Qualitative Analysis

1. How efficient is the company in terms of operations?

2. What is the quality of its key management personnel?
3. How does the brand value of a company appear?
4. Does the company use any exclusive (proprietary) technology?
5. What socially responsible initiatives is the company undertaking?
6. What is the company’s vision for the future?

Quantitative Analysis
1. P & L Statement of xyz share on Tickertape
It consists of
 The revenue of the company for a certain time period (quarterly or
yearly)
 Tax and depreciation
 The EPS number
 The expenses incurred to generate the revenues
Main Paramenters
revenue, Profit Before Interest and Tax (PBIT), and net income.
net profit for the last 5-10 yrs and operating profit to have a deeper
understanding of the P&L statement

2. Balance sheet of xyz share

In a balance sheet, at any point in time, the total assets of a company
should always be equal to the company’s liabilities, including
shareholder’s equity.
Assets = Liabilities + Shareholders
If a company’s assets are higher than the liabilities, you can mark the
company as ‘good for further assessment’. However, if the liabilities are
higher, it is usually considered ‘not worth investing’’.
 3. Cash Flow Statement of xyz share
For the analysis purpose, we check the factor ‘Free Cash Flow’. A positive
cash flow indicates that the company’s assets are growing from where
they started. In contrast, a negative cash flow indicates otherwise.
4. Annual Reports
As an investor, you should look for the business overview,
financial/performance highlights, Management Discussion and Analysis
(MD&A), Director/Board’s report, notes to accounts, auditor’s report,
Chairman’s statement, and debt scenario.

5. Financial Ratios

PAT margin = [PAT / Total revenue] *100

The higher the PAT margin, the better the profitability of a company. It is
referred to as Net Profit Margin (NPM). It should be compared with the
previous years’ trends or competitors to understand more deeply.

ROE = [ Net income / Shareholders’ equity] * 100

To calculate the shareholders’ equity, subtract a company’s total liabilities
from its total assets. You can get this information from the balance sheet.

Shareholders’ equity = Total assets – Total liabilities

High ROE signifies good cash generation by the company, conveying a good
performance by management, whereas low ROE indicates otherwise. ROE of
a company can also be compared with its competitors and past years’ trends
to get a better understanding.

ROA = Net income / Total assets

The higher the ROA, the more efficient management is in utilising the
economic resources. Both ROE and ROA reflect how well a company utilises
its resources. However, there is one key difference which is the way they
treat a company’s debt. ROA captures how much debt a company carries as
its total assets include all kinds of capital. On the other hand, ROE leaves out
all the liabilities and only measures the return on a company’s equity.

If a company has more debt, its RoE would be higher than its ROA.

A higher ROCE suggests efficient management in terms of capital employed.

However, a lower ROCE may indicate a lot of cash on hand as cash is
included in total assets. As a result, high levels of cash can sometimes skew
this metric.

Leverages Ratios

Debt-to-equity ratio = Total debt / Shareholders’ equity

1. The maximum acceptable debt-to-equity ratio for many companies is

between 1.5-2 or less. For larger companies, debt to equity ratio of 2 or
higher is acceptable. Ultimately, an ideal debt-to-equity ratio varies
across companies based on the sector they belong to.

Interest coverage ratio = EBIT / Interest expense

The lower the ratio, the more the company has a debt burden. The
company’s ability to pay back the debt is questionable when the
interest coverage ratio is only 1.5 or lower. The analysts usually prefer
an interest coverage ratio of 2 or more.

Operating Ratios

Working capital turnover ratio = Revenue / Average working capital

The higher the working capital turnover ratio of a company, the better sales it
can generate in comparison with the funds they have used to execute the
sales.
To determine if a stock is undervalued or overvalued, the P/E ratio of that
stock is compared with other stocks of the same industry and/or with the
sector P/E. A high P/E ratio could mean that the stock price is relatively
higher than its earnings and possibly overvalued. In contrast, a low P/E ratio
might indicate the stock’s price is low relative to earnings and perhaps
undervalued.

P/s Ratio

he higher the P/S ratio, the higher the valuation of the company. Conversely,
a low ratio indicates the stock is undervalued.