Key Fundamentals: Sales, Margins, Return On Equity (2)

Sales growth, profit margins and return on equity are vitally important in evaluating a company's health.

It All Starts With Sales


Sales figures are a key measure of a company's strength -- or

lack of it. Perhaps no other piece of financial information reflects growth better than sales:

the money that comes into a company from products sold or services rendered.

If a company is run efficiently, sales growth essentially drives earnings growth.

Companies basically have two ways to increase earnings.

They either increase sales, reduce expenses or ideally do both.

Although a well-managed company controls expenses, healthy sales are the main engine for growth.


When you search for the best stocks, you want a company to have strong sales growth to support its earnings growth.

Think of sales growth as the foundation under your house: if it is loose, it's not as stable as one with all the structural elements in place.

When you see a company increasing its sales,

it's telling you its business is drawing larger demand and is structurally sound and prepared to expand and generate the earnings capable of boosting its stock price.