8 key ratios for picking good stocks

T he following 8 financial ratios offer terrific insights into the financial health of a company -- and the prospects for a rise in its share price.

1. Ploughback and reserves

After deduction of all expenses, including taxes, the net profits of a company are split into two parts -- dividends and ploughback.
Dividend is that portion of a company's profits which is distributed to its shareholders, whereas ploughback is the portion that the company retains and gets added to its
reserves.
The figures for ploughback and reserves of any company can be obtained by a cursory glance at its balance sheet and profit and loss account.
Ploughback is important because it not only increases the reserves of a company but also provides the company with funds required for its growth and expansion. All
growth companies maintain a high level of ploughback. So if you are looking for a growth company to invest in, you should examine its ploughback figures.
Companies that have no intention of expanding are unlikely to plough back a large portion of their profits.
Reserves constitute the accumulated retained profits of a company. It is important to compare the size of a company's reserves with the size of its equity capital. This will
indicate whether the company is in a position to issue bonus shares.
As a rule-of-thumb, a company whose reserves are double that of its equity capital should be in a position to make a liberal bonus issue.
Retained profits also belong to the shareholders. This is why reserves are often referred to as shareholders' funds. Therefore, any addition to the reserves of a company will
normally lead to a corresponding an increase in the price of your shares.
The higher the reserves, the greater will be the value of your shareholding. Retained profits (ploughback) may not come to you in the form of cash, but they benefit you by
pushing up the price of your shares.
2. Book value per share
You will come across this term very often in investment discussions. Book value per share indicates what each share of a company is worth according to the company's
books of accounts.
The company's books of account maintain a record of what the company owns (assets), and what it owes to its creditors (liabilities). If you subtract the total liabilities of a
company from its total assets, then what is left belongs to the shareholders, called the shareholders' funds.
If you divide shareholders' funds by the total number of equity shares issued by the company, the figure that you get will be the book value per share.
Book Value per share = Shareholders' funds / Total number of equity shares issued
The figure for shareholders' funds can also be obtained by adding the equity capital and reserves of the company.
Book value is a historical record based on the original prices at which assets of the company were originally purchased. It doesn't reflect the current market value of the
company's assets.
Therefore, book value per share has limited usage as a tool for evaluating the market value or price of a company's shares. It can, at best, give you a rough idea of what a
company's shares should at least be worth.
The market prices of shares are generally much higher than what their book values indicate. Therefore, if you come across a share whose market price is around its book
value, the chances are that it is under-priced. This is one way in which the book value per share ratio can prove useful to you while assessing whether a particular share is
over- or under-priced.
3. Earnings per share (EPS)
EPS is a well-known and widely used investment ratio. It is calculated as:
Earnings Per Share (EPS) = Profit After Tax / Total number of equity shares issued
This ratio gives the earnings of a company on a per share basis. In order to get a clear idea of what this ratio signifies, let us assume that you possess 100 shares with a face
value of Rs 10 each in XYZ Ltd. Suppose the earnings per share of XYZ Ltd. is Rs 6 per share and the dividend declared by it is 20 per cent, or Rs 2 per share. This means
that each share of XYZ Ltd. earns Rs 6 every year, even though you receive only Rs 2 out of it as dividend.
The remaining amount, Rs 4 per share, constitutes the ploughback or retained earnings. If you had bought these shares at par, it would mean a 60 per cent return on your
investment, out of which you would receive 20 per cent as dividend and 40 per cent would be the ploughback. This ploughback of 40 per cent would benefit you by
pushing up the market price of your shares. Ideally speaking, your shares should appreciate by 40 per cent from Rs 10 to Rs 14 per share.
This illustration serves to drive home a basic investment lesson. You should evaluate your investment returns not on the basis of the dividend you receive, but on the basis
of the earnings per share. Earnings per share is the true indicator of the returns on your share investments.
Suppose you had bought shares in XYZ Ltd at double their face value, i.e. at Rs 20 per share. Then an EPS of Rs 6 per share would mean a 30 per cent return on your
investment, of which 10 per cent (Rs 2 per share) is dividend, and 20 per cent (Rs 4 per share) the ploughback.
Under ideal conditions, ploughback should push up the price of your shares by 20 per cent, i.e. from Rs 20 to 24 per share. Therefore, irrespective of what price you buy a
particular company's shares at its EPS will provide you with an invaluable tool for calculating the returns on your investment.
4. Price earnings ratio (P/E)
The price earnings ratio (P/E) expresses the relationship between the market price of a company's share and its earnings per share:
Price/Earnings Ratio (P/E) = Price of the share / Earnings per share
This ratio indicates the extent to which earnings of a share are covered by its price. If P/E is 5, it means that the price of a share is 5 times its earnings. In other words, the
company's EPS remaining constant, it will take you approximately five years through dividends plus capital appreciation to recover the cost of buying the share. The lower
the P/E, lesser the time it will take for you to recover your investment.
P/E ratio is a reflection of the market's opinion of the earnings capacity and future business prospects of a company. Companies which enjoy the confidence of investors
and have a higher market standing usually command high P/E ratios.
For example, blue chip companies often have P/E ratios that are as high as 20 to 60. However, most other companies in India have P/E ratios ranging between 5 and 20.
On the face of it, it would seem that companies with low P/E ratios would offer the most attractive investment opportunities. This is not always true. Companies with high
current earnings but dim future prospects often have low P/E ratios.
Obviously such companies are not good investments, notwithstanding their P/E ratios. As an investor your primary concern is with the future prospects of a company and
not so much with its present performance. This is the main reason why companies with low current earnings but bright future prospects usually command high P/E ratios.
To a great extent, the present price of a share, discounts, i.e. anticipates, its future earnings.
All this may seem very perplexing to you because it leaves the basic question unanswered: How does one use the P/E ratio for making sound investment decisions?
The answer lies in utilising the P/E ratio in conjunction with your assessment of the future earnings and growth prospects of a company. You have to judge the extent to
which its P/E ratio reflects the company's future prospects.
If it is low compared to the future prospects of a company, then the company's shares are good for investment. Therefore, even if you come across a company with a high
P/E ratio of 25 or 30 don't summarily reject it because even this level of P/E ratio may actually be low if the company is poised for meteoric future growth. On the other
