Fortinet (FTNT)

What the market has paid for each dollar of earnings, sales or book value, every year, with today's multiple as the last point and the median drawn across.

What good looks like. There is no good level. What matters is the distance from the company's own history, and whether the business has changed enough to justify it.

If it rises or falls. A multiple above its own median means the market expects more than it used to, so more has to go right. Below the median means the opposite, and the question is whether the pessimism is deserved. A multiple can also fall because earnings rose, which is the good way.

Earnings yield is profit per share divided by the share price: 1 ÷ P/E. It is the profit you buy with each dollar of share price. The 10-year US Treasury yield is what the government pays, with no risk to the payment, for lending to it for ten years.

What good looks like. An earnings yield above the Treasury yield: each dollar in the shares buys more profit than the same dollar earns in a government bond.

If it rises or falls. It falls when the share price rises faster than profit, and the bar rises when interest rates do: a higher Treasury yield makes the same shares harder to justify. A company whose profit is growing fast can sit below the line for years, which is what the price is betting on.

Free cash flow divided by market value: the cash the business generates for every dollar you pay for it. The inverse of a price-to-cash multiple.

What good looks like. A yield at or above the company's own history, and one that compares well with what cash is worth elsewhere.

If it rises or falls. The yield rises when cash grows or the price falls, so a high yield is either a bargain or a warning about the cash continuing. Read it beside the cash conversion chart, which shows whether the cash is holding up.

Enterprise value over EBITDA. Enterprise value is the market value of the equity plus debt, less cash and short-term investments - what it would cost to buy the whole company outright. EBITDA is operating profit before depreciation and amortisation.

What good looks like. A multiple below what similar businesses change hands at, and one that has not run far above the company's own past.

If it rises or falls. It rises when the price rises or profit falls, and debt moves it too: two companies on the same price-to-earnings can sit far apart here if one is carrying borrowings the other is not.

A reverse discounted cash flow. It takes what the market pays for the shares today (market value less the cash the company holds) and works out how fast free cash flow would have to grow each year, for ten years, to be worth exactly that. Free cash flow here is after the stock the company pays its staff, which dilutes every other shareholder, and after interest, so debt is already paid for in it. Future cash is discounted at the 10-year Treasury yield plus 5 points, and grows 2.5% a year after year ten.

What good looks like. A priced-in rate below what its record suggests: the free cash flow growth it delivered over the longest span its filings allow, slowed halfway toward the economy's growth, because very few companies keep a past pace for another decade.

If it rises or falls. It rises when the share price rises or free cash flow falls, and when interest rates rise: a higher Treasury yield means the same price needs more growth to justify it.

The money customers paid, before any costs are taken out. Each bar is one quarter or, on the annual view, a full financial year; the last annual bar may be the trailing twelve months, which the footnote marks.

What good looks like. Growth that repeats, rather than one strong year carrying the chart, and a trailing twelve months keeping pace with the last full year.

If it rises or falls. Revenue is the hardest line to flatter, so a rise is the most trustworthy kind of growth. A fall puts pressure on every margin below it, because costs rarely come down as quickly as sales do.

What is left after every cost, including tax and interest. The bottom line of the income statement.

What good looks like. Profit growing at least as fast as revenue, which means the business is keeping more of each sale as it gets bigger.

If it rises or falls. Profit can move for reasons revenue cannot explain - a one-off charge, a tax change, a write-down - so a single sharp year is worth checking against the margin chart before reading it as a trend.

How much revenue and earnings changed against the year before - the trailing twelve months against the twelve before them at each quarter, or one point per fiscal year. It is the speed of the business, not its size.

What good looks like. The earnings line above the revenue line: profits growing faster than sales means each new dollar of sales arrives more profitably than the last.

If it rises or falls. A high growth rate off a small base is easy and gets harder every year, so slowing growth in a large business is normal rather than a warning. Earnings falling while revenue grows is the combination worth understanding: costs are rising faster than sales.

Revenue and free cash flow, each divided by the number of shares in issue and adjusted for splits so old and new years compare honestly. Both lines rising means each share owns more of the business's sales and cash.

What good looks like. Both lines rising, and revenue per share growing at least as fast as the company's total revenue, which the answer compares. Faster means buybacks are working for you; slower means new shares are absorbing part of the growth.

If it rises or falls. This is the line that actually reaches you. A company can grow revenue every year and still shrink your slice by issuing shares faster than it grows.

What survives at three points on the way down the income statement: after the direct cost of the product, after the cost of running the company, and after everything.

What good looks like. Margins that hold or widen as the business grows. The level itself varies enormously by industry, so the shape over time tells you more than the number.

If it rises or falls. A widening margin means pricing power or costs under control. A compressing one means the opposite, and it compounds: on large revenue, two points of margin is a great deal of profit.

Reported profit against the cash the business actually collected from operating. Profit is an accounting judgement; cash is not.

What good looks like. Cash at or above profit, year after year. Depreciation and other non-cash charges usually push cash above profit, so roughly 100% or more is healthy.

If it rises or falls. Cash falling behind profit for more than a year is the classic early warning: the sales are booked but the money has not arrived, and it shows up in receivables and inventory. For a lender the comparison behaves differently, because a growing loan book consumes cash.

Two returns side by side: on shareholders' capital (ROE), and on all the capital in the business including debt (ROCE).

What good looks like. Both comfortably above roughly 10%, and close together. A wide gap means borrowing, not operations, is doing the work.

If it rises or falls. A high ROE built on debt looks like quality until the debt has to be refinanced. ROCE is the harder number to flatter, which is why both are shown.

