Key stock metrics investors should watch

A stock is worth investing in when the company's financials are healthy, meaning it has a positive profit margin, stable or growing earnings, sufficient liquidityThe ease and speed with which an investment can be converted into cash without a major price concession., and manageable debt. Knowing how to read these signals helps you separate stocks that are positioned to grow from those that are under pressure.

By the end of this article, you should be able to:

• Understand what it means for a stock to be liquid or illiquid
• Examine a company's debt level and what it means for its stock
• Identify red flags in the company's revenue growth rate and earnings

#Liquidity

Liquidity measures how quickly you can convert an asset to cash without moving its market price. Real estateLand and buildings held for use, rental income, development, or appreciation. requires finding a buyer, negotiating terms, and completing legal transfers. This process takes weeks or months, making it illiquid. Cryptocurrencies trade on exchanges with instant execution at posted prices, making them liquid.

Highly liquid stocks have a significant number of traders in their market, which protects you from price manipulation. For instance, if a stock "DANA" is priced at 200 naira and a large buy order is placed but there are few traders in the market, those traders will be unable to fill the order. This causes the market price to pump significantly.

This also works the other way. If the order placed was a sell order, the few traders will be unable to cover it, causing a significant drop in market price in a short time. A stock market with high liquidity protects you from this.

To identify the liquidity of a stock, we will look at the trading volumeThe number or value of securities traded during a period., bid/ask spread, and order bookA record of outstanding buy and sell orders arranged by price and often time priority..

#i. Trading Volume

This is the number of shares traded daily. Look out for inconsistent trading volume where the volume pumps once only to drop below average the next day.

You can get information on trading volumes from Stock Analysis or any other platform that provides this data.

From the data above, we see that OKOMUOIL kept a trading volume of hundreds of thousands on almost every trading day. This means that the stock is actively being traded.

#ii. Bid/Ask Spread

This is the difference between the highest amount buyers are willing to pay (bid) for the shares and the lowest amount the sellers are willing to offer (ask). This difference serves as the transaction costA cost arising from buying, selling, settling, or transferring an investment..

A liquid stock has a tight spread while an illiquid stock has a wide spread. To identify a tight or wide spread, you need to consider the percentage of the spread in relation to the price and not just the price difference itself. This is because a 2 naira spread on a 500 naira stock is just 0.4%, while on a 100 naira stock, it is 2%.

A spread of 1% and below is considered tight while above 2% is considered wide.

You can get this data from order books of brokerage apps like Bamboo Invest or Afrinvestor 2.0.

An order book is a list of orders waiting for execution. From the data above, you see that the order book is divided into two sections: the bid is written on the left and in green while the ask price is on the right and in red.

To calculate the spread percentage, subtract the best bid priceThe price at which a fund or market participant buys units or securities from an investor. (highest bid amount) from the best ask price (lowest ask amount), divide the result by the current market price, and multiply by 100.

From the picture:

• Best bid price = 1100
• Best ask price = 1170
• Spread: 1170 - 1100 = 70
• % of Spread: 70/1170 × 100 = 5.98%, which is approximately 6%

The bid and ask price changes as orders are placed, so liquidity based on spread is not static. The 6% spread only defines the liquidity of the stock at that moment. If you plan to buy the stock as a long-term investmentAn asset or commitment of money made with the expectation of future income, growth, or both., check the spread once every 2-3 trading days instead of monitoring it constantly. This gives you an idea of how the spread moves over time.

For example, if another trader places a bid of 1130 and the ask price remains the same, the spread percentage drops to 3.4%.

Apart from brokerage apps, you can also get data on bid-ask spreadThe difference between the best available buying and selling prices. from Stock Analysis.

The website shows the best bid and ask price on a dashboard. If either of the best prices changes, the figure on the dashboard will automatically recalculate.

#iii. Order Book Depth

Apart from the best bid and ask, the order book also shows prices other traders have placed that are below the best bid and above the best ask. These prices make up the depth of the order book, and they help you identify fair prices to bid at when you want to buy the stock.

There are two ways to place an order for a stock:

-Market order:- This involves trading at the current market price. For instance, if an order book has ask prices of 1170 naira for 500 shares and 1200 naira for 1000 shares, and you placed a market execution buy order for 1000 shares, the first 500 shares would be executed at the best ask of 1170. Since the order cannot fill your bid entirely, your next 500 shares will be executed at the next best ask (1200). Market orders are prone to slippageThe difference between the expected trade price and the actual execution price., meaning that your orders are not always executed at your expected price, which causes you to spend more.

-Buy limit orderAn instruction to trade only at a specified price or better.:- This involves placing a buy order at a price below the best ask, which reduces your exposure to spread. To place a limit order, you need to identify a fair price to bid; this is where the depth of the order book comes in.