hand, a low P/E ratio of 4 or 5 may actually be high if your assessment of the company's future indicates sharply declining sales and large losses.
5. Dividend and yield
There are many investors who buy shares with the objective of earning a regular income from their investment. Their primary concern is with the amount that a company
gives as dividends -- capital appreciation being only a secondary consideration. For such investors, dividends obviously play a crucial role in their investment calculations.
It is illogical to draw a distinction between capital appreciation and dividends. Money is money -- it doesn't really matter whether it comes from capital appreciation or
from dividends.
A wise investor is primarily concerned with the total returns on his investment -- he doesn't really care whether these returns come from capital appreciation or dividends,
or through varying combinations of both. In fact, investors in high tax brackets prefer to get most of their returns through long-term capital appreciation because of tax
considerations.
Companies that give high dividends not only have a poor growth record but often also poor future growth prospects. If a company distributes the bulk of its earnings in the
form of dividends, there will not be enough ploughback for financing future growth.
On the other hand, high growth companies generally have a poor dividend record. This is because such companies use only a relatively small proportion of their earnings
to pay dividends. In the long run, however, high growth companies not only offer steep capital appreciation but also end up paying higher dividends.
On the whole, therefore, you are likely to get much higher total returns on your investment if you invest for capital appreciation rather than for dividends. In short, it all
boils down to whether you are prepared to sacrifice a part of your immediate dividend income in the expectation of greater capital appreciation and higher dividends in
the years to come and the whole issue is basically a trade-off between capital appreciation and income.
Investors are not really interested in dividends but in the relationship that dividends bear to the market price of the company's shares. This relationship is best expressed
by the ratio called yield or dividend yield:
Yield = (Dividend per share / market price per share) x 100
Yield indicates the percentage of return that you can expect by way of dividends on your investment made at the prevailing market price. The concept of yield is best
clarified by the following illustration.
Let us suppose you have invested Rs 2,000 in buying 100 shares of XYZ Ltd at Rs 20 per share with a face value of Rs 10 each.
If XYZ announces a dividend of 20 per cent (Rs 2 per share), then you stand to get a total dividend of Rs 200. Since you bought these shares at Rs 20 per share, the yield
on your investment is 10 per cent (Yield = 2/20 x 100). Thus, while the dividend was 20 per cent; but your yield is actually 10 per cent.
The concept of yield is of far greater practical utility than dividends. It gives you an idea of what you are earning through dividends on the current market price of your
shares.
Average yield figures in India usually vary around 2 per cent of the market value of the shares. If you have a share portfolio consisting of shares belonging to a large
number of both high-growth and high-dividend companies, then on an average your dividend in-come is likely to be around 2 per cent of the total market value of your
portfolio.
6. Return on Capital Employed (ROCE), and
7. Return on Net Worth (RONW)
While analysing a company, the most important thing you would like to know is whether the company is efficiently using the capital (shareholders' funds plus borrowed
funds) entrusted to it.
While valuing the efficiency and worth of companies, we need to know the return that a company is able to earn on its capital, namely its equity plus debt. A company that
earns a higher return on the capital it employs is more valuable than one which earns a lower return on its capital. The tools for measuring these returns are:
1. Return on Capital Employed (ROCE), and
2. Return on Net Worth (RONW).
Return on Capital Employed and Return on Net Worth (shareholders funds) are valuable financial ratios for evaluating a company's efficiency and the quality of its
management. The figures for these ratios are commonly available in business magazines, annual reports and economic newspapers and financial Web sites.
Return on capital employed
Return on capital employed (ROCE) is best defined as operating profit divided by capital employed (net worth plus debt).
The figure for operating profit is arrived at after adding back taxes paid, depreciation, extraordinary one-time expenses, and deducting extraordinary one-time income and
other income (income not earned through mainline operations), to the net profit figure.
The operating profit of a company is a better indicator of the profits earned by it than is the net profit.
ROCE thus reflects the overall earnings performance and operational efficiency of a company's business. It is an important basic ratio that permits an investor to make
inter-company comparisons.
Return on net worth
Return on net worth (RONW) is defined as net profit divided by net worth. It is a basic ratio that tells a shareholder what he is getting out of his investment in the
company.
ROCE is a better measure to get an idea of the overall profitability of the company's operations, while RONW is a better measure for judging the returns that a shareholder
gets on his investment.
The use of both these ratios will give you a broad picture of a company's efficiency, financial viability and its ability to earn returns on shareholders' funds and capital
employed.
8. PEG ratio
PEG is an important and widely used ratio for forming an estimate of the intrinsic value of a share. It tells you whether the share that you are interested in buying or
selling is under-priced, fully priced or over-priced.
For this you need to link the P/E ratio discussed earlier to the future growth rate of the company. This is based on the assumption that the higher the expected growth rate
of the company, the higher will be the P/E ratio that the company's share commands in the market.
The reverse is equally true. The P/E ratio cannot be viewed in isolation. It has to be viewed in the context of the company's future growth rate. The PEG is calculated by
dividing the P/E by the forecasted growth rate in the EPS (earnings per share) of the company.
As a broad rule of the thumb, a PEG value below 0.5 indicates a very attractive buying opportunity, whereas a selling opportunity emerges when the PEG crosses 1.5, or
even 2 for that matter.
The catch here is to accurately calculate the future growth rate of earnings (EPS) of the company. Wide and intensive reading of investment and business news and
analysis, combined with experience will certainly help you to make more accurate forecasts of company earnings.
Stock investing requires careful analysis of financial data to find out the company's true worth. This is generally done by examining the company's
profit and loss account, balance sheet and cash flow statement. This can be time-consuming and cumbersome. An easier way to find out about a
company's performance is to look at its financial ratios, most of which are freely available on the internet.
Though this is not a foolproof method, it is a good way to run a fast check on a company's health.
"Ratio analysis is crucial for investment decisions. It not only helps in knowing how the company has been performing but also makes it easy for
investors to compare companies in the same industry and zero in on the best investment option," says DK Aggarwal, chairman and managing
director, SMC Investments and Advisors.
We bring you eleven financial ratios that one should look at before investing in a stock .

