FUNDAMENTAL PARAMETERS TO BE CHECKED

1 Basic Parameters

i Market Capitalization:
Large cap: first 100 stocks, > 45,000 Cr
Mid cap: next 150 stocks, 45,000 Cr to 15,000 Cr
Small cap: next 250 stocks, < 15,000 Cr

ii Stock PE:
Check stock current PE for 10 years and 5 years with Median PE.
If current PE is less than median PE then stock is undervalued. If
current PE is greater than median PE then avoid to buy this stock.
Also avoid if PE is greater than 100.

iii Book Value:

If current price less than book value then company is
undervalued. If current price is greater than book value then
checks other parameters to get company business health.
Current price can be greater than book value because of brand
goodwill created in market

iv Dividend Yield:
Do not invest in high dividend yield company, since company
distributes profits as dividend and does not reinvest for future
growth

v ROCE:
It should be greater than 15%

vi ROE:
 ROE is checked for banking and NBFC companies and it should be
greater than 12

vii Pledged Percentage: It should not be more 5% of all shares

issued by company

viii Debt to Equity:

It should be less than 0.2. It is not applicable for banking and
NBFC companies. When other borrowing and other liabilities are
zero then company is debt free. When cash equivalents in other
assets are greater than debt then company is net debt free. If
debt to equity ratio is not as per criteria, then check cash
equivalents. If cash equivalents are greater than debt then stock
can be considered for investment.

ix Shareholding pattern: Promoters, FIIs, DIIs are considered

as ‘Strong Hands’. So, the large % of company in the strong
hands reflects company have potential to grow. Its should
not be less than 50% and ‘public’ should not have more
than 30%.

x Compounded profit growth Vs Stock price CAGR:

Compounded profit growth should be similar to Stock price
CAGR. If compounded profit growth is negative or very less and
stock price CAGR is high then it is doubtful that there must be
stock price manipulation.

2 Quarterly Result

i Net Sales/Revenue:
 It should be increasing quarter on quarter. If it is increasing QoQ
and sales of any quarter in between is less then, check reason for
it.

ii Net Profit:
It should be increasing quarter on quarter. If it is increasing QoQ
and net profit of any quarter in between is less then, check
reason for it. If QoQ profit is decreased then check other income
(FD, Mutual fund investment), since profit can be decreased
because of less other income. Ignore to less other income.

iii Operating Profit:

Operating profit should be consistence QoQ.

3 Profit and Loss

i Net Sales/Revenue:
Increasing year on year. If it is increasing YoY and sales of any year
in-between is less then check reason for it.

ii Net Profit:
It should be increasing year on year. If it is increasing YoY and net
profit of any year in-between is less then check reason for it. If
YoY profit is decreased then check other income (FD, Mutual
fund investment), since profit can be decreased because of less
other income. Ignore to less other income.

iii Operating Profit:

Operating profit should be consistence YoY.

4 Balance sheet
 i Reserve: It should be increasing year on year.

ii Borrowing (Loan): It should be decreasing year on year. It is

not applicable for bank and NBFC companies.

iii Fixed Asset: If company is small cap and fixed asset is

increasing YoY that means company is increasing its
production capacity and company may grow more in future.
Fixed asset means land, machinery etc.

Other Parameters for Information

1 Intangible asset (asset not in physical form) or goodwill: It is

brand value in market.

2 Expense: Operating expense: It is current expense which is done

for day-to-day activities Capital expense: It is onetime expense
e.g., buying land or machinery
3 Depreciation: Economic life of tangible asset (asset in physical
form). For example, towers installed by Reliance having 100 Cr
cost and 25 years life then depreciation cost of that towers is 4
Cr for each year (100 Cr / 25 years). Some companies show less
depreciation cost to increase net profit.
4 CWIP (Capital Work in Progress): Asset which is under
construction. After completion its construction, it will become
fixed asset.

Notes
1 After getting stock buy signal as per strategy, first go to
screener.in website and check fundamentals on company.
2 Always do analysis on consolidated result.