We offer a small guide on what a beginner private investor needs to know in order to ensure passive income.
We have already written about the fact that you should not rely too much on pension provision. Due to the demographic hole associated with the mass relocation of young Ukrainians to Europe, a budget and pension fund deficit is expected in the long term. Therefore, it is difficult to overestimate the relevance of receiving passive income for independent provision of a safe old age.
We offer a small guide on what a beginner private investor needs to know in order to ensure passive income. We do not consider placing savings in the bank, since the profitability of a term deposit is unlikely to cover current inflation.
Buying shares of the world’s leading companies as a reliable way of investing
Investing savings in shares of leading global companies seems much more promising. Online you will find information about tens of thousands of tickers (this is the short term used in exchange information for quoted instruments – shares, bonds, indices. A ticker is a unique identifier within one exchange or information system).
Let’s consider the algorithm of actions when choosing a company for investment using the example of nVidia – an American technology company that develops graphics processors and systems on a chip. Nvidia is truly a phenomenon as one of the world’s leading GPU manufacturers and technological innovators in the field of visualization and computing. The company is known for its partnerships with software developers and hardware manufacturers, and the ecosystem built around its products and technologies.
Today, it is the undisputed leader in terms of capitalization – the market valuation of the company’s value, calculated on the basis of stock market quotations. It may seem incredible, but from October 2022 to April 2024, the value of nVidia shares increased tenfold!
So what should be guided when choosing companies whose shares are worth buying
The NVDA ticker quote reports that the share price on July 7, 2024 was $125.83. The next step is to understand whether the share price is adequate and how much you can earn from it? It is important to understand the specifics of the company and analyze some of the financial indicators stated in the company’s annual reports.
Those who prefer to work with primary sources can download the report on the company’s website. But you can also contact for reliable and operational information analysts’ estimates, based on nVidia’s financial reports and posted on aggregator sites like We asked trader Mykola Melnychuk to comment nine criteria by which a company is selected for the purchase of shares.
The first selection criterion is the income statement
Monitoring the nVidia report for 5 years shows impressive growth in revenue and profit. If in 2018 the gross turnover amounted to 13.4 billion dollars, and the net profit – 6.2 billion dollars, then in the 3rd quarter of 2024 the turnover reached a record mark of 18.12 billion dollars, which is three times more than a year earlier. Net profit increased more than 13 times and amounted to 9.24 billion dollars.
This growth is due to the boom around artificial intelligence and the expansion of the data center division focused on work in this field.
The second useful parameter is the net present value (in the Balance Sheet report)
NPV is the value of all the company’s future cash flows, discounted back to the present using the required rate of return. This is an indicator of the value of the company, which takes into account its long-term prospects for growth and profitability.
NVIDIA’s PCV has shown steady growth over 5 years, reflecting its strong position in the GPU market and growing demand for its products in various industries, including gaming, data center and AI.
Net Present Value (NPV) of NVIDIA 2019-2024 (US$ billion)
| Year | ČPV |
| 2019 | 74,1 |
| 2020 | 94,6 |
| 2021 | 128,5 |
| 2022 | 109,7 |
| 2023 | 126,4 |
| 2024 | 146,3 |
The third important indicator is the price to earnings ratio
The P/E ratio is calculated by dividing the current market price of a stock by its annual earnings per share (EPS). The P/E ratio is a commonly used measure of stock valuation that shows how much investors are willing to pay for each dollar of a company’s earnings. A higher P/E ratio is a marker that investors expect the company to grow faster or that the company’s stock is overvalued (this is NVIDIA’s situation), while a lower P/E ratio may indicate that the stock is undervalued.
NVIDIA’s price-to-earnings (P/E) ratio from 2019 to 2024:
| Year | R/E |
| 2020 | 48,3 |
| 2021 | 61,7 |
| 2022 | 44,4 |
| 2023 | 35,8 |
| 2024 | 32,2 |
The fourth important indicator is free cash flow
Free cash flow is calculated as operating cash flow less capital expenditures. NVIDIA’s average free cash flow from 2018 to 2024 is $6.3 billion.
This is calculated as follows:
(3,2 + 3,8 + 5,3 + 7,2 + 8,0 + 8,6 + 9,3) / 7 = 6,3
The free cash flow average shows the average amount of cash that NVIDIA generates each year after taking into account its operating expenses and capital expenditures. This is an important indicator of a company’s financial health, as it shows its ability to generate cash to finance growth, pay dividends or repay debt. We see that the company’s free cash flow is growing.
The fifth indicator – Total current assets vs Total current liabilities (in the Balance Sheet report)
These are all current assets, money in accounts – everything that the company can quickly sell.
All current assets of the company in one year must be greater than its liabilities.
As of January 2022, Nvidia’s total current assets were $17.05 billion against total current liabilities of $5.61 billion. Obviously, assets were three times greater than liabilities. This is another indicator in favor of buying shares of this company.
The sixth indicator is the company’s margin
Margin is an important indicator of profitability and efficiency of the company. It shows how well the company controls its costs and generates profits. Higher margins usually indicate a more profitable and efficient business.
NVIDIA’s margins have remained relatively stable over the past 5 years, despite some fluctuations. The company maintains strong gross and operating profit figures due to its strong market position and effective cost management. Net income is also showing growth, reflecting NVIDIA’s continued ability to generate significant profits.
The seventh indicator is Price to Free Cash Flow
A fundamentally important indicator is the company’s capitalization divided by free cash flow. NVIDIA’s capitalization has shown steady growth over 5 years, reflecting its strong financial performance and growth prospects. Free cash flow is also growing, indicating NVIDIA’s ability to generate significant cash to fund its operations and strategic initiatives.
NVIDIA’s market capitalization and free cash flow 2019-2024 (US$ billion)
| Year | Capitalization | Free cash flow |
| 2019 | 114,0 | 3,8 |
| 2020 | 166,5 | 5,3 |
| 2021 | 257,2 | 7,2 |
| 2022 | 239,6 | 8,0 |
| 2023 | 260,7 | 8,6 |
| 2024 | 285,4 | 9,3 |
The eighth indicator is Decreasing shares counting
NVIDIA regularly announces stock repurchase programs under which it repurchases a certain number of shares of its common stock in the open market. This is a good sign. Share buyback is required for:
- An increase in earnings per share (EPS) due to a decrease in the number of shares in circulation.
- Shareholder rewards and share appreciation.
- Financing acquisitions or other strategic initiatives.
NVIDIA’s share buyback reflects the company’s confidence in its future growth prospects and its desire to increase shareholder value.
The ninth indicator – Free Cash Flow to dividends (in the cash flow statement)
This criterion is applicable only to companies that pay dividends. However, you should not be tempted by dividends – the mere fact of paying dividends does not necessarily characterize the company as promising.
NVIDIA did not pay a dividend until 2021. The ratio of free cash flow to dividends became significant only in 2021 and has remained relatively stable since then. This is a positive marker for the attractiveness of NVIDIA shares.
| Year | Free cash flow (US$ billion) | Dividends per share (USD) | Ratio of free cash flow to dividends |
| 2019 | 3,8 | 0,00 | – |
| 2020 | 5,3 | 0,00 | – |
| 2021 | 7,2 | 0,48 | 15,0 |
| 2022 | 8,0 | 0,56 | 14,3 |
In general, the analysis of these nine indicators indicates the prospects of buying NVIDIA shares. However, the list of these indicators for assessing the attractiveness of a given company’s shares when forming a portfolio of shares is not exhausted by these indicators, because it is important to take into account dispersion and covariance. But this is a topic of a separate conversation.
Tatyana Morarash