P/E RATIO
The price-to-earnings, or P/E, ratio shows how much stock investors are paying for each rupee of earnings. It shows if the market is overvaluing or
undervaluing the company.
One can know the ideal P/E ratio by comparing the current P/E with the company's historical P/E, the average industry P/E and the market P/E.
For instance, a company with a P/E of 15 may seem expensive when compared to its historical P/E, but may be a good buy if the industry P/E is 18
and the market average is 20.
Sabyasachi Mukherjee, AVP and product head, IIFL, says, "A high P/E ratio may indicate that the stock is overpriced. A stock with a low P/E may
have greater potential for rising. P/E ratios should be used in combination with other financial ratios for informed decisionmaking."
"P/E ratio is usually used to value mature and stable companies that earn profits. A high PE indicates that the stock is either overvalued (with
respect to history and/or peers) or the company's earnings are expected to grow at a fast pace. But one must keep in mind that companies can
boost their P/E ratio by adding debt (thereby constricting equity capital). Also, as future earnings estimates are subjective, it's better to use past
earnings for calculating P/E ratios," says Vikas Gupta, executive vice president, Arthaveda Fund Management.
PRICE-TO-BOOK VALUE
The price-to-book value (P/BV) ratio is used to compare a company's market price to its book value. Book value, in simple terms, is the amount
that will remain if the company liquidates its assets and repays all its liabilities.
P/BV ratio values shares of companies with large tangible assets on their balance sheets. A P/BV ratio of less than one shows the stock is
undervalued (value of assets on the company's books is more than the value the market is assigning to the company). It indicates a company's
inherent value and is useful in valuing companies whose assets are mostly liquid, for instance, banks and financial institutions.

