Investment Metrics
What financial instruments tell you whether the factory is compounding or burning?
Investing
Fundamental ratios for evaluating whether capital is being deployed effectively.
| Metric | Target | Benchmark Source |
|---|---|---|
| ROE: 5-year Avg. | >= 17% | — |
| Return on Invested Capital: 5-year Avg. | >= 17% | — |
| Pre-tax profit Margin: 5-year Avg. | >= 1.2 | — |
| Industry Avg. Pretax Margin: 5-year Avg | — | — |
| Price/cash flow ratio | <= 0.8 | Industry Average price/cash flow ratio |
| Price/cash flow ratio | >= 0.1 | — |
| Debt to Equity Ratio | <= 0.8 | Industry Average Debt to Equity Ratio |
| Income per employee | >= 1.1 | Industry Average Income per employee |
Operational Metrics
Unit economics that determine whether growth creates or destroys value.
| Metric | Formula | Benchmark | What It Reveals |
|---|---|---|---|
| Gross Margin | (Revenue - COGS) / Revenue | 70%+ for SaaS | Whether delivery costs leave room for growth investment |
| Net Present Value | Sum of discounted future cash flows - initial investment | NPV > 0 | Whether a project creates value above the cost of capital |
| Capital Efficiency | Revenue / Total Capital Raised | 1.0+ at scale | How much revenue each dollar of funding generates |
| Burn Multiple | Net Burn / Net New ARR | Under 2x (good), under 1x (great) | Cost of each dollar of new revenue — source |
| Hype Ratio | Capital Raised / ARR | Under 5x | Whether valuation is grounded in revenue or narrative |
Context
- SaaS Metrics — Revenue engine metrics: ARR, churn, LTV/CAC
- Reality — The instrument panel these metrics feed
- Pricing — The market's instrument: price signals whether reality matches strategy
- Incentive Engineering — Show me the incentive, I'll show you the outcome
Questions
When gross margin is 70% but burn multiple is 3x, which instrument do you trust — the one that says the engine works or the one that says it's too expensive to run?
- What's the minimum set of financial instruments a pre-revenue venture needs — and at what stage does each one activate?
- If NPV requires forecasting future cash flows, how do you discount honestly when the business model is unproven?
- When does a high hype ratio signal conviction versus delusion?