term and long-term debt, and equity represents total stockholders' equity.

How to use it: A lower debt-to-equity ratio generally indicates a more financially stable company with less financial risk. However, the appropriate level varies by sector and business model. Compare a company's debt-to-equity ratio to the sector median in the snapshot table and watch for trends: increasing ratios may signal growing financial risk, while decreasing ratios suggest improving financial health.

Profit Margin

Profit margin shows what percentage of revenue a company retains as profit after all expenses. For historical graphs, profit margin is calculated using trailing twelve months (TTM) data:

Profit Margin = (Sum of Net Income for Last 4 Quarters) / (Sum of Total Revenue for Last 4 Quarters)

This metric uses quarterly income statement data, combining net income and total revenue over the trailing four quarters.

How to use it: Higher profit margins indicate better cost management and pricing power. Compare profit margins across time to see if a company is becoming more or less efficient. Also compare to the sector median in the snapshot table to assess relative positioning. Improving margins suggest operational efficiency, while declining margins may indicate competitive pressure or rising costs.

P/E Ratio (Price-to-Earnings Ratio)

The P/E ratio compares a company's stock price to its earnings per share (EPS). For historical graphs, the P/E ratio is calculated daily using the adjusted closing price divided by the trailing twelve months (TTM) earnings per share. The TTM EPS is calculated by summing the earnings per share from the four most recent quarters, using outstanding shares (non-diluted shares) in the calculation.

Important note: Extreme P/E ratio values (negative values or values greater than 500) are not represented in the historical graph, as these values are not meaningful for stock analysis. Negative P/E ratios occur when a company has negative earnings, while extremely high P/E ratios (above 500) typically indicate data anomalies or companies with minimal earnings relative to their stock price.

How to use it: The P/E ratio helps assess whether a stock is overvalued or undervalued relative to its earnings. Lower P/E ratios may indicate a stock is undervalued, while higher ratios may suggest overvaluation. However, P/E ratios should be compared within the same sector (or very similar businesses), because typical P/E ranges differ widely by sector. Growth companies often have higher P/E ratios due to expected future earnings growth.

Latest Snapshot Metrics

The metrics displayed in the latest snapshot table represent the most recent available data point for each metric, providing a current snapshot of the company's financial position.

Sector comparison and color coding

The snapshot table includes a Sector median column. That value is the median (50th percentile) of the same metric across stocks in the company’s sector—the same broad classification shown in the table (for example Technology or Healthcare). We use the median rather than a simple average because it is less swayed by extreme outliers and better reflects a “typical” stock in that sector.

Comparing at sector level (rather than a narrower industry group) keeps the peer set larger and more stable, which reduces the chance that a company looks strong in ranking but in a failing industry.

Color highlighting on the company’s Value cell shows how that value compares to the sector median for that row:

  • Green: Directionally better than the sector median for that metric (higher when more is better—e.g. margins, growth, yields, returns—or lower when less is better—e.g. P/E, PEG, debt ratios).
  • Red: Directionally worse than the sector median by a meaningful margin.
  • Amber (when shown): Worse than the median but close to it (within roughly 20% of the median’s size), so the gap may be economically small even if the direction is unfavorable.

Metrics such as P/E, PEG, debt-to-equity, and net debt / EBIT are treated as lower is better for coloring. Metrics such as margins, growth rates, FCF yield, EBIT/EV, ROIC, and the momentum measures below are treated as higher is better.

Sector ranking (Value, Growth, Quality, Momentum)

On stock analysis feature images, ClarityVesting shows a compact Sector ranking readout with four dimensions: Value, Growth, Quality, and Momentum. Each is a rank within the company’s sector among stocks that have the required data: a better rank means the stock scores better on that bundle of metrics relative to sector peers (shown as a percentile-style band such as “Top 10%” or “Bottom 25%”).

How to use it: Use it as a quick relative check, not a buy/sell signal. A company can rank well on Momentum but poorly on Quality (or the reverse); the four bars are meant to be read together with the underlying numbers in the table and your own thesis.