'Ratio analysis is crucial for investment decisions. It not only helps in knowing how the company has been performing but also makes it easy for
investors to compare companies in the same industry and zero in on the best investment option', says DK Aggarwal, Chairman and Managing
Director at SMC Investments and Advisors

DEBT-TO-EQUITY RATIO
It shows how much a company is leveraged, that is, how much debt is involved in the business vis-a-vis promoters' capital (equity). A low figure is
usually considered better. But it must not be seen in isolation.
"If the company's returns are higher than its interest cost, the debt will enhance value. However, if it is not, shareholders will lose," says Aggarwal
of SMC.
"Also, a company with low debt-to-equity ratio can be assumed to have a lot of scope for expansion due to more fund-raising options," he says.
But it is not that simple. "It is industry-specific with capital intensive industries such as automobiles and manufacturing showing a higher figure
than others. A high debt-to-equity ratio may indicate unusual leverage and, hence, higher risk of credit default, though it could also signal to the
market that the company has invested in many high-NPV projects," says Vikas Gupta of Arthaveda Fund Management. NPV, or net present value,
is the present value of future cash flow.
'A high P/E ratio may indicate that the stock is overpriced. A stock with a low P/E may have greater potential for rising. P/E ratios should be used
in combination with other financial ratios for informed decision-making' , says Sabyasachi Mukherjee, AVP and Product Head at IIFL

OPERATING PROFIT MARGIN (OPM)

The OPM shows operational efficiency and pricing power. It is calculated by dividing operating profit by net sales.
Aggarwal of SMC says, "Higher OPM shows efficiency in procuring raw materials and converting them into finished products."
It measures the proportion of revenue that is left after meeting variable costs such as raw materials and wages. The higher the margin, the better it
is for investors.
While analysing a company, one must see whether its OPM has been rising over a period. Investors should also compare OPMs of other
companies in the same industry.
EV/EBITDA
Enterprise value (EV) by EBITDA is often used with the P/E ratio to value a company. EV is market capitalisation plus debt minus cash. It gives a
much more accurate takeover valuation because it includes debt. This is the main advantage it has over the P/E ratio, which we saw can be skewed
by unusually large earnings driven by debt. EBITDA is earnings before interest, tax, depreciation and amortisation.
This ratio is used to value companies that have taken a lot of debt. "The main advantage of EV/EBITDA is that it can be used to evaluate
companies with different levels of debt as it is capital structure-neutral. A lower ratio indicates that a company is undervalued. It is important to
note that the ratio is high for fast-growing industries and low for industries that are growing slowly," says Mukherjee of IIFL.
PRICE/EARNINGS GROWTH RATIO
The PEG ratio is used to know the relationship between the price of a stock, earnings per share (EPS) and the company's growth.
Generally, a company that is growing fast has a higher P/E ratio. This may give an impression that is overvalued. Thus, P/E ratio divided by the
estimated growth rate shows if the high P/E ratio is justified by the expected future growth rate. The result can be compared with that of peers
with different growth rates.
A PEG ratio of one signals that the stock is valued reasonably. A figure of less than one indicates that the stock may be undervalued.
RETURN ON EQUITY
The ultimate aim of any investment is returns. Return on equity, or ROE, measures the return that shareholders get from the business and overall
earnings. It helps investors compare profitability of companies in the same industry. A figure is always better. The ratio highlights the capability of
the management. ROE is net income divided by shareholder equity.
"ROE of 15-20% is generally considered good, though high-growth companies should have a higher ROE. The main benefit comes when earnings
are reinvested to generate a still higher ROE, which in turn produces a higher growth rate. However, a rise in debt will also reflect in a higher
ROE, which should be carefully noted," says Mukherjee of IIFL.
"One would expect leveraged companies (such as those in capital intensive businesses) to exhibit inflated ROEs as a major part of capital on which
they generate returns is accounted for by debt," says Gupta of Arthaveda Fund Management.
INTEREST COVERAGE RATIO
It is earnings before interest and tax, or EBIT, divided by interest expense. It indicates how solvent a business is and gives an idea about the
number of interest payments the business can service solely from operations.
One can also use EBITDA in place of EBIT to compare companies in sectors whose depreciation and amortisation expenses differ a lot. Or, one
can use earnings before interest but after tax if one wants a more accurate idea about a company's solvency.
CURRENT RATIO
This shows the liquidity position, that is, how equipped is the company in meeting its short-term obligations with short-term assets. A higher
figure signals that the company's day-to-day operations will not get affected by working capital issues. A current ratio of less than one is a matter
of concern.
The ratio can be calculated by dividing current assets with current liabilities. Current assets include inventories and receivables.Sometimes
companies find it difficult to convert inventory into sales or receivables into cash. This may hit its ability to meet obligations. In such a case, the
investor may calculate the acid-test ratio, which is similar to the current ratio but with the exception that it does not include inventory and
receivables.
ASSET TURNOVER RATIO
It shows how efficiently the management is using assets to generate revenue. The higher the ratio, the better it is, as it indicates that the company
is generating more revenue per rupee spent on the asset. Experts say the comparison should be made between companies in the same industry.
This is because the ratio may vary from industry to industry. In sectors such as power and telecommunication , which are more asset-heavy,
the asset turnover ratio is low, while in sectors such as retail, it is high (as the asset base is small).
 'A high dividend yield could signify a good long-term investment as companies' dividend policies are generally fixed in the long run', says Vikas
Gupta Executive Vice President at Arthaveda Fund Management

