GNA Axels

Heidelberg Cements

Federal Bank

EPS (Earnings/Share)

- 25% increase year on year

- compare the peer EPS as pulse check of the company performance

Book Value (Total Assets – Total Liabilities) –

- Book Value per Share – Book value/ number of outstanding share - gives the intrinsic
value of share (actual value)

Price to Book Value (PBV) ratio

– provides the number of times higher/lower price of the current market price of the share

- Greater PVB means higher than book value

Net Profit Vs EPS – If both net profit and EPS have a consistent rise, then it’s a good stock. If there is
a steep increase in EPS compared to net profit then the company might circulate more shares to
generate more cash ( not a good sign)

Dividend –

A growing dividend is a very good sign in many ways. It means that the company has shared its
growing profit with its shareholders, which confirms the high integrity of management. It also
confirms that the investment would yield a good dividend in coming days. Sometimes a company
may need cash to invest in future investments to fuel further growth, so it may not be able to
distribute a high percentage of dividend.

As in case of EPS, Dividend Per Share would closely follow the growth in Dividend provided that
the Company has not diluted its equity by issuing more shares

EQUITY DILUTION –
It is one of the important factors to be kept in mind while investing. A company may be earning
huge profits and may be distributing a high dividend, however if it keeps issuing more shares, that
would dilute your ownership of the company. So that would mean, though your company would
make money but you won`t.

Please note that Splits or bonus shares don`t contribute towards equity dilution as in such cases,
the shares of all the owners increase proportionally.

DEBT EQUITY RATIO

A high debt equity ratio is a bad sign for the safety of investment. If the debt is decreasing over a
period of time, it is a good sign. Vice-versa, an increasing debt is a bad sign. The companies that have
a debt equity ratio greater than 0.5 should be avoided

CURRENT RATIO
Current Ratio = Current Assets/ Current Liabilities

Ratio denotes the operating financial health of the company. 

A current ratio of 2 is considered ideal. Companies that have current ratio less than 1 should be
avoided.

INTEREST COVERAGE RATIO

Interest Coverage Ratio = Earning Before Interest and Tax (EBIT) / Interest

A high interest coverage ratio means a high capacity to bear the interest of the debt with profit. In
order to ensure safety of the investment, one should never invest in the companies that have
interest coverage ratio of less than 2.5.

INCOME VS OPERATING CASHFLOW

Operating Cash Flow = EBIT (Earnings Before Interest & Tax ) + Depreciation & Amortization –
Changes in Working Capital

Operating Cashflow is the amount of cash generated by the company’s general operations. For an
ideal company, the operating cash flow would normally be higher than the net income and would
tend to be parallel to the net income unless in case of a huge shift in company’s strategy which you
should investigate about.

A huge deviation between income and operating cash flow depicts the possibility of accounting
manipulation. Operating Cashflow is a very important metric when you want to analyse about how
reliable a company’s profit figures are.

SHAREHOLDING PATTERN

The important thing to note in the above chart is to ensure that there are no pledged shares.
Pledging the shares denotes that there is something wrong with the company as it is usually the last
resort used by the promoters to raise money. Promoter Shareholders % should be more than 25%

RETURN ON EQUITY
Return on Equity is the measure of efficiency of the company at generating profit with respect to its
net worth. A company which has high return on equity is likely to grow faster in future in comparison
to one that has lesser return on equity.
It is a measure of how efficiently a company has been put its assets to use in order to generate
profits. It is advisable to target companies that have RoE greater than 15%.

NET PROFIT MARGIN

Net Profit Margin = Net Profit / Revenue

Net Profit Margin is the measure of how much of the company’s revenue actually translates into
profit after covering all expenses, interest, tax etc.

If Company A has higher net profit margin than Company B both belonging to the same sector, it
means that the Company A is able to generate higher amount of profit wrt cost in comparison to
company B . It also means that the company A has a competitive advantage over company B due to
which it is able to maintain higher net profit margin.

NET PROFIT VS REVENUE

If you don`t see profit growth following the similar growth in revenue, it means that the Net Profit
Margin of the company has decreased over the period of time, which is a sign of increasing cost and
competition.

FREE CASH FLOW

Free Cash Flow= Cash flow from operations – Investment in operating Capital

Free Cash Flow represents the amount of cash that the company is able to retain out of Cash
generated from Operations after meeting all its operating capital expenses. The operating capital
expenses/investment represents Maintenance or Expansion of assets (buying or upgrading new
Machinery, Plant etc.)

A consistently negative FCF means that the company is struggling to meet its operating capital
needs with the cash that it generates from operations.