financial metrics explanation

Use Financial Metrics for Informed Investing 

Often, you’ll hear massaged information in finance, so understanding what’s in front of you will make potential investments obvious. You could invest because of Reddit, a formula you learned in college, what’s trending at the time, low-risk strategies, high-risk strategies, Goldman Sachs recommendations, and more. But success, regardless of approach, is in the details. 

Understanding and applying the knowledge from financial metrics is essential for every investor. Make sure you can read, comprehend, and apply that knowledge to make informed investments. 

Why You Need Financial Metrics! 

You might hear a recommendation to invest, but don’t you want to double-check? It’s like being told, “Hey dude, that dessert is really yummy,” and then you tell other people it’s yummy without even taking a bite. Don’t just believe what you’re told; see it for yourself.  

Why do you need financial metrics? First, it helps establish the truth about a company’s background, activity, and potential from your perspective. On top of that, you can view the health of a company, risk level if you invest, estimate the overall performance, potential (or lack thereof) for growth/profitability, and more. 

What if I don’t understand financial metrics? Take it one step at a time! Learn one way to evaluate a company (ex. P/E), analyze over an extended period of time, and then gauge a plethora of information just from one metric. After, study and learn another one. 

Financial Metrics for Screeners/Strategies 

For every backtested screener in Equities Lab (as long as it’s mathematically sound), you will get charts and access to the market’s essential and regularly updated financial data. 

In the explorer tab, under the featured system screeners, you can use the following screener titled “Utilities and Consumer Defense for the win,” which tests for marketlike performance at half the volatility. Sounds decent! Once you click backtest, adjust the dates for more than ten years to get an extended amount of data, which helps see if it’s a good strategy. 

Any backtest will have visuals, but for the sake of learning about financial metrics, let’s focus solely on the numbers. The first set of financial metrics that pop up are the following;

Backtesting Data Report (Could be based on an entire strategy or a single stock.)

Close 8/28/2013 to 8/28/2023Utilites/Consumer Defensive FTWS&P 500
Total Returns105.9%224.8%
Annualized Returns7.49%12.5%
Daily Beta0.6048
Annualized Alpha -0.59%
Average Holding Period3 years, 7 months
Average Number of Positions 54

What does any of that mean? Compared to the S&P 500, the screener underperformed in total and annualized returns. The S&P 500 had a bigger drawdown, which is a positive for the screener!

Why isn’t the S&P 500 in the other columns? The screener is compared in correlation to the market/S&P 500. The S&P market index doesn’t perform similarly because of its broad nature. It is too complicated to calculate those metrics, thus is excluded from those metrics.

What about the other columns? The screener has low beta = low sensitivity to the market, a negative annualized alpha = it didn’t beat the market, the average holding period is decent = positive market sentiment, and the average positions of 54 = a decent amount of investors are using this strategy to diversify their portfolio. 

See how valuable looking through the data for a screener can be? Even without visuals, there is valuable information in each metric. 

Financial Metrics for Individual Stocks 

The above example was a whole strategy, but what about a single stock or company? How can that be analyzed? 

With the same screener, click on the results map to see a visual of all the current stocks that fit the screener’s requirements. In the retail industry, Walmart is a reconginizble company. Let’s look at the financial metrics. 

Click on Walmart (WMT), switch tear sheets, and select “Synopsis w flags.” What you’ve selected (along with other tear sheets) will let you look at the individual financial metrics for the company. This feature will help to identify if it’s worth the investment. 

Remember, just because a screener performs positively doesn’t mean every stock within the screener will perform positively. Check out the below chart. 

Individual Company Metrics

Financial Metrics Walmart (WMT)
Closing Price158.72
52 Week Range 128.07-162.78
Market Cap 430.48b
Volume/Avg. 30 Days3.938m / 5.373m
Dividend/Yield 2.24 / 0.0144
EPS T12M5.22
Piotroski F-Score T12M5
Beta 0.6949
Red FlagsNone
Green FlagsOperating Cash Flow Positive 4q, decreasing shares outstanding, pegs more than 0, high-income statement score, free cash flow growth, and sales growth/high asset turnover. 
Risk Level Low

What does any of that mean? The closing price lets you know the price for WMT, the 52 range = the increase in WMT over that time frame, MC = the total valuation of WMT (over $450 billion), volume/avg. 30 days = the number of WMT’s stock that is traded, P/E is WMT’s price in comparison to its earnings = investors pay 30 times the EPS for WMT stock, dividend = the % WMT pays back to investors, EPS = how much WMT profits per share, F-Score = WMT is a healthy company, Beta = WMT has low sensitivity to the market, no Red Flags = WMT is a potentially good investment, green flags = all the positive components of WMT at the moment, and risk level is calculated by all the above metrics. 

Do I have to remember all of that? As you continue your investing journey, learning the metrics one by one is the best strategy. Later, it will pay off because you will analyze stocks free of bias. You don’t HAVE to use all of them, but each one together is a tool that will expand your perspective. Don’t feel overwhelmed; tackle what you can, and then it will become intuitive. 

Applying the Data 

The purpose of learning about these financial metrics is so you can apply them. Let’s go over what you can take away from these metrics.


  • First, the backtesting data results showed a consistent strategy. The screener underperformed the market but had a positive performance and low volatility. Basically, it was a low-risk screener, but you won’t become a millionaire overnight. 
  • Second, the metrics for Walmart showed that it is healthy with low sensitivity, a positive 52-week range, and no red flags. Should you invest? Not necessarily, but you won’t bleed if you do.

Now, take that process and apply it to another screener or another stock. See what you can analyze simply by looking at all the financial metrics. Once you’ve done that, deciding if it’s worth your time or if you should spring for the hills will be easy.

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