From the order book, look for a bid price that has the highest volume (the number written to the left of the bid). This bid serves as the level price is likely to react from. From the picture above, 1,107 naira is that level.

-Red flag:- If a stock consistently has low trading volume, a wide bid/ask spread, or an order book with little depth, it is at risk of price manipulation because investors cannot enter or exit the market without affecting the price.

#Debt Level

This section analyzes how much the company owes and its capacity to pay back. If a company cannot service its debts, investors anticipating bankruptcyA legal process for an entity unable to meet its financial obligations. will sell off their shares, causing the stock price to collapse.

We'll focus on interest-bearing debts and not trade payables, since interest-bearing debts cost the company more. Data on debt level can be found in the balance sheetA statement showing assets, liabilities, and equity at a particular date. and cash flow section of the financial statement, available on NGX Group.

#i. Total Debt

From the data, the only debt due under one year is the trade payable, which does not incur interest. We'll focus on the interest-bearing debts, which are the long-term debt and the lease liabilities, both of which are due after one year. This means that the company is not under pressure to pay back these loans in the current year.

The total debt (long-term debt and lease liabilities) of 2025 is 23.31 billion naira while that of 2024 is 19.58 billion naira. The debt grew. Now that we have the total debt, let's analyze the company's ability to pay.

#ii. Total Debt vs Cash Inflow

The net cash inflow from operating activities is 81.1 billion naira and 48.3 billion naira in 2025 and 2024 respectively. This figure is almost three times more than the amount of its total debt. This means that Okomu will be able to service its loans from its cash flow.

#iii. Debt vs Equity

From the data, we see that total net assets (the equity) also increased over the year. The company grew its equity while keeping its debt under control. This is a good sign.

-Red flag:- If total debt is consistently higher than operating cash flow and equity, or a large portion of the debt is due within one year, the company may be under significant pressure to service its debt. That is not a good time to be investing in its stock.

#Revenue and Earnings

Revenue is the total money made from sales of products, services, or assets before removing expenses. Earnings (also called net profit) is the total money left after removing those expenses.

Revenue tells you if there is a market for the company's product or service. An increase in revenue is a good indication but it is not enough on its own. It is also necessary to analyze how fast the revenue is growing. Let's assume that in 2023, 2024 and 2025, the company DANA reported revenue of 100 million, 110 million, and 115 million naira respectively. The growth rate in 2024 and 2025 is 10% and 5% respectively. While the revenue grew yearly, the momentum of its growth decreased.

Earnings tell you the amount the company made after removing all costs incurred. It shows you if the business model can survive.

In this section, we'll assess the company's revenue, growth rate, and earnings from its statement of profit or loss.

#Revenue

This is indicated as 'turnover' in the 2025 statement of profit and loss. We see that its revenue increased from 130 billion in 2024 to 198.1 billion naira in 2025, showing that the company increased its sales in 2025.

#Revenue Growth Rate

The revenue growth rate is obtained by subtracting the previous revenue from the current revenue, dividing the result by the previous revenue, and multiplying by 100.

From the data above:

• Current revenue = 198,152,877
• Previous revenue = 130,060,979
• Growth rate = 52.4%

Let's compare this with the growth rate of the previous year:

While the revenue also increased between 2023 and 2024, the growth was 73.4%. Compared to 2025, the revenue growth rate decreased by 28.6%. You can check if this is a trend by analyzing the previous 3-5 years.

#Earnings

This is denoted as 'profit on continuing operation after tax.' From the data above, we see an increase in both 2024 and 2025.

To get the full picture, analyze whether earnings have been increasing for the last 3-5 years. Looking at revenue, growth rate, and earnings over several years helps you understand if the company is truly growing or just having a good year. Consistent revenue growth backed by rising earnings signals that the company is expanding and gaining stability. That expansion can lead to dividend increases, which makes the stock more attractive to investors and can improve its liquidity over time.

-Red flag:- Be cautious if revenue is increasing but earnings are declining, if the revenue growth rate is declining over several years, or if earnings fluctuate sharply from year to year. These patterns may indicate rising costs, weak demand, or an unstable business model, all of which can limit the stock's growth in the long run.

#Final Thoughts

Understanding the company behind a stock tells you what you are investing in. Understanding the stock itself tells you whether the conditions are right to invest. Both filters work together.

By examining liquidity, debt levels, revenue growth, and earnings, you can tell if a stock is stable or under pressure. This helps you avoid stocks that are hard to trade, carry high levels of debt, or show declining growth.

Now that you understand the stock itself, the next question is whether it is worth buying at its current price. In the final part of this series, we'll focus on how to tell if a stock is overvalued, fairly priced, or undervalued.