Cramer's 'Mad Money' Recap: Metrics Matter

If you want to pick stocks, you have to be able to compare stocks, Jim Cramer told viewers of his "Mad Money" TV show Friday.

"If you don't know key metrics, you don't know stocks," he said.

Cramer then went on to compare Nike(NKE Quote) with K-Swiss(KSWS Quote). You have to measure stocks by the metrics, not by the price-to-earnings ratio, said Cramer. The key metrics are inventories and what's called futures.

Domestically for K-Swiss, futures, or the advanced orders retailers have placed with the company, were down 32% last quarter. Last quarter, the company's total inventory was up 21%, which management blamed on slowing brand momentum.

Cramer doesn't like the big decline in futures and the big increase in inventory.

Nike and K-Swiss were valued the same for earnings. However, Nike's futures were up 7%. Nike is moving excess inventory to outlets.

Contributing to K-Swiss' downfall is its refusal to cut prices. No shoe company can afford to stand on principle, inventory will increase, and the company will ultimately be forced to cut prices, Cramer said.

K-Swiss was not responsive to needs of investors, and because it has two classes of stock, it is less accountable to its shareholders, Cramer said.