Today we will look at the various important Screener tips which can help an investor in the effective fundamental analysis of a company.
For an example, we will have a look at Sical Logistics Ltd. Here are curated ratios which I use for evaluating for this company. Readers who are interested can add them on their Screener to have a quick look everytime they want to evaluate a company.
The most important ratios which an investor should focus on are
- Market Capitalization
- Stock PE
- Dividend Yield
- Debt
- EPS
- Debt to equity
- Operating Profit Margin
- Return on invested capital
- Change in promoter holdings
- Pledged percentage
- Graham number
Having a quick glance at the above ratio will let you know brief knowledge of the company fundamentals.
- Market Capitalization: An investor should never invest in a company whose MCap is less than 100 Crores. As such companies could easily be manipulated by the promoters or some group of people. I generally look at companies above 1000 Crores for investment. It gives some safe side to investment.
- Stock PE: Just by looking at PE one cannot identify anything. It should be compared with Industry PE. Unfortunately, Screener doesn’t calculate that ratio for us. You can look on Moneycontrol website for the industry PE.
- Dividend Yield: It gives an estimate of the amount of annual dividend you will get from the stock. It depends on the stock price. The dividend yield is the percentage of annual dividend divided by current market price. Generally, good growth companies do not pay a high dividend. If a company is able to use its profits by investing in itself it is very good for investors.
- Debt: Gives total loan taken by companies. You should avoid companies which have huge debt and is comparable to the market capitalization of the company.
- EPS: This ratio should be watched annually in the PnL statement of the company. If EPS Is growing over years, it is very good indication that the company is worth having a deep look. The companies which have volatile EPS should be avoided.
- Debt to equity: It is another important factor to look upon. Usually, this ratio should be less than 1. A very few time when a company is at a turn around situation (this thing could be figured out by deep analysis of the annual report and quarterly results), one cannot rely much on debt to equity ratio.
- Operating Profit Margin: This ratio is quite good if investor looked over years or quarter. There are a lot of companies which are not able to increase sales growth but able to increase operating profit margin over time.
- Return on invested capital: This gives a good idea of how a company is utilizing funds available to it. The funds also include equity part plus loan or borrowing taken from banks or external sources.
- Change in promoter holding: When promoter stake is not getting diluted over time, it is good for investors. It tells us that the promoters are having confidence in the company.
- Pledged percentage: When promotor pledges their shares it leaves a negative impression towards a company. Sometimes promotor pledges their share in order to provide working capital loan etc. to the company. So a good look at an annual report will give further insight on the use of pledged money.
- Graham Number: This number was laid down by the father of value investing. Though I don’t use it much if company share value is greater than Graham number then it is considered over-valued. And if share value is less than Graham number, it is considered as undervalued.
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Further reading