DIVIDEND YIELD
It is dividend per share divided by the share price. A higher figure signals that the company is doing well. But one must be wary of penny stocks
(that lack quality but have high dividend yields) and companies benefiting from one-time gains or excess unused cash which they may use to
declare special dividends. Similarly, a low dividend yield may not always imply a bad investment as companies (particularly at nascent or growth
stages) may choose to reinvest all their earnings so that shareholders earn good returns in the long term.
"A high dividend yield, however, could signify a good long-term investment as companies' dividend policies are generally fixed in the long run,"
says Gupta.
While financial ratio analysis helps in assessing factors such as profitability, efficiency and risk, added factors such as macro-economic situation,
management quality and industry outlook should also be studied in detail while investing in a stock.
What Are Fundamentally Strong Stocks?
What it means by fundamentally strong stocks? These stocks represent companies which will continue to do business even in worst of
times.

What helps companies to do business even in adverse times?

If company is able to fund continuously the “employed capital“, its business will continue to operate even in bad times.

Employed capital is the fuel that runs any business. If a company is able to generate ’employed capital’ from its operations, it will continue to operate
indefinitely.

What is employed capital?

The employed capital are those funds that company uses to run its operations.

We have simplified the formula of capital employed for easy understanding.

This simplification works wonderfully to identify fundamentally strong stocks.

Employed Capital = (Share Capital + Reserves) + Debt

(1) How zero debt means strong fundamentals?

How company builds up its employed capital?

The employed capital is built from ‘shareholder equity’ plus ‘debt’.

Share capital plus reserves is also called as shareholder equity. Share capital is the fund raised by company by issuing shares. Reserves are
retained profit of company accumulated over a period of time.

Company use shareholders equity to fund its operating costs.

One of the main indicator of fundamentally strong stocks is ‘shareholder equity’. If ‘shareholder equity’ is enough to fund operations of company, its
a very good indicator.

Complete reliance on shareholder equity means company is using zero debt. Shareholders equity is like SAVINGS of company. Funding business
with own savings is a perfect case.

In this case the “employed capital formula” will be as below:

Employed Capital = (Shareholders Equity) + Zero

These are the companies which are favorite of value investors. Indian companies like Hindustan Zinc has share capital plus retained earnings nearly 4
times its total expense. Such companies are not only debt free but also fundamentally super strong.

But not every company can afford to do business with zero debt. Use of debt to operate business is not bad.

