6 Numbers to Check Before Buying Any Stock (and What Normal Looks Like)
The six numbers to look at before buying any stock are revenue growth, operating margin, cash conversion, net debt to EBITDA, the change in share count, and the P/E ratio. Last year the typical S&P 500 company grew revenue 6% and kept 19 cents of operating profit per sales dollar. It brought in $1.56 of operating cash per $1 of profit, owed 1.9 years of EBITDA, cut its share count 1% and now trades at 23 times earnings. Look harder when revenue shrinks, margin is under 5%, cash trails profit, debt tops 3 years of EBITDA, shares grow over 2% a year or the P/E tops 40. Only 41% of the companies we could score clear all six.
Each dot is 1% of the 309 S&P 500 companies we could score on all six numbers. Lit means still passing.
Did revenue grow? 14 in 100 sold less than the year before.
Operating margin of 5% or more? 7 more keep less than 5 cents of operating profit per sales dollar.
Does operating cash at least match profit? 6 more fall short or lost money.
Net debt under 3 times EBITDA? The biggest cut: 21 more, about half of them utilities and real estate companies.
Share count up 2% or less? 2 more are issuing new shares faster than that.
P/E of 40 or less? 9 more cost over 40 times their earnings.
41 in 100 clear all six. A miss means look harder, not sell: Nvidia misses one check, Boeing misses five.
A number in the red-flag zone means look harder, not sell. The funnel above uses the 309 non-financial companies with all six numbers available and the cutoffs shown in each step. Below, each number gets what normal looks like, where to find it in two minutes, what a bad reading looks like and a real company at each extreme. We worked out all six from the latest annual report (the 10-K) of 457 S&P 500 companies. Banks, insurers and brokers are left out of the first four, because their revenue, cash flow and debt work differently: borrowed money is their raw material.
1. Revenue growth: is the business getting bigger?
The median S&P 500 company grew revenue 6.3% in its latest fiscal year. The middle half of companies (leaving out the top quarter and the bottom quarter) grew between 1.9% and 10.6%. Revenue is the money customers paid, before any costs. A business that sells more each year has room to grow its profit. One that sells less has to cut costs just to stand still.
Where to find it: the top line of the income statement in the 10-K, called revenue, net sales or total revenues. The 10-K shows three years side by side, so the trend takes one glance. On Yahoo Finance's statistics page, "Quarterly Revenue Growth (yoy)" compares the latest quarter with the same quarter a year earlier, so it swings more than the yearly figures here.
Red flag: revenue that shrank. 66 of 391 non-financial companies, about 1 in 6, sold less than the year before. 
Tesla is the best-known: its revenue fell 2.9%, from $97.7 billion to $94.8 billion. At the other end, Nvidia grew 65.5%, from $130.5 billion to $215.9 billion.
One year can mislead, because a strike, a big acquisition or a swing in commodity prices can move it. Check three years. If they're bumpy, the CAGR calculator gives you the smoothed yearly rate.
2. Operating margin: how much of each sales dollar is profit?
The median company keeps 18.6 cents of operating profit from each sales dollar. Operating margin is operating income divided by revenue: what's left from each sales dollar after the costs of running the business, before interest and taxes. The middle half kept between 10.5% and 26.3%. What counts as normal depends heavily on what a company sells.
Median operating margin by sector, latest fiscal year, for the 327 non-financial companies that report an operating income line. Payments and market data are the Visa, Mastercard and S&P Global type companies in the financials sector.
Find it a few lines below revenue on the income statement, as "operating income" or "income from operations", and divide by revenue. Yahoo lists it as "Operating Margin (ttm)", where ttm means the trailing twelve months. Some companies, including Johnson & Johnson and Eli Lilly, show no operating income line at all, which is why this number covers 327 companies, not 396.
Two readings deserve a closer look: a margin below 5%, which 44 companies had, and a margin that fell more than 3 percentage points in a year, which 48 did. Intel lost money at the operating line, a margin of −4.2%. Tesla's fell from 7.2% to 4.6%. At the top, Mastercard kept 57.6 cents of every dollar.
A thin margin isn't always a problem. Costco keeps 3.9 cents per dollar and Walmart 4.2 cents, on $303 billion and $713 billion of sales. Big-box retail runs on thin margins and huge volume, so compare a company with its peers and its own past, not with the index.
3. Cash conversion: is the profit turning into cash?
The median company brings in $1.56 of operating cash for every $1 of profit. Cash conversion is operating cash flow divided by net income. Operating cash flow is the cash the business actually brought in from customers after paying suppliers, staff and taxes. Net income is the accounting profit. The middle half of companies turned $1 of profit into $1.23 to $2.14 of operating cash.
