In fundamental analysis, Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA), debt/equity and free cash flow are important pieces of a company's financials. Evaluating any stock also requires specific knowledge about the company's sector and industry, as well as knowledge of the forces that affect companies in the same category. For example, factors that affect profits in a shipping company are much different than those affecting a bank's bottom line. To effectively evaluate a telecommunications company, look at metrics that affect the industry specifically.
Average Return Per User (ARPU)
This metric is important in the telecommunications industry, as it illustrates the company's operational performance. The ability to maximize profits and minimize costs associated with servicing each end user is key to these companies. Because telecommunications companies are service providers instead of manufacturers of a product, investors want to measure marginal profit and cost on a unit level, revealing how well the company utilizes its resources. The higher the average return, the better. Generally, telecommunications companies that offer bundling services enjoy a higher ARPU.
This metric measures the number of subscribers who leave and is often reported quarterly. Obviously, a low churn rate is ideal. Companies that experience a high churn rate are under more pressure to generate revenue from other areas or gain new clients.
A telecommunications company's future revenue growth has much to do with its ability to grow its customer base and add new subscribers. Subscriber growth is, therefore, an extremely important metric. A steady subscriber growth rate indicates a competitive telecommunications company that is keeping up with technology trends, thereby keeping customers happy and attracting new customers.