1. What Is Fundamental Analysis?
Fundamental analysis is the practice of evaluating a stock by examining the underlying financial health and performance of the company. Instead of looking at chart patterns or price momentum, fundamental analysts study earnings, assets, liabilities, growth rates, and profitability to determine whether a stock is fairly valued.
On the WIT stock dashboard, every company page displays a Fundamental Analysis section with 20 key metrics. Each metric answers a specific question about the company's valuation, profitability, efficiency, or financial structure.
No single metric tells the full story. A stock can have a low P/E ratio but terrible margins, or a high ROE but dangerous levels of debt. The power of fundamental analysis comes from reading these numbers together — and that's exactly what this guide will teach you.
How to use this guide: Each section below covers one metric from the WIT dashboard. You'll find the formula, what it measures, typical benchmarks, and what to watch out for. Hover over the ⓘ icon on any metric card in the stock dashboard to see a quick summary and a link back to the relevant section.
2. P/E Ratio (TTM)
The trailing Price-to-Earnings ratio is the most widely cited valuation metric. It compares what you pay for a share to what the company actually earned over the past twelve months. A P/E of 15 means you're paying $15 for every $1 of earnings.
What's a good P/E? It depends on the industry. Mature utilities might trade at 12–16x earnings, while fast-growing tech companies often exceed 30x. Always compare P/E within the same sector, not across different industries.
Watch out: A very low P/E can be a value trap — the stock may be cheap for a reason (declining revenue, management issues). A negative P/E means the company is losing money and the ratio becomes meaningless.
📖 Deep dive: Understanding the P/E Ratio — Complete Guide
3. Forward P/E
While trailing P/E looks backward, Forward P/E looks ahead using analyst earnings forecasts. If a company trades at 30x trailing earnings but only 18x forward earnings, analysts expect earnings to grow significantly — roughly 67% — in the coming year.
Forward P/E is especially useful for fast-growing companies where trailing earnings don't reflect the company's current trajectory. However, it relies on analyst estimates, which can be overly optimistic or miss major changes in the business.
Tip: Compare trailing P/E to forward P/E. If forward P/E is much lower, the market is pricing in growth. If forward P/E is higher than trailing, analysts expect earnings to decline — a red flag worth investigating.
4. Dividend Yield
Dividend yield tells you how much income you receive relative to what you paid for the stock. A stock trading at $100 that pays $3 in annual dividends has a 3% yield. This metric is central to income-focused investing strategies.
Typical ranges: S&P 500 companies average around 1.3–1.8% yield. REITs and utilities often yield 3–6%. Yields above 7–8% deserve scrutiny — they may signal a falling stock price or an unsustainable payout.
Watch out: A high yield caused by a falling stock price is not the same as a genuinely generous dividend. Always check the payout ratio (dividends as a percentage of earnings) — if it exceeds 80–90%, the dividend may not be sustainable.
📖 Deep dive: Dividend Investing: Building Passive Income from Stocks
5. Price-to-Sales (P/S or PSR)
The Price-to-Sales ratio compares a company's market value to its total revenue. Unlike P/E, it works even for companies that aren't profitable yet — which makes it essential for evaluating early-stage growth companies, biotech firms, or turnaround situations.
Typical ranges: A P/S below 1 means you're paying less than $1 for every $1 of annual revenue — often a sign of undervaluation if margins are healthy. SaaS companies with high recurring revenue and strong growth may trade at 10–20x sales.
Limitation: P/S ignores profitability entirely. A company can have enormous revenue but still lose money on every sale. Always pair P/S with margin metrics (net margin, gross margin) to get the full picture.
6. Price-to-Book Value (P/BV)
Price-to-Book compares the stock price to the company's net asset value (total assets minus total liabilities, divided by shares outstanding). A P/BV of 1 means you're paying exactly what the company's assets are worth on paper.
When it's most useful: P/BV works best for asset-heavy industries like banking, insurance, manufacturing, and real estate. It's less meaningful for tech companies where value comes from intellectual property and brand rather than physical assets.
Benchmark: A P/BV below 1 can signal deep undervaluation — the market is pricing the company at less than its liquidation value. However, it can also mean the assets on the balance sheet are overvalued or the business is in decline.
📖 Related: How to Read a Balance Sheet for Beginners
7. Return on Equity (ROE)
ROE measures how effectively a company uses the money shareholders have invested to generate profit. An ROE of 20% means the company produced $0.20 of profit for every $1 of equity.
Good ROE: Generally, an ROE above 15% is considered strong. Warren Buffett famously looks for companies with ROE consistently above 15%. Best-in-class companies like Apple and Microsoft often sustain ROE above 30%.
Warning — the leverage trap: A company can artificially inflate ROE by taking on large amounts of debt (which reduces the equity denominator). Always check the debt-to-equity ratio alongside ROE. High ROE with low debt is a much better signal than high ROE driven by leverage.
8. Return on Invested Capital (ROIC)
ROIC is often considered the single most important profitability metric. Unlike ROE, which only looks at equity, ROIC measures how well a company uses all capital — both debt and equity — to generate returns. It answers: "For every dollar the company has invested (from any source), how much profit does it produce?"