Why above $1? Mostly depreciation. Profit subtracts a slice of past equipment spending every year, but that slice costs no cash this year. The cash for new equipment shows up lower down, as capital spending. So a ratio below 1.0 stands out.
Where to find it:
- In the 10-K: the cash flow statement. Net income is the first line, and "net cash provided by operating activities" is the subtotal at the end of the first section, on the same page.
- On a stock page: Yahoo's "Operating Cash Flow (ttm)" divided by its net income line.
The red-flag zone is below 1.0, and it matters more when it repeats. 33 of 370 profitable non-financial companies came in under 1.0, and 15 did it two years running. Another 24 lost money, so the ratio doesn't apply to them.
Boeing is the clearest case. After two years of losses, it reported $2.2 billion of net income last year, but only $1.1 billion of operating cash flow, a ratio of 0.48. The gap is a $9.7 billion gain on businesses it sold, mainly its Jeppesen flight-navigation unit. The gain counts as profit, but the money came in as a sale price, not from running the business. Without it, Boeing would have reported a loss. The gain also sits inside operating income, so Boeing's 4.8% operating margin rests on it too.
The other extreme can mislead too. AbbVie turned $4.2 billion of profit into $19.0 billion of operating cash, a ratio of 4.5. Most of the gap is accounting for past deals, according to its cash flow statement. It booked $7.4 billion of amortization on drugs it bought. Some of its past deals also promised sellers extra payments tied to future results; AbbVie raised its estimate of those payments by $6.5 billion, and the increase counts as a cost. Those charges cut profit without costing cash that year. A very high ratio often means non-cash charges are holding profit down, which also makes the P/E look high (see number 6).
Fast growth can pull the ratio under 1.0 for honest reasons. Nvidia came in at 0.86. Customers owed it $15.4 billion more at year-end, and its inventory grew $11.3 billion. Another $8.9 billion of its profit was gains on stakes in other companies, per its 10-K. The test is whether the cash catches up over the next year or two.
Operating cash flow still isn't what owners can take out. Subtract capital spending and you get free cash flow, which was negative at 38 of 373 companies. The capex coverage calculator runs that step. For the accounting warning signs behind a weak ratio, see 10-K red flags.
4. Net debt to EBITDA: how much does the company owe?
The median company's net debt equals 1.9 years of EBITDA. Net debt is debt minus cash and short-term investments. EBITDA is earnings before interest, taxes, depreciation and amortization. It's operating income with depreciation and amortization added back, a rough stand-in for the cash the business earns before paying lenders and taxes. Divide net debt by EBITDA and you get roughly how many years of EBITDA the debt equals. Paying it off would take longer, since interest, tax and new equipment come first. The middle half of companies sat between 0.7 and 3.4. 61 of 359 companies held more cash than debt, which shows as a negative number.
| Company | Debt | Cash and short-term investments | Net debt | Net debt ÷ EBITDA |
|---|---|---|---|---|
| Microsoft | $40.3bn | $76.8bn | −$36.5bn (net cash) | −0.2 |
| S&P 500 median | 1.9 | |||
| Oracle | $130.1bn | $31.9bn | $98.2bn | 3.3 |
| NextEra Energy | $95.0bn | $2.8bn | $92.2bn | 6.2 |
Debt is bonds, bank loans and commercial paper (short-term IOUs), not leases, at each company's latest fiscal year-end.
To find it, take debt from the balance sheet (short-term debt or the current portion of long-term debt, plus long-term debt) and subtract cash and short-term investments. EBITDA is operating income plus "depreciation and amortization", which sits near the top of the cash flow statement. On Yahoo, use "Total Debt (mrq)" minus "Total Cash (mrq)", divided by "EBITDA". Check whether a site counts lease payments as debt; we don't.
Above 3, more of each year's cash goes to lenders, leaving less room for buybacks, dividends or a bad year. Read it by industry, though. Of 359 companies, 113 were above 3, and 48 of those are utilities or real estate companies, where heavy debt is the norm: the median utility owes 5.5 years of EBITDA and the median real estate company 4.8. Outside those two groups, the median is 1.5 and 65 of 308 companies sit above 3.
Median net debt divided by EBITDA by sector, latest fiscal year-end, for 359 non-financial companies.