Market Capitalization

Market capitalization (market cap) is sourced directly from the EODHD API. It represents the total market value of a company's outstanding shares, calculated as:

Market Cap = Current Stock Price × Number of Outstanding Shares

How to use it: Market cap helps categorize companies by size (large-cap, mid-cap, small-cap) and is useful for comparing companies of similar size. It also helps assess whether a company's valuation is reasonable relative to its peers and business fundamentals.

Beta

Beta is sourced directly from the EODHD API. Beta measures a stock's volatility relative to the overall market (typically the S&P 500). A beta of 1.0 means the stock moves in line with the market, while a beta greater than 1.0 indicates higher volatility, and less than 1.0 indicates lower volatility.

How to use it: Beta describes how a stock has historically reacted to market movements, which can be useful for understanding short-term volatility. However, for long-term investors, beta is a limited risk measure and should not be interpreted as an indicator of future returns. Long-term performance is more closely linked to business fundamentals and earnings growth than to beta.

Value Metrics

  • P/E Ratio (Price-to-Earnings Ratio): Sourced directly from the EODHD API. Compares stock price to earnings per share. How to use it: useful for quick valuation checks; interpret alongside sector medians and similar businesses.
  • PEG Ratio (Price/Earnings to Growth Ratio): Sourced directly from the EODHD API. PEG = P/E Ratio / Earnings Growth Rate. How to use it: complements P/E by adding growth context (a high P/E may still be reasonable if growth is strong).
  • FCF Yield: Calculated as trailing twelve-month free cash flow divided by market capitalization. FCF Yield = FCF TTM / Market Cap. How to use it: helps assess how much cash generation you receive for the price paid.
  • EBIT / EV: Calculated with trailing twelve-month EBIT and enterprise value. EBIT / EV = EBIT TTM / Enterprise Value. How to use it: complements FCF Yield as an operating earnings yield that is less affected by financing structure than equity-only metrics.

Growth Metrics

  • Revenue Growth: Sourced directly from the EODHD API as quarterly revenue growth YoY. How to use it: best for detecting near-term acceleration or slowdown in demand.
  • Revenue/Share CAGR (5Y): Calculated from annual revenue per share over 5 years. Revenue per share is annual total revenue divided by annual shares outstanding. How to use it: complements Revenue Growth by incorporating dilution and buybacks over time.
  • EPS CAGR (5Y): Calculated from annual EPS (epsActual) over 5 years using only past reported years. How to use it: complements Revenue/Share CAGR by showing how efficiently revenue converts to per-share earnings.
  • Operating Margin Trend (5Y): Calculated as latest annual operating margin minus operating margin from 5 years ago. How to use it: indicates whether operating efficiency and pricing power are improving or deteriorating.
  • FCF CAGR (5Y): Calculated from annual free cash flow over 5 years. How to use it: validates whether accounting growth is translating into real cash generation.

Why both Revenue/Share CAGR and EPS CAGR? Revenue/Share CAGR measures top-line growth per shareholder, while EPS CAGR reflects both top-line and margin/cost/tax effects. Strong revenue-per-share growth with weak EPS growth can indicate margin pressure; strong EPS growth with weaker revenue-per-share growth may come from margin expansion or capital structure effects.