The golden rule: If ROIC exceeds the company's Weighted Average Cost of Capital (WACC), the company is creating value. If ROIC is below WACC, it's destroying value — shareholders would be better off putting their money elsewhere.
Benchmark: ROIC above 15% is excellent. Companies consistently achieving 20%+ ROIC often have durable competitive advantages (strong brands, network effects, switching costs) — what Buffett calls an "economic moat."
9. Net Margin
Net margin shows how much of each dollar in revenue becomes actual profit after all expenses — cost of goods, operating expenses, interest, taxes, and everything else. It's the bottom-line profitability measure.
Typical ranges: Net margins vary dramatically by industry. Software companies can achieve 25–40% margins. Grocery retailers operate on razor-thin 1–3% margins. Banks typically land at 20–30%. Always compare within the same industry.
What to watch: Trend matters more than absolute value. A company whose net margin is expanding from 10% to 15% over three years is likely gaining pricing power or improving efficiency. Declining margins are a warning sign even if they're still positive.
📖 Related: Understanding the Income Statement
10. Return on Assets (ROA)
ROA measures how efficiently a company uses its total asset base (factories, inventory, cash, intellectual property — everything) to generate profit. A 10% ROA means the company generates $0.10 of profit for every $1 of assets.
How it differs from ROE: ROE only considers shareholders' equity, while ROA considers all assets (funded by both equity and debt). This makes ROA more conservative and harder to manipulate with leverage.
Benchmark: ROA above 5% is generally considered good. Asset-light businesses (software, consulting) can achieve 15%+, while asset-heavy businesses (airlines, manufacturing) may struggle to exceed 3–5%. Banks typically have ROA around 1–2% due to their massive balance sheets.
11. Gross Margin
Gross margin measures profitability at the most fundamental level: after subtracting only the direct costs of producing the goods or services (materials, manufacturing labor, hosting costs for software). It reveals the company's pricing power and production efficiency before overhead, marketing, and administrative expenses.
Why it matters: A company with 70% gross margin keeps $0.70 of every revenue dollar to cover operating expenses, R&D, and profit. A company with 20% gross margin has very little room for error — any increase in costs can wipe out profitability.
Benchmarks: Software/SaaS companies often exceed 70–85%. Consumer goods sit around 40–60%. Retailers and commodity businesses typically range from 20–35%. Declining gross margin year-over-year often signals rising input costs or competitive pricing pressure.
12. Operating Margin
Operating margin goes one step deeper than gross margin by also subtracting operating expenses — research & development, sales & marketing, general & administrative costs. It shows what the core business earns before interest payments and taxes.
Gross margin vs. operating margin: A company with 60% gross margin but only 5% operating margin is spending heavily on operations (maybe R&D or marketing). That can be fine for a growth company investing aggressively, but for a mature company it may signal bloated costs.
Trend analysis: Operating margin expansion — the gap between gross margin and operating margin shrinking — is a powerful signal. It means the company is growing revenue faster than its operating costs, achieving operating leverage. This is what separates good businesses from great ones.
13. EV/EBITDA
EV/EBITDA is the professional investor's favorite valuation metric. Enterprise Value (EV) equals market cap plus total debt minus cash — it represents the total price to buy the entire company. EBITDA represents cash earnings from operations.
Why not just use P/E? EV/EBITDA is superior for comparing companies with different capital structures (debt levels). A company funded mostly by debt might have a low P/E (small equity base) but a high EV/EBITDA (when debt is included). EV/EBITDA reveals the true cost relative to cash earnings.
Benchmarks: An EV/EBITDA below 10x is generally considered inexpensive. The S&P 500 average typically sits around 12–15x. Values below 6x often appear in mature, slow-growth industries or distressed situations.
Private equity insight: When buyout firms evaluate acquisition targets, EV/EBITDA is usually the primary metric they use. If you think like a private equity buyer — "What would I pay for this entire business?" — EV/EBITDA gives you the answer.
14. EV/EBIT
EV/EBIT is similar to EV/EBITDA but uses EBIT instead — meaning depreciation and amortization are included as expenses. This makes it a stricter measure because it accounts for the wear and tear on the company's assets.
When to prefer EV/EBIT over EV/EBITDA: For capital-intensive businesses (manufacturing, oil & gas, telecoms) where depreciation represents a real and significant ongoing cost. EBITDA can be flattering for these companies because it ignores the massive capital expenditures needed to maintain operations.
Rule of thumb: If EV/EBITDA and EV/EBIT are very close, depreciation is minimal (likely an asset-light business). If EV/EBIT is much higher than EV/EBITDA, the company has heavy depreciation — meaning it needs significant ongoing investment in physical assets.
15. Price-to-Assets
This ratio compares what the market values the company at versus the total value of everything the company owns (including assets financed by debt). It gives a broader view than P/BV because it looks at all assets, not just the equity portion.
Interpretation: A Price-to-Assets below 1 means the market values the company at less than its total assets — potentially a deep value signal, especially for companies with tangible, saleable assets (real estate, inventory, equipment).
