Cramer's 'Mad Money' Recap: School of Stock

For a young company, revenue growth should be rapid, he said. An older company should have healthy profits, some of which can be turned into dividends. A really mature company should maximize cash flow and return that cash in some way to shareholders.

Also pay attention to gross margin, which is a measure of how much of a company's sales are available to be turned into earnings. Things that give clues about gross margin are how much competition a company has, how expensive the company's products are to make and the cost of doing business in general.

Companies that have little competition will have a higher gross margin. Companies experiencing an increase in demand for their products should see gross margin going up. Companies whose costs for raw material are going up should see gross margin go down.

Know which industry-specific metric is important to be able to judge a company, said Cramer. For a cable company, the key metric is enterprise value (market cap plus debt) divided by the number of subscribers.

For a hotel, the key metric is average revenue per room. For airlines, it's average revenue per seat. For retailers and restaurants, the key metric is same-store sales. For tech stocks, it's gross margin per product sold. For financial stocks, it's net interest margin, i.e., how much money was made on each dollar the financial institution had in assets.

Once you know the key metric, compare it with the company's peers. The retailer with the best same-store sales, for example, is the one you want to own, said Cramer. Similarly, you want to own the tech stock with the best gross margin, he said.

As for leading economic indicators, Cramer said the conventional wisdom is to pay attention to GDP, retail sales and employment growth. However, Cramer likes to pay attention to companies on the front lines of the economy.

If those companies are saying that inventories are up and gross margin is down, for example, Cramer would expect a slowdown in the economy even though the more conventional, leading economic indicators might not yet be signaling one.

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Interested in more Cramer? Check out Jim's rules and commandments for investing from his latest book by clicking here. It's a series of articles from Cramer on how to become a better investor. The following table lists some of the rules that Cramer dissects.

	1.	Pigs Get Slaughtered		2.	It's OK to Pay the Taxes
	3.	Don't Buy All at Once		4.	Buy Damaged Stocks
	5.	Diversify to Control Risk		6.	Do Your Homework
	7.	Don't Panic		8.	Buy Best-of-Breed
	9.	Defend Some Stocks		10.	Don't Bet on Bad Stocks
	11.	Own Fewer Names		12.	Cash Is for Winners
	13.	No Regrets		14.	Expect Corrections
	15.	Know Bonds		16.	Don't Subsidize Losers
	17.	No Room for Hope		18.	Be Flexible
	19.	Quit When Execs Do		20.	Patience Is a Virtue
	21.	Be a TV Critic		22.	When to Wait 30 Days
	23.	Beware the Hype		24.	Explain Your Picks
	25.	Find the Bull Market

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