Question

Before you put your money down and purchase a stock, what should you know
about it? Explain

Answer 1

ANSWER DOWN BELOW. FEEL FREE TO ASK ANY DOUBTS. THUMBS UP PLEASE.

You need to do the fundamental analysis of the company before buying the stock.

Buying the stock means taking ownership of the business.

You need to know the fundamentals of the business. Some key fundamental parameters to look after are:

1. Debt to equity should be less 1.

2. Interest coverage ratio should be more than 3.

3. P.E ratio is less than twice of the last three years average EPS growth rate. (valuation purposes)

4. Last three years average Return on Equity (ROE) and Return on Capital Employed (ROCE) both are greater than 20%.

5. Promoters pledge less than 10% of their total shareholdings, or there is a clear indication that it will fall below 10% soon. (better if it is NIL).

6. Last three years CAGR sales growth rate is more than 10%.

7. Last three years CAGR profit growth rate is more than 12%. I.e EPS Growth.

8. There must be High ROE & low P/B value Ratio. P/B below 3 is acceptable. It's it sector-specific. Like that of Auto, sectors is different from IT sectors(intangible assets).

9. operational and free cash flow per share for the past three years are positive.

Also, consider the Current Assets/ Current liabilities ratio (Current Ratio) more than 1-2.

See the Shareholding pattern. If promoters shareholding & Institutional shareholding increases then it is a good sign.