Oracle is the best-known name over the line, at 3.3, and its capital spending ran $23.7 billion ahead of its operating cash flow last year. The hyperscaler debt tracker follows its borrowing each quarter. NextEra Energy, at 6.2, is a utility, so its number is high but normal for its industry. Microsoft holds $36.5 billion more cash than debt.
5. Share count: is your slice shrinking or growing?
The median company cut its share count by 1.1% last year. When a company buys back its own stock, each remaining share owns a bigger slice of the profits. When it issues new shares, to pay staff, buy another company or raise cash, each slice gets smaller. We use the diluted share count: shares outstanding plus those that options and other stock awards could add. The middle half ranged from a 2.8% cut to a 0.2% rise, and 304 of 445 companies, about two in three, ended the year with fewer shares.
The change flows straight into earnings per share (EPS), which is profit divided by shares.
Marathon Petroleum bought back so much stock that its share count fell 10.3%. Its profit rose 17.5%, but its earnings per share rose 31.2%. Apple's 2.6% cut turned 19.5% profit growth into 22.7% EPS growth.
The 10-K is faster than a stock page here, since most stock pages show only today's count. At the bottom of the income statement, next to EPS, the 10-K gives "weighted-average shares, diluted" for this year and last. Divide one by the other.
Watch for a count rising more than 2% a year. 45 companies, about 1 in 10, crossed that line. Boeing's rose 17.8%, from 646.9 million to 762.3 million diluted shares. Two years ago it sold 129 million new shares for $18.2 billion, and it later issued 23 million more to buy Spirit AeroSystems. Each share now owns about 15% less of the company.
Palantir's count rose 4.7% in a year when it paid $684 million in stock-based compensation, pay in shares instead of cash. The dilution and buyback calculator shows whether a company's buybacks cover the shares it hands out.
6. P/E ratio: what are you paying for $1 of earnings?
The median S&P 500 stock trades at 22.9 times its earnings. The price-to-earnings ratio is the share price divided by earnings per share over the last 12 months. At a P/E of 23, you pay $23 for each $1 of yearly profit. At recent prices, the middle half of companies traded between 16.3 and 33.3. Any stock page shows it: Yahoo calls it "Trailing P/E".
Above 40, the price already assumes years of fast growth; 64 of 414 companies were there, and another 27 had no P/E because they lost money over the past year. Tesla, at a recent price of $368, trades at 404 times its $0.91 of earnings per share, while its revenue shrank. Verizon trades at 11.5 times, with revenue growing 2.5%. Industry matters here too: the median company in the financials sector trades at 13.7 times, the median tech company at 30.8.
Read the P/E next to cash conversion. AbbVie looks expensive at 80 times earnings, but its profit is held down by the deal charges in number 3. Its market value of about $500 billion is 28 times its $17.8 billion of free cash flow, a much less extreme multiple. The fair value formulas page shows how to run that check, plus the Graham number and PEG. To see what a falling P/E alone can cost, try the P/E compression calculator.
The cheat sheet
| Number | How to compute | S&P 500 median | Middle half | Red-flag zone | Companies in it |
|---|---|---|---|---|---|
| Revenue growth | This year's revenue ÷ last year's, minus 1 | 6.3% | 1.9% to 10.6% | Below 0% | 66 of 391 |
| Operating margin | Operating income ÷ revenue | 18.6% | 10.5% to 26.3% | Below 5% | 44 of 327 |
| Cash conversion | Operating cash flow ÷ net income | 1.56 | 1.23 to 2.14 | Below 1.0 | 33 of 370 |
| Net debt to EBITDA | (Debt − cash) ÷ (operating income + depreciation and amortization) | 1.9 | 0.7 to 3.4 | Above 3 (utilities and real estate run higher) | 113 of 359; 65 of 308 outside those two |
| Share count change | Diluted shares this year ÷ last year's, minus 1 | −1.1% | −2.8% to +0.2% | Up more than 2% | 45 of 445 |
| P/E | Price ÷ earnings per share, last 12 months | 22.9 | 16.3 to 33.3 | Above 40, or losing money | 64 of 414, plus 27 losing money |
The cutoffs are our own round-number lines. Leaving utilities and real estate aside on debt, each flags between about 1 in 11 and 1 in 5 companies. They are a screen for problems, not a forecast of returns.
