When analyzing a company, one of the biggest challenges is deciding which financial metric really matters. Should you focus on revenue growth, profit, EBITDA, or free cash flow? The answer is: it depends on the type of company and its stage of growth.

1. Early-Stage / High-Growth Companies

(Tech, SaaS, Biotech Startups)

These companies often reinvest everything into expansion and may not be profitable yet. That’s why profit isn’t the right measure here.

What to track:

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  Revenue growth (CAGR over 3–5 years)
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  Gross margin improvements
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  Unit economics (customer acquisition cost vs. lifetime value)

📌 Example: Zomato, Nykaa, Freshworks → Revenue growth and improving margins tell the story better than profits.

2. Established, Asset-Light Companies

(Software, FMCG, Pharma, Services)

These businesses are usually profitable with strong brands or moats. For them, profitability and returns matter more than just topline growth.

What to track:

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  PAT / EPS growth
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  Revenue growth (to confirm expansion)
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  Return ratios like ROE, ROCE

📌 Example: Infosys, Hindustan Unilever, Sun Pharma → EPS growth is the key driver of long-term intrinsic value.

3. Capital-Intensive Businesses

(Manufacturing, Auto, Infra, Metals, Telecom)

In these industries, profits can be distorted by depreciation or interest costs due to heavy assets and debt. That’s why EBITDA and operating margins are better indicators.

What to track:

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  EBITDA growth
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  Operating margin stability
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  Capacity utilization, debt-to-equity ratio

📌 Example: Tata Steel, Reliance Jio, JSW Steel → EBITDA tells you more about the business health than PAT.

4. Heavy Capex & Long-Term Projects

(Utilities, Oil & Gas, Real Estate)

For these companies, reported profits often don’t reflect the real financial picture because of long payback cycles. Free cash flow (FCF) is the most reliable metric.

What to track:

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  Free cash flow growth
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  Debt repayment capability
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  Dividend payout consistency

📌 Example: NTPC, ONGC, DLF → FCF shows how much real cash is left after capital expenditure.

5. Banks, NBFCs, Financials

Financial institutions operate differently — EBITDA and FCF don’t apply. Here, the focus is on loan book growth and asset quality.

What to track:

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  Net Interest Income (NII) growth
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  Net Interest Margin (NIM)
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  PAT / EPS growth
• •
  NPA levels (asset quality)

📌 Example: HDFC Bank, Bajaj Finance → Loan growth and PAT are the true indicators.

Cheat Sheet: Metrics by Sector

Early-Stage / Loss-Making => Revenue Growth, Gross Margin, Unit Economics

Asset-Light & Mature => PAT, EPS, ROE, ROCE

Capital-Intensive => EBITDA, Operating Margins, Debt Levels

Heavy Capex / Long Payback => Free Cash Flow, Dividend History

Banks / NBFCs => NII, NIM, PAT, Loan Growth, NPA

Final Thoughts

There’s no one-size-fits-all metric. The right approach is to:

1. Identify the nature of the business.
2. Pick the financial metric that best captures its economic reality.
3. Cross-check with complementary indicators (e.g., revenue + margins, EPS + ROE).

By focusing on the right metric, you’ll avoid misleading signals and make better investment decisions.