Block (SQ 0.89%), formerly known as Square, can certainly seem like a complex financial services business at first glance. There are two successful ecosystems that make up the overall company. Plus, there are some unique aspects to its financial situation. 

The shares are down 80% from their peak, so you might be looking at the fintech business right now as a potential place to allocate some capital. But first, here are five important things the smartest investors know about Block stock. Let's hope this leads to a more informed decision. 

1. Square: focusing on merchants 

Square is the segment that the company was founded on. It went from selling a simple piece of hardware that allowed anyone to accept card payments with their smartphone to a full-service provider for merchants. Today, Square offers various point-of-sale hardware products, a suite of software tools, and different financial services that make it incredibly easy for a small business to start accepting payments as well as handle a host of other critical tasks. 

In the second recent quarter, Square processed $54.2 billion in gross payment volume, up 12% year over year. Gross profit increased 18% to total $888 million. That's respectable growth, but the management team believes that Square's long-term gross profit opportunity is $120 billion, so there is a ton of room left to expand. 

2. Cash App: focusing on individuals 

The other successful segment within Block is Cash App, a popular personal finance app that's at the top of the charts in the Apple App Store. Cash App targets individuals, giving them the tools to handle basic financial needs, like sending money to friends, setting up direct deposit, signing up for a Visa debit card, and buying stocks and Bitcoin. Cash App had 54 million active users in the month of June, indicative of its scale. It shows potential to be a possible substitute to having a traditional bank account for consumers. 

Gross profit for the Cash App division was $968 million last quarter, rising 37% year over year. The leadership team sees a $70 billion gross profit opportunity for this segment, which can be penetrated by finding ways to expand the user base, increase cash inflows, and then boost monetization. 

3. Financial analysis 

Investors need to take the time to understand the unique financial situation of Block. I've discussed gross profit above, instead of revenue, because it provides a more accurate picture. That's because Cash App essentially acts as an intermediary when consumers buy Bitcoin, buying the crypto asset then adding a tiny markup. In other words, only that gross profit figure is what really matters. 

Moving down the income statement, key expense items include things like product development, sales and marketing, and general and administrative. That shouldn't really be surprising, as many internet-enabled businesses generally have the same cost categories. The hope for Block is that as its gross profit rises over time, it's better able to leverage its expenses to produce greater net income. 

Investors should also try to gain insights into the strength of the balance sheet. As of June 30, Block had $4.7 billion of cash and cash equivalents compared to $4.1 billion of long-term debt, translating to net cash holdings of roughly $600 million. 

4. International focus 

Square generated 84% of its gross profit in Q2 in the U.S. Clearly, there is a huge opportunity to penetrate international markets, taking what has worked domestically and applying it to other countries. Square expanded to Spain last year (and is now in eight different countries), while Cash App is available in the U.S., U.K., and Spain. 

By purchasing buy now, pay later specialist Afterpay for $29 billion in 2021, Block now has a much larger presence in Australia and New Zealand. Many suspect the company overpaid for this acquisition, so perhaps it will try to enter new markets in a more organic way in the future. 

5. Valuation 

Since its initial public offering in 2015, Block shares have traded at an average price-to-sales (P/S) ratio of 1.65, with the peak of more than 15 in December 2020. But because the stock has gotten crushed in the last couple of years, it currently sells for a P/S multiple of 1.71. All else equal, a lower valuation results in the potential for greater upside. So, for those who are bullish on Block, now could be one of the best times to buy shares.