The Economics Behind The Numbers

Financial statements are often taught as collections of ratios, formulas, and accounting rules.

This series takes a different approach.

It’s the framework I’ve gradually developed through studying businesses, investing, and refining my own analytical process—a practical set of mental models for understanding the economics behind a business.

Over time, I realized that investors often begin with valuation metrics like P/E, P/B, or EPS growth, or focus on price action such as breakouts and 52-week highs. While these can be useful, they mean little without first understanding the underlying business.

I’ve seen companies with rapid revenue growth, record order books, and attractive valuations struggle under working capital pressures, rely increasingly on debt, and ultimately destroy shareholder value. I’ve also seen exceptional businesses earn consistently high returns on capital, yet fail to become exceptional investments because they lacked opportunities to reinvest and compound those returns.

These experiences shifted my focus away from isolated financial metrics and toward a more structured way of thinking about businesses—one centered on the underlying economics that drive long-term value creation.

The goal of this series is to help you analyze businesses from first principles rather than relying on individual ratios or headline metrics.

The framework is built around six fundamental questions. Together, they provide a structured way to understand how businesses grow, create value, generate cash, compound capital, and finance long-term growth.

One final note: While the framework, ideas, and conclusions are my own, I used AI extensively as a collaborative editor—to challenge assumptions, refine explanations, improve clarity, and stress-test the writing throughout the process.

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