Quality Metrics

  • ROIC (TTM): Calculated from NOPAT and invested capital. ROIC TTM = NOPAT TTM / Average Net Invested Capital, where NOPAT = EBIT × (1 - effective tax rate). How to use it: evaluates capital allocation quality and economic efficiency.
  • ROIC (5Y median): Median of annual ROIC over the last five reported years. How to use it: smooths single-year noise and shows whether strong returns are persistent.
  • Net Debt / EBIT (TTM): Calculated as latest quarterly net debt divided by EBIT TTM. If EBIT is negative, the metric is not displayed. How to use it: estimates debt paydown capacity from operating earnings.
  • Net Debt / EBIT (5Y median): Median of annual net debt / EBIT over five years. How to use it: complements the TTM figure with a longer-run leverage vs. earnings picture.
  • Operating Margin (TTM): Calculated with trailing twelve-month values. Operating Margin = EBIT TTM / Revenue TTM. How to use it: isolates core operating performance before non-operating items and financing effects.
  • Operating Margin (5Y median): Median of annual operating margin over five years. How to use it: highlights whether current margins are in line with a typical recent year.
  • Free Cash Flow (TTM): Calculated by summing free cash flow from the four most recent quarters. How to use it: tracks balance-sheet flexibility and ability to self-fund growth.
  • Debt to Equity: Calculated from the latest quarterly balance sheet. Debt to Equity = Total Debt / Total Stockholders' Equity. How to use it: balance-sheet leverage snapshot that is easy to compare across peers.
  • Profit Margin: Sourced directly from the EODHD API in the latest snapshot. How to use it: captures bottom-line profitability after all expenses.

Why both Net Debt / EBIT and Debt to Equity? Debt to Equity is a capital structure snapshot tied to book equity, while Net Debt / EBIT is a cash-earning coverage view tied to operating profitability. Using both helps avoid blind spots: a company can have acceptable Debt to Equity but weak debt-servicing capacity if EBIT is low.

Why Operating Margin alongside Profit Margin? Operating Margin focuses on core operations and is generally more stable for comparing business quality across time and peers. Profit Margin includes non-operating factors (interest, taxes, one-offs), so it is valuable for total profitability but can be noisier for evaluating operating execution.

Momentum metrics

Momentum metrics describe recent price behavior using adjusted prices. They appear in the latest snapshot table (with sector medians and the same color logic as other rows) and feed the Momentum bucket in sector ranking. They do not replace fundamentals; they add context on how the market has been pricing the stock lately.

  • ~12-month total return (last month excluded): Total return over approximately the last twelve months, with the most recent month left out so very short-term noise has slightly less influence.
  • 6-month total return: Total return over approximately the last six months to the latest available close.
  • Price vs. 200-day moving average: How far the latest price is above or below a 200-day simple moving average, expressed as a percentage. Values well above zero suggest a strong intermediate uptrend relative to that average; values below zero suggest the stock is trading under it.

How to use them: Use momentum to sense trend strength and recency of performance relative to other stocks in the same sector (via the sector median column). Strong momentum with weak fundamentals can signal risk; weak momentum with strong fundamentals may interest long-term buyers but is not a timing tool by itself. Always combine with valuation, quality, and growth metrics in the same table.

Understanding Discrepancies Between Snapshot and Graphs

You may notice that some metrics in the latest snapshot table differ from the most recent values shown on the historical graphs. This is expected and can occur for several reasons:

P/E Ratio Discrepancies

The P/E ratio in the snapshot uses diluted shares in its calculation, while the historical graph uses outstanding shares (non-diluted shares). This difference in share count methodology can cause the snapshot and graph values to diverge. Additionally, if there were any restatements of net income after earnings releases, these updated values may not be integrated into the historical graph data. The snapshot reflects the most current calculation available from the EODHD API, while the historical graph may use data from the original earnings release.

Revenue Growth Discrepancies

Similar to P/E ratios, revenue growth values can diverge when companies restate their revenue figures after earnings releases. The snapshot metric uses the most recently available data from the EODHD API, which may include restatements. The historical graph values are based on the data available at the time each quarter was processed, and may not reflect subsequent restatements.

Profit Margin Discrepancies

Profit margin discrepancies can occur when companies restate their net income or revenue figures. The snapshot uses the most current profit margin calculation from the EODHD API, while the historical graph values are calculated from quarterly data that may not yet reflect recent restatements. This is particularly common when companies revise their financial statements after initial earnings releases.

Data Source

All financial data used to calculate these metrics and ratios comes from the EODHD financial API, accessed under a valid commercial license with display rights. The data includes quarterly and annual financial statements (income statements, balance sheets, and cash flow statements), stock price data, and calculated metrics provided by the API.

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