If debt level is low, company can still be treated as fundamentally strong.

(2) How low debt means strong fundamentals

When shareholders capital is not enough to fund all expenses, companies opt for Debt.

But does it mean that all companies that avail debt are bad? Not at all. Very profitable companies use debt to increases their leverage.

A reasonable amount of debt use is not bad. But how much debt can be treated as reasonable?

For companies which carry debt, it is important to check its Debt-Equity ratio. Debt equity ratio of less than 0.5 is a desirable ratio.

The lower is this debt equity ratio the better.

The employed capital formula that is applicable for debt carrying companies is:

Shareholders Equity + Debt = Total Expense (OPEX)

But here the ratio between Debt and shareholders equity is less than 0.5. Applying this rule, the above formula is reduced to:

Shareholders Equity + Debt = OPEX

or, Shareholders Equity + 0.5 x Shareholders Equity = OPEX
or, Shareholders Equity x 1.5 = OPEX
or, Opex / Shareholders = 1.5

For a fundamentally strong company, OPEX/Shareholders Equity will be less than 1.5.

(3) How strong cash flow means strong fundamentals

There are companies for which, even the above formula does not suit, still they can be treated as fundamentally strong. How?

These are those companies, whose expense is so high that even after taking debt, capital employed is less than total expense requirement of company.

What such companies to fund their capital needs? Such companies has two alternatives.

They can either take more debt, or they can improve their cash flow.

When companies take more debt, their debt equity ratio is disturbed (shoots above 0.5). This is not so good. High debt carrying companies pose risk
for investors.

So fundamentally strong companies will look for the alternative route.

They look for how to improve the cash-flow (reduce account receivables).

Most of the companies operating in country carry debt but still their total expense cannot be funded. Such companies are dependent on their sales
collection to pay invoices/bills.
Companies which has very fast Cash Conversion Cycle are safe companies.

Companies which sell their products and services on long-credit, poses big risk for investors.

Our formula for sales-turnover dependent companies to fund total expense will look like this:

(Shareholder Equity + Debt) + COLLECTION = Total Expense (OPEX)

But again, the ratios that should be maintained :
– D/E<0.5 &
– (Shareholder equity+Debt)/Total Exp.>0.8

An investor should check what portion of total expense is dependent on COLLECTION.

As a rule of thumb, if (Shareholder equity+Debt)/Total Expense>0.8, then it is a safe company for investing.

(4) How fast growing reserves means strong fundamentals

There are companies which may satisfy the formula: Shareholder equity+Reserves>Total Expense, but they can still be fundamentally weak.

Let see an example. There is a company called Sparc Systems in BSE. Sparc Systems has raised Rs 4.97 Crore as shares capital. But its Reserves has
remained low or negative in last 5 years.

A company which is not able to increase its reserves YOY, it is a dangerous sign.

This will happen only when company is not able to generate sufficient profits. Looking at such companies PAT will show the cause of zero or
negative Reserves.

It is important for investors to look at company reserves.

Though Spark system has very low debt levels compares to Equity, but still it is not fundamentally strong.

Reserves talks a load about companies. If companies Reserves is not growing, it means company is making losses.

Sparc Systems is neither distributing dividends nor increasing its reserves. This is a clear sign
of a sick company.
SPARC SYSTEMS (RS.
Mar-16 Mar-15 Mar-14 Mar-13 Mar-12
CRORE)

Total Share Capital 4.97 4.97 4.97 4.97 4.97

Reserves -1.57 -1.45 -0.77 -0.53 -0.04

Debt 0 0 0.11 0.1 0.53

Capital Employed (CE) 3.4 3.52 4.31 4.54 5.46

Total Expenses 0.14 0.77 0.42 0.83 0.19

Net Profit (PAT) -0.12 -0.67 -0.24 -0.49 -0.02

(5) How fast growing sales & PAT means strong fundamentals

This one is easy.

To identify such a company look at its last 5 years sales turnover and profit.

Increasing sales turnover means company is well accepted in the market.

Improving profits means company is not compromising its profitability to establish its position in market.
Fundamentally Strong Stocks in India
(Updated in January’2017)
Debt / Current Return on Employed Revenue Growth
SL Company name Market cap PAT Growth %
Equity ratio Capital %

89.70
1 Dr. Lal PathLabs Ltd 0.00 4.67 29.84 27.24 35.33
B

55.96
2 Eclerx Services Ltd 0.32 5