How are the 12 key metrics organized on SafetyMargin.io?

The 12 metric cards are organized into three rows addressing three value investing questions: Is it cheap? (valuation row with FCF, FCF Yield, Trailing P/E, Forward P/E), Is it good? (quality and moat row with ROIC, ROE, Gross Margin, PEG), and Is it safe? (balance sheet row with Debt/Equity, Interest Coverage, Net Debt/EBITDA, Dividend Yield).

What is a good FCF Yield?

Above 5 percent is generally attractive, while below 2 percent means you are paying a premium. As a rule of thumb, demand an FCF Yield that exceeds the 10-year Treasury yield by at least 2 to 3 percentage points to compensate for equity risk. Think of FCF Yield as the cash earnings yield on your investment.

What P/E ratio is considered cheap?

Below 15 is historically cheap and above 25 is expensive or implies high growth expectations. These are rough guidelines that shift with interest rates — the long-term S&P 500 average is around 16x but spans eras of 2 to 15 percent rates. In a 5 percent rate environment, 15x is closer to fairly valued than cheap. Always compare within an industry.

What does a ROIC above 15 percent indicate?

Consistently above 15 percent is a strong signal of competitive advantage, though it should be evaluated relative to the company's cost of capital and industry norms. Both Buffett and Munger have emphasized that earning high returns on capital is the hallmark of a great business.

How do the green, yellow, and red signal dots work?

Green means the metric is in clearly good territory, yellow means a reasonable range that is neither alarming nor exciting, and red warrants attention — it may indicate the stock is expensive, low quality, or financially stressed. All 12 metrics are backward-looking, so the dots are guidelines, not verdicts. A stock with all green dots is not automatically a buy.

What is a value trap and how do the metrics help spot it?

A value trap is a stock that looks cheap but is cheap for a reason. The metrics flag it when low P/E combines with low ROIC and thin gross margins (below 20 percent, commodity territory) — the business does not earn good returns on capital, so the low multiple reflects poor quality rather than a temporary mispricing.

Key Valuation Metrics Every Investor Should Know

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.

We've organized them around three questions central to value investing: 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 generally attractive; below 2% means you're paying a premium. As a rule of thumb, demand an FCF yield that exceeds the 10-year Treasury yield by at least 2–3 percentage points to compensate for equity risk.
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). These ranges are rough guidelines that shift with interest rates — the long-term S&P 500 average is ~16x, but this spans eras of 2% and 15% rates. In a 5% rate environment, 15x is closer to fairly valued than cheap. Always compare within an industry, not against universal thresholds.
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. Note that analyst consensus estimates have a well-documented optimism bias — historically overstating earnings by 10–15% on average. Treat Forward P/E as directional, not precise.

Row 2: Quality & Moat — Is this a good business?

ROIC (Return on Invested Capital) — how efficiently the company turns capital into profit. Consistently above 15% is a strong signal of competitive advantage, though this should be evaluated relative to the company's cost of capital and industry norms. 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. These thresholds vary significantly by industry — utilities and telecoms with stable, regulated cash flows can safely operate at 3–5x coverage, while cyclical and technology companies should target 8x+ given earnings volatility.
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 SafetyMargin.io's thresholds, informed by value investing literature. These are guidelines, not verdicts — and all 12 metrics are backward-looking, reflecting recent performance rather than future prospects:

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.