You don’t need a room full of monitors to spot a great company.
While some people think investing is about advanced spreadsheets and complicated valuation models, in reality, it does not have to be so complex.
The best businesses usually pass the “common sense” test.
If you are just getting started, these are five beginner-friendly metrics that will help you cut through the noise and find companies worth owning for the long haul.
Why “Great Companies” Matter More Than Cheap Stocks
It’s a common trap: buying a stock just because the price looks “low.”
But cheap stocks can stay cheap for a long time, especially if the business is on shaky ground.
In contrast, great companies – even if they feel “expensive” at first – tend to reward shareholders by compounding earnings over time.
For long-term investors, wealth is built by owning strong businesses that consistently grow cash flow, not by frequent trading.
These businesses include blue chips like DBS Group Holdings Ltd (SGX: D05), Singapore’s largest bank, known to generate strong earnings and maintain robust capital buffers, and Singapore Exchange Ltd (SGX: S68), which delivers a consistent increase in operating profits over the years.
Owning strong businesses also lowers the risk of value traps.
Simple metrics such as consistent earnings growth can help new investors filter out low-quality stocks early.
Metric #1: Consistent Revenue Growth
Consistent revenue growth shows ongoing demand for a company’s products or services.
Take Sheng Siong Group Ltd (SGX: OV8) for example.
The supermarket shows a steady revenue growth, growing from S$764.4 million in FY2015 to almost double at S$1.43 billion in FY2024.
In its latest third quarter of FY2025 results, Sheng Siong’s revenue rose 14.4% year on year (YoY) to S$415.5 million, arriving at a nine month figure of S$1.18 billion, a 9.5% YoY increase.
Sustainable growth matters because it often points to resilience during economic downturns.
It tells you the business can weather a storm without sinking, giving investors the kind of predictable returns that make compounding actually work.
Metric #2: Healthy Profit Margins
Healthy profit margins show a firm’s pricing power and good cost control.
Operating margin demonstrates how much is earned from core operations after operating costs.
Net margin is what remains after all expenses, including taxes, are paid.
Stable or improving margins often signal competitive strength as the company can hold its position even with growing costs or competition.
Conversely, shrinking margins while revenue grows should raise red flags.
This could be a sign of heavy discounting or weakening pricing power, which can erode profit over the long term.
Metric #3: Strong Free Cash Flow
Free cash flow (FCF) is the cash a company has left after covering operational expenses and capital asset maintenance.
FCF could be paid out as dividends, reinvested for additional growth, or used to reduce debt without necessarily relying on external financing.
Businesses that can sustainably produce healthy FCF are in a better position to create long-term value for their shareholders.
However, investors need to take caution if profits are rising, but FCF is falling.
This mismatch could indicate deteriorating earning quality, and the business is under more financial stress than the income statement indicates.
Metric #4: A Solid Balance Sheet
A strong balance sheet is an indication of the business’s financial well-being.
These companies tend to have low net debt on the balance sheet, manageable gearing ratios, and healthy interest cover, with operating profits far stronger than the debt.
All these metrics demonstrate that the business is not heavily reliant on debt to operate.
VICOM Ltd (SGX: WJP) is a good example with a clean balance sheet of S$42 million cash and cash equivalents, and no debt as of 30 September 2025.
Strong balance sheets can be especially valuable in an economic downturn, as they can withstand difficult circumstances without having to resort to costly emergency financing options or eliminate vital investments.
It also gives them the ability to pay dividends while gaining market share during difficult market conditions.
Metric #5: Shareholder-Friendly Capital Allocation
How does the management spend your money?
Good leaders treat shareholders like partners.
They pay sustainable dividends funded by FCF, reinvest wisely, and avoid messy moves like issuing too many new shares, thereby diluting your ownership.
Capital allocation decisions have a profound effect on returns for the long-term investor.
Profits that are wisely reinvested will help fuel future growth, while consistent dividends and disciplined buybacks will enhance shareholder returns.
At the end of the day, you are hiring these managers to grow your wealth.
If they focus on long-term value rather than short-term “glamour” projects, you’ve found a winner.
How Beginners Can Use These Metrics And Avoid Mistakes
No single number tells the whole story, but quality companies usually score well across all five areas.
Building a simple checklist with these metrics can help you identify invest-worthy companies quickly, and avoid common rookie mistakes.
Focus on FCF and balance sheet strength, and do not only chase high yields without checking on sustainability.
Using simple, proven metrics creates a stronger foundation and helps beginners develop the discipline needed for long-term investing success.
Remember, time in the market typically performs better than timing the market when building long-term wealth.
Get Smart: Simple Metrics Go A Long Way
You don’t need to be an expert investor to identify great companies.
The five simple metrics above can help you avoid costly mistakes and focus on quality holdings.
Over time, owning strong businesses that deliver consistent growth matters more than trying to outsmart the market.
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Disclosure: Wenting A. does not own any of the stocks mentioned.
