When you open a stock page on SafetyMargin.io, the first thing you see below the price chart is a grid of 12 color-coded metric cards. Each card shows a single number, a label, and a signal dot — green, yellow, or red.
Together, they answer three questions Buffett asks about every business: Is it cheap? Is it good? Is it safe?
The Three Rows
The metrics are organized into three conceptual rows, each addressing a different dimension of quality.
Row 1: Valuation — Am I paying a fair price?
- Free Cash Flow — the actual cash the business generates after all expenses and reinvestment. Positive is the baseline; negative means the company is burning cash.
- FCF Yield — FCF as a percentage of market cap. Think of it as the "cash earnings yield" on your investment. Above 5% is attractive; below 2% means you're paying a premium.
- Trailing P/E — how many years of current earnings you're paying for. Below 15 is historically cheap; above 25 is expensive (or the market expects high growth).
- Forward P/E — same idea, but using analyst estimates for next year's earnings. If it's meaningfully lower than trailing P/E, the market expects earnings to grow.
Row 2: Quality & Moat — Is this a good business?
- ROIC (Return on Invested Capital) — how efficiently the company turns capital into profit. Above 15% signals a durable competitive advantage. Both Buffett and Munger have emphasized that earning high returns on capital is the hallmark of a great business.
- ROE (Return on Equity) — profit per dollar of shareholder equity. High ROE is great, but check whether it's driven by genuine profitability or by excessive leverage.
- Gross Margin — the percentage of revenue left after production costs. Above 40% suggests real pricing power; below 20% is commodity territory.
- PEG Ratio — P/E adjusted for growth. A PEG below 1 means you're getting growth at a bargain; above 2 means you're overpaying relative to how fast the company is growing.
Row 3: Balance Sheet Safety — Can it survive a downturn?
- Debt / Equity — how much the company relies on borrowed money. Below 0.5 is conservative; above 1.5 is heavily leveraged.
- Interest Coverage — how many times operating income covers interest payments. Above 10x is very safe; below 3x signals stress if earnings dip.
- Net Debt / EBITDA — years of earnings needed to repay debt after subtracting cash. Negative means more cash than debt. Above 3x is highly leveraged.
- Dividend Yield — the cash income you receive as a shareholder. Above 2% is meaningful; the absence of a dividend isn't necessarily bad if the company is reinvesting at high returns.
Reading the Signal Dots
Each metric has a green, yellow, or red dot based on time-tested thresholds from value investing literature. These are guidelines, not verdicts:
- Green — the metric is in "clearly good" territory
- Yellow — within a reasonable range, neither alarming nor exciting
- Red — warrants attention; may indicate the stock is expensive, low quality, or financially stressed
A stock with all green dots isn't automatically a buy, and a stock with some red dots isn't automatically a sell. The dots help you spot which dimensions need deeper investigation.
How to Use Them Together
The real power comes from reading the rows together:
Cheap + High Quality + Safe Balance Sheet — the classic Buffett setup. If FCF Yield is high, ROIC is above 15%, and debt is low, you may have found a wonderful business at a fair price.
Cheap + Low Quality — a "value trap" warning. Low P/E with low ROIC and thin margins usually means the business is cheap for a reason.
Expensive + High Quality — the "wonderful company at a fair price" question. If ROIC is 25%+ and margins are expanding, a higher P/E may be justified by durable compounding.
High Quality + Weak Balance Sheet — proceed with caution. A great business with too much debt can be destroyed in a recession. Check Interest Coverage and Net Debt / EBITDA carefully.
Practical Tips
Compare within industries
A 40% gross margin is excellent for a retailer but mediocre for a software company. Use the metrics to compare companies against peers in the same sector rather than against universal thresholds.
Watch for ROE inflated by leverage
If ROE is 25% but Debt/Equity is 3.0, that high ROE is partly an artifact of leverage. Compare ROE against ROIC — if ROIC is much lower, the returns are being juiced by debt rather than by genuine operational excellence.
Use Forward P/E to gauge expectations
When Forward P/E is significantly lower than Trailing P/E, the market is pricing in earnings growth. Check whether that growth is realistic by looking at the Historical Fundamentals tab — has the company actually delivered consistent growth in the past?
The Bottom Line
The 12 key metrics give you a structured, rapid assessment of any stock across valuation, quality, and safety. They're designed to surface the numbers Buffett and other value investors check first — before reading a single page of the annual report.
Start with the signal dots for a quick read, then dive deeper into any yellow or red areas using the historical charts and specialized tools on SafetyMargin.io.