Why EPS, P/E ratio, NAV, ROE, ROA and dividend yield are never enough in investments

Sometimes, it is quite common for new investors crazy about calculate so-called investment tools like EPS, P/E ratio, NAV, ROE, ROA and dividend yield etc during choosing a good investment. However, experienced investors always share their experience since investment is not merely a mathematics calculation and comparison. This article, Understanding Fundamental Analysis (Part 5), have explained the reason behind.

This article is using Lehman case as an example to explain why EPS, P/E ratio, NAV, ROE, ROA and dividend yield are never enough in investments.
"Lehman’s revenue and earnings have been soaring and beating analysts’ forecasts for 5 consecutive years. But let us take a look at its cash flow statement and balance sheet. It is clear that Lehman was highly leveraged. It has been increasing its borrowings at a frantic pace over the years. In FY07, Lehman booked US$6.8b in operating profit and equity of US$21.4b, but it had US$434b in borrowings, meaning that its leverage ratio was 20 times."

Lesson From This Case Study:
Never ever invest in a company with very high leverage.

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Written by: Xaivier Chia