Limitation: Asset values on the balance sheet are historical costs, not necessarily current market values. A factory bought 20 years ago may be worth much more (or much less) than its book value suggests.
16. Book Value Per Share (BVPS)
BVPS represents the per-share net asset value of the company — essentially what each share would be worth if the company sold all its assets and paid off all debts. It's the denominator in the P/BV ratio.
Growing BVPS: A company whose book value per share is steadily increasing is accumulating wealth for shareholders. This growth typically comes from retained earnings (profits not paid out as dividends) being reinvested in the business.
Used in Graham's Fair Value: BVPS is one of the two inputs in Benjamin Graham's Fair Value formula (the other being EPS). Graham believed a stock trading below its book value combined with reasonable earnings was a strong buy candidate.
17. Earnings Per Share (EPS)
EPS distills a company's total profitability down to a per-share figure. It's the foundation of the P/E ratio and one of the most-watched numbers in earnings reports. When companies "beat estimates," it's usually EPS they've exceeded.
Basic vs. Diluted: Basic EPS uses current shares outstanding. Diluted EPS includes the potential impact of stock options, convertible bonds, and warrants. Diluted EPS is more conservative and is what WIT displays.
What to look for: Consistent EPS growth over multiple years is one of the strongest indicators of a quality business. Pay attention to whether EPS growth is driven by genuine revenue growth or financial engineering (share buybacks reduce the denominator, inflating EPS without actual profit growth).
18. Equity-to-Assets Ratio
This ratio shows what percentage of the company's assets are financed by shareholders (as opposed to debt). It's a direct measure of financial strength and leverage. An Equity/Assets ratio of 60% means shareholders own 60% of the company's assets outright.
Higher is generally safer: Companies with high equity ratios have more financial flexibility and can better withstand economic downturns. They're less dependent on creditors and less vulnerable to rising interest rates.
Industry context: Banks inherently operate with low equity ratios (typically 8–12%) because their business model relies on leveraging deposits. Non-financial companies with equity ratios below 30% may carry significant financial risk, especially in cyclical industries.
19. Liabilities-to-Assets Ratio
The mirror image of Equity/Assets. If Equity/Assets is 40%, then Liabilities/Assets is 60%. This ratio shows how much of the company's asset base is financed by creditors — in other words, how leveraged the company is.
Why both ratios? Having both on the dashboard lets you quickly see the leverage split. A Liabilities/Assets of 70% means creditors own the majority claim on the company's assets — which increases financial risk but can amplify returns when business is good.
Red flags: Liabilities/Assets above 80% (outside of banking) should prompt deeper investigation. Look at the nature of the liabilities: long-term debt at low fixed interest rates is more manageable than short-term variable-rate debt that needs constant refinancing.
20. CAGR (Revenue & Profit)
Compound Annual Growth Rate smooths out year-to-year volatility and shows the consistent annual rate at which a value has grown. On the WIT dashboard, you'll see CAGR for both revenue and net profit over the available financial history (typically 3–5 years).
Why CAGR instead of simple growth? Simple year-over-year growth can be misleading. A company that grows 50% in year one and shrinks 30% in year two looks like it had "average growth of 10%" — but CAGR would show the true annualized rate of about 2.5%.
Revenue CAGR vs. Profit CAGR: Revenue CAGR shows how fast the top line is growing. Profit CAGR shows bottom-line growth. Ideally, profit CAGR should exceed revenue CAGR — this means margins are expanding and the company is becoming more efficient as it scales.
Example: A company with 15% revenue CAGR and 25% profit CAGR is demonstrating operating leverage — it's growing profit much faster than revenue. This is a hallmark of scalable businesses with high fixed costs and low variable costs (e.g., software platforms).
21. Putting It All Together
Each metric answers a specific question. Together, they paint a complete picture:
| Question | Key Metrics |
|---|---|
| Is it cheap or expensive? | P/E, Forward P/E, P/S, P/BV, EV/EBITDA, EV/EBIT |
| Is it profitable? | Net Margin, Gross Margin, Operating Margin, EPS |
| Is it efficient? | ROE, ROIC, ROA |
| Is it financially sound? | Equity/Assets, Liabilities/Assets, BVPS, Price-to-Assets |
| Is it growing? | CAGR Revenue, CAGR Profit |
| Does it pay me to hold? | Dividend Yield |
A practical checklist: When analyzing a stock on WIT, try this sequence:
- Start with valuation — Is the P/E reasonable for the sector? How does EV/EBITDA compare to peers?
- Check profitability — Are margins healthy and stable? Is ROE strong without excessive leverage?
- Assess growth — Is revenue CAGR positive? Is profit growing faster than revenue (margin expansion)?
- Review financial health — Is the Equity/Assets ratio comfortable? Is BVPS growing?
- Look at Graham's Fair Value — Does the intrinsic value estimate suggest upside or downside?
No metric is perfect in isolation. The best investors develop the ability to read these 20 numbers as a coherent story about a company's past performance, present health, and future potential. Use the ⓘ tooltips on the dashboard as quick reminders, and return to this guide whenever you need a deeper refresher.