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Level — · Streak —
— XP
Mastery—weighted
Quizzes 30d—last 30 days
Cert progress—active level
Rank—global
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Your systematic analysis workflow
The five preceding lessons in m5 — profitability, returns, leverage, efficiency/growth, free cash flow — describe the financial side of company analysis. This lesson synthesizes them into a working workflow you can apply to any stock. The discipline of running this five-step check before any valuation work catches 90%+ of value traps and surfaces the rare combinations of quality, financial health, and cash generation that distinguish wonderful businesses from merely profitable ones. Companies that pass all five checks deserve deeper valuation work; companies that fail two or more usually don't.
The professional analyst's five-step ratio workflow. Step 1: Profitability. Are gross/operating/net margins above industry medians? Are they trending up or down over 5-10 years? Step 2: Returns on capital. Is ROIC above WACC by a durable margin? Has ROIC been sustained for 5+ years (suggesting moat) or is it mean-reverting? Step 3: Leverage and solvency. Is D/E below industry-appropriate levels? Is interest coverage above 5x? Does the maturity schedule reveal refinancing walls? Step 4: Growth quality. Is revenue growth organic? Is EPS growth tracking revenue growth (or being inflated by buybacks)? Are margins expanding or compressing? Step 5: Cash generation. Is FCF positive, growing, and converting at >80% of net income? Is SBC inflating reported OCF? Does the maturity wall create FCF pressure? A stock that scores well across all five steps is what you want for long-term ownership; the next step is checking whether the price reflects that quality (Module 6's valuation work).
Before doing deep analysis on any stock, run this 60-second check using the Ratios and KPIs tabs. Operating margin above 10% (industry-relative). ROIC above 15% sustained (moat hint). Debt-to-Equity below 2 (manageable leverage). FCF positive and growing year-over-year. Revenue growing 5%+ organically. If a company passes all five, deep analysis is warranted. If it fails two or more, the company needs a very compelling story (turnaround thesis, secular tailwind, etc.) to justify further research time. Most stocks fail this screen; the ones that pass are a manageable shortlist for serious valuation work. The screen is conservative — many fine investments pass — but its purpose is filtering out the value traps and structurally-weak businesses that absorb most of the time wasted in fundamental analysis.
How the five steps interact. A company with great margins and ROIC but high leverage may face liquidity risk in downturns (steps 1+2 pass, step 3 fails). A company with great cash flow but flat growth is a value/income story rather than a compounder (steps 5 passes, step 4 mediocre). A high-growth company with poor cash flow is a speculative story dependent on capital markets staying open (step 4 passes, step 5 fails). The cleanest combinations — strong on all five — are companies like Visa, Costco, Microsoft, Apple, Procter & Gamble in good periods. The combination is rare; recognizing it when it appears is the foundation of long-term wealth creation.
Run NVIDIA's FY2025 results through the five-step workflow. Step 1, profitability: Gross margin ~78% (industry-leading), Operating margin ~62% (extraordinary for any industry), Net margin ~56%. Trends: all expanded dramatically over FY2023-FY2025. PASS. Step 2, returns: ROIC ~85% (one of the highest in the public market), sustained well above WACC for multiple years. PASS. Step 3, leverage: Debt-to-Equity below 0.2x; net cash position of ~\$35B; interest coverage 100x+. PASS. Step 4, growth quality: Revenue growth 100%+ in FY2024 and FY2025 (AI-cycle peak); growth is organic (not acquisition-driven); margins expanding alongside growth. The growth IS cyclical — AI demand will eventually decelerate — but the trajectory through FY2025 is high quality. PASS. Step 5, cash generation: FCF ~\$60B+; FCF conversion strong; SBC ratio elevated but not pathological. PASS. All five pass with high marks. The next question is valuation — at what multiple is NVIDIA still attractive given the cyclical risk in growth? That's Module 6 territory. Source: NVDA FY2025 10-K filings.
The Ratios tab on every stock page presents all the metrics needed for the five-step workflow side-by-side, with peer-group comparisons. The Insights tab automates a 'quality score' aggregating these dimensions. The KPIs tab shows multi-year trajectories so you can see whether each metric is trending in the right direction. The /screener page filters by combinations of these metrics — useful for finding the rare names that pass all five filters with strong marks.
The five-step workflow is the professional discipline. Two common shortcuts undercut its value. First: skipping steps because the headline numbers look good. A company with 30% operating margins might pass step 1 obviously but fail step 5 because of working-capital absorption. Second: applying universal thresholds rather than industry-relative ones. A 10% operating margin is great in airlines and mediocre in software; a 0.5x D/E is conservative for utilities but aggressive for biotech. Always benchmark to industry peers via the /screener tools, not to a textbook number.
Investing isn't about complexity. It's about the discipline of asking simple questions about a business and answering them rigorously. Profitability, returns on capital, leverage, growth quality, cash generation. Five questions. If a business answers them well, look at price. If it doesn't, move on.