Our read
Cash conversion matters most. Operating margin and P/E both take reported profit at face value, and cash conversion is the only one of the six that checks whether that profit is real. It fires rarely, at 33 of 370 companies, but when it does it changes how you read the other numbers. Here is Boeing next to a company that clears all six:
| Number | S&P 500 median | Microsoft | Boeing |
|---|---|---|---|
| Revenue growth | 6.3% | 17.8% | 34.5% |
| Operating margin | 18.6% | 46.8% | 4.8% |
| Cash conversion | 1.56 | 1.37 | 0.48 |
| Net debt to EBITDA | 1.9 | −0.2 | 4.0 |
| Share count change | −1.1% | −0.2% | +17.8% |
| P/E | 22.9 | 29.7 | 68.9 |
Boeing's revenue growth looks strong, but its margin and its P/E both rest on the one-time gain from the businesses it sold. Strip out the gain and its EBITDA turns negative, so even its debt figure flatters it. Its cash conversion of 0.48 is the number that gives it away.
Share count comes second, because it compounds quietly. The typical company's 1.1% cut last year added about a point to its EPS growth. A company that dilutes 2% a year for ten years leaves you owning 18% less of it.
These numbers tell you what happened. To judge whether it will last, pair them with the questions to ask before buying a stock.
Go deeper with member research
The course chapter Test the quality of earnings turns number 3 into a full check. You build a five-year table of net income, operating cash flow, capital spending and free cash flow with cash conversion for each year. You reconcile a company's "adjusted" profit line by line and find one-time gains hiding inside reported profit, the Boeing pattern. You finish with a normal-year earnings figure you can carry into a valuation.
For number 5, Think in value per share shows how to track the share count from one year to the next. It also shows how to judge whether a buyback added value or only lifted EPS.
Keep reading
- How to research stock picks: the due-diligence checklist these numbers plug into.
- How to read a 10-K: where every line above lives, walked through on Microsoft's annual report.
- How to calculate the intrinsic value of a stock: five ways to turn these numbers into a price.
- Total return vs. dividend yield: why buybacks and price moves count as much as the dividend.
Questions readers ask
What is the most important number to look at when buying a stock?
We'd pick cash conversion, operating cash flow divided by net income, because it tests whether the profit behind the other numbers is real. The median S&P 500 company scores 1.56, and below 1.0 deserves a closer look.
What is a good P/E ratio?
There's no single good number. The median S&P 500 stock trades at about 23 times trailing earnings, and the middle half between 16 and 33. Compare a stock with its industry and its own history.
What is a good operating margin?
The S&P 500 median is 18.6%, and half of companies sit between 10.5% and 26.3%. Below 5% is thin unless the company runs a high-volume model like warehouse retail, so compare it with its peers.
How we built this
Company figures come from each company's latest annual 10-K, read through SEC XBRL company facts, for the 460 S&P 500 tickers Yield Theory tracks (457 companies once share classes such as GOOG and GOOGL are combined). The latest fiscal years end between June 30, 2025 and September 3, 2026; 346 end in late December 2025. Growth, margin change, cash conversion two years running and share-count change compare the latest year with the prior year as restated in the same 10-K. Financial companies (61 with SEC industry codes for banking, credit, brokerage and insurance, including health insurers such as UnitedHealth) are excluded from the first four numbers; payment and market-data companies such as Visa and S&P Global are included. Operating margin uses only companies that report an operating income line (327). Debt is short-term and long-term borrowings plus commercial paper, not leases; cash is cash and equivalents plus short-term investments, both at fiscal year-end. For 16 companies that tag debt in unusual ways we added up the tagged pieces by hand; 14 have no debt; 7 (including Ford, Deere and Paccar, whose finance arms carry most of their debt) were left out. EBITDA is operating income plus depreciation and amortization; for 38 companies without an operating income line, we used pre-tax income plus interest expense. Share count is weighted-average diluted shares. P/E uses diluted EPS for the latest four reported quarters (the latest 10-K plus the year to date in the latest 10-Q, minus the same period a year earlier) and closing prices from October 19, 2026, from Yahoo Finance via our stock history data. The six-check funnel uses the 309 non-financial companies with all six numbers, in the order shown. Example figures were checked a second time against the SEC frames API and the filings themselves. Medians hold up to a few tagging errors; red-flag counts may be off by a few companies either way.
Companies in this article
Keep reading
Members-only research
Members are reading this
- NVIDIA’s growth has a financing bill
Sales up about 18% on the prior quarter, receivables up about 55%, supply commitments at $279 billion. What NVIDIA’s financing bill means for the price you pay.
- Start here: how Yield Theory approaches research
Yield Theory is independent stock research for people investing their own money. Here is what's free, what members get, and three pieces to read first.
The thesis, the numbers behind it, and what would break it. Full access is $39 a month.
Read the full research