One year of revenue, with each major cost taken out in the order the income statement takes it, ending at net profit.

What good looks like. No single step swallowing a surprising share, and a bottom line that survives all of them.

If it rises or falls. The largest step is where the business really spends its money, and it is the one to watch year to year: a step that grows faster than revenue is what margin compression looks like before it reaches the margin chart.

Free cash flow as a share of revenue: how much of each dollar of sales survives both costs and capital spending.

What good looks like. A steady or rising share. Asset-light businesses convert far more than manufacturers, so compare a company with itself.

If it rises or falls. Falling conversion while revenue grows means growth is being bought with capital spending or working capital, which is fine while it lasts and painful when it stops.

Capital spending, research and development, and stock compensation, each as a share of revenue. The three ways a business pays to keep its position.

What good looks like. A share that is stable or falling while revenue grows, which means the cost of competing is not rising with the business.

If it rises or falls. Rising intensity means each new dollar of sales is getting more expensive to win. Falling intensity can mean efficiency, or it can mean under-investment that shows up years later.

How often operating profit grew faster than revenue, year by year. Fixed costs mean profit should rise faster than sales once those costs are covered.

What good looks like. Profit outgrowing revenue in most years, and by a widening margin in the good ones.

If it rises or falls. Leverage cuts both ways: the same fixed costs that multiply profit on the way up multiply the damage when sales fall. A business with strong operating leverage is a better business and a more volatile one.

The same return as the card above, but every filed year, against a 10% line that stands in for what capital costs.

What good looks like. Years above the line, and a trend that is flat or rising rather than drifting down towards it.

If it rises or falls. A business earning above its cost of capital creates value by growing; one earning below it destroys value by growing. The 10% line is a convention, not a law, so read the distance from it rather than the crossing.

Total borrowings against cash on hand, with debt as a multiple of shareholders' equity, and how many times profit covers the interest bill.

What good looks like. Interest covered comfortably - roughly eight times or more - and debt that is not a large multiple of equity.

If it rises or falls. Debt is only a problem when it has to be repaid or refinanced in a bad year, so cover matters more than the amount. Rising debt with rising cover is a business borrowing to grow; rising debt with falling cover is the combination that ends badly.

Current assets over current liabilities: what the company can turn into cash within a year against what it owes within a year.

What good looks like. Comfortably above 1.0, and not falling year after year. Below 1.0 means near-term bills exceed near-term resources, which is normal for some business models and a warning in others.

If it rises or falls. Inventory and receivables build it up; short-term borrowing and payables pull it down. A retailer that turns stock over quickly can run lower than a manufacturer and be perfectly sound.

Operating profit divided by interest expense - how many times over the year's earnings could pay the year's interest.

What good looks like. High and steady. Five times is a common floor; comfortably above it means the debt is being carried, not merely serviced.

If it rises or falls. It falls when profit falls or when borrowing costs rise, and a company can look safe on the level while the direction is telling you otherwise.

Operating cash flow as a share of revenue: of every dollar sold, how much reached the bank before capital spending.

What good looks like. A high share, holding up or improving. It is the clearest sign that reported profit is real.

If it rises or falls. It falls when customers take longer to pay or stock builds up, and it can stay high while profit falls - which is usually the more reassuring of the two.

What would be left for shareholders if every asset were sold at its book value and every debt repaid. Book value, in other words.

What good looks like. Equity growing as retained profits build up, unless the company is deliberately returning more than it earns.

If it rises or falls. Equity falls for two very different reasons: buybacks, which return money to you, and losses, which do not. The distinction is the whole story, and negative equity means liabilities now exceed assets, which makes debt-to-equity and return on equity meaningless rather than alarming.

Cash returned through buybacks and dividends, alongside the value of new shares issued to employees as compensation.

What good looks like. Returns comfortably larger than stock compensation, so the share count actually falls.

If it rises or falls. A company can announce billions in buybacks while issuing nearly as much stock to staff, and the two largely cancel. What reaches you is the net effect, which is why both bars are here rather than only the buyback.

Dividends and buybacks, each as a percentage of what the company was worth that year. The dollar chart says how much came back; this says how much came back for the price.

What good looks like. A total that clears a couple of percent and holds. Which half it comes from matters less than whether it is sustained.

If it rises or falls. A yield rises when the price falls as readily as when the payout grows, so read a jump beside the price chart before treating it as generosity.

The yearly change in the number of shares in issue, adjusted for splits so the years compare. A bar below zero is a falling share count, usually from buybacks; above zero, new shares were issued.

What good looks like. A flat or falling share count. Falling means each share you hold owns a little more of the business every year.

If it rises or falls. A rising count divides the same business among more owners, so your slice shrinks unless profits grow faster. This is the most direct chart on the page: it is your ownership, measured.

The share count and revenue per share over the same years, both indexed to 100 at the start, so the two lines can be compared directly.

What good looks like. The per-share line above the share-count line: whatever the company did with its shares, more business ended up behind each one.

If it rises or falls. Issuing shares is not automatically bad. It is bad when the money raised buys less growth than the dilution cost, which is exactly what the gap between these two lines shows.

Open-market buys and sells by the company's own officers and directors, from their Form 4 filings. Grants, option exercises and shares withheld for tax are excluded, because they are compensation rather than decisions.

What good looks like. Buying with their own money, which is the one insider action that is hard to explain away.

If it rises or falls. Selling is weak evidence: insiders sell to diversify, to buy houses, and on pre-scheduled plans set months ahead. Buying is stronger evidence, because there is only one reason to do it. The absence of any buying over a long stretch is itself worth noticing.