A common dream of our society is how to become rich. Sincere persons set a target to be achieved in
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How to Do Fundamental Analysis of Stocks
Debt: Net Worth ratio
If the company has
Debt: Net Worth (Equity)> 3
It means that the company has a capital of 100 &its debt from the market is 300. These types of companies are highly debt company and not worth investing.
The main concern of
If the company is debt free the company can concentrate on product quality, service and customer satisfaction only. That is why a debt-free company is better than a high debt company. From the above
Debt: Net Worth (Equity)> 2
It means that the company has a capital of 100 &its debt from the market is 200. These types of companies are not also worth investing.
Debt: Net Worth (Equity) = 1
It signifies that the company has a capital of 100 and its debt from the market is 100. This condition is satisfactory for housing or financial companies. These companies give easy loans and in return receive the loan back with an interest. Again when the ratio is equal to one the companies operating in consumer durable or engineering sectors worth choosing. They normally use the debt in innovation & research. If they get patent for such innovative ideas, they are the only companies in the production with a monopoly.
For example, if Motherson Sumi or Minda Industries get a patent of such an engine which consumes less petrol/ diesel or the engine works on solar energy or tidal energy or any other natural resources which are cheap in price, they will be the only sellers of the engine or any other thing which they have to get the patent. Finally, they will enjoy the monopoly in the sector.
Debt: Net Worth (Equity) < 0.50 then the company has a capital of 100 and it has a debt from the market 50. This type of company is worth investing in.
Debt: Net Worth (Equity) < 0.25 then the company has a capital of 100 and it has a debt from the market 25. This type of company is worth investing in.
Debt: Net Worth (Equity) =0 then the company has a capital of 100 and it has no debt from the market i.e., it is a debt free company. This type of company has a huge potential to give you a better return.
|Company||Market Cap||Debt Ratio||Return|
|Titan Company||71520 Crore||0.00||29.17%|
|Minda Industries||8,029 Crore||0.17||26.03%|
|Pidilite Industries||50469 Crore||0.00||27.19%|
|Asian Paints||121002 Crore||0.00||25.46%|
The benefits of investment in
debt free companies
Banks also prefer those companies which have
In addition to Debt free status, you need to keep a close eye on what the management policy or road-map a company maintains to pay off the debt in the future. With an appropriate road-map, a company can clear out the debt it receives for business. Then after the complete repayment of
Compounded sales Growth
Select a company that has been generating sales Growth annually for the last 5 financial years of at least 10%. When a company’s sales increase then naturally the company will make more profit. So this will affect its share price.
Profit after Tax (PAT) growth
Choose a company whose profit growth increases at least 15% on
Return on Equity
If a company fails to give you a yearly return of at least 20% you may stop investing in that company and move to another one.
The price-earnings ratio (P/E ratio)
When a company’s sales & profit margin increase naturally its share price also increases. This is commonly known as the Price-Earnings Ratio or P/E Ratio. Companies with a high P/E ratio are growth stocks that achieve
In addition to, the lower P/E ratio of sectors does not mean that this sector is undervalued and they are going to boom and deliver multibagger return in the near future with compared to that sectors which have higher P/E ratio. These sectors have higher valuation just because the market is bullish on these sectors and their future potential like Automobile, FMCG, Petroleum, etc. As they are core sectors of the Indian economy and have the potential to deliver robust performance in the upcoming years.
Inventory is the stock or ready to sell products. A company that has large inventory supplies its products at the time of sale. It is considered to be the portion of a business’s assets that are ready or will be ready for sale. Inventory data is important for a consumer durable sector i.e., garments, ornaments, mobile, gadgets, jewelry sector. Our country has many festivals throughout the year. So, Companies with huge inventories offer a sale on discount on several items. They can do so because they have available inventories to fulfill such a huge demand for the festive seasons. That is why inventories are good for such type of companies.
A beta of a Stock
A beta is a measurement of the volatility of a share in respect of
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