Investing Scorecard Lab
Build a reusable 1-page scorecard that forces 3 checks before you invest: business health, price sanity, and cash truth.
Never judge a company from one number.
Ratios only make sense compared to three things: the company's own history, similar companies, and the sector average. A number in isolation is meaningless.
Part 1 — Business Health Check
These are your "do not be stupid" checks. If a business fails here, nothing else matters.
1. Current Ratio
Can the company cover its short-term bills? If not, it might not survive long enough for your investment thesis to play out.
Thumb rule: Prefer above 1.0. Below 1.0 means they owe more than they have available short-term.
2. Debt to Equity
How much the company leans on debt. High D/E isn't automatically bad — it depends on the sector. A utility at D/E 2.0 is different from a software company at D/E 2.0.
Thumb rule: Above 1.0 can be risky. But always check sector norms first.
3. Return on Equity
How efficiently profits are made from shareholder capital. Prefer consistently high ROE for at least 3 years.
Warning: ROE can be "high" for bad reasons. Heavy debt inflates it (smaller denominator). Buybacks inflate it. One-time gains fake it. Always ask why ROE is high.
Part 2 — The Price Check
This is where people mess up. They buy a great company at a silly price.
4. P/E Ratio
How expensive the stock is relative to current earnings. Lower is often preferred, but depends heavily on growth rate and sector.
Key insight: P/E alone is not a perfect measure. It can mislead if the company is cyclical. P/E and growth should match — that's what the PEG ratio checks.
5. P/B Ratio
How price compares to net assets on paper. Most useful when assets matter: banks, insurers, some industrials. Can be useless for asset-light companies like software firms.
Reality check: A software company can look "overpriced" on P/B forever and still be fine because its value is in intellectual property, not physical assets. Know when P/B applies.
Part 3 — The Cash Truth
Profit can be a story. Cash is harder to fake.
6. Free Cash Flow
Simple meaning: Cash left after running the business and paying for what it needs to keep operating.
Strong FCF suggests strength and flexibility. The company can pay debt, invest in growth, survive downturns, or return money to shareholders.
Thumb rule: Rising FCF over 3+ years is a strong signal. If FCF is negative, you need to understand why (heavy investment year? or structural problem?).
Part 4 — The Future Check
This is the part most beginners skip.
7. Earnings Growth
Look for strong, consistent earnings growth. Two checks matter: Is growth consistent (not boom-and-bust)? Is growth bought with debt (unsustainable)?
8. Earnings Visibility
How likely is the company to perform predictably in the future? Companies with recurring demand, contract revenue, and essential products have higher visibility — they're less likely to face surprise declines.
Examples: Consumer staples, pharma, utilities, banking, essential retail tend to have high visibility.
Part 5 — The Ratio Sandbox
Type numbers from any company's financials. See all ratios calculated at once with traffic light signals.
Ratio Calculator
Enter numbers above to see ratios
Part 6 — Your Reusable Scorecard
Fill this in for any company you're evaluating. Force yourself to check every section before making a decision.
Education, Not Financial Advice
This lab teaches you how to read financial data and think critically about investments. Ratios and frameworks help you ask better questions — they do not remove risk. Always do your own research and consider consulting a licensed financial advisor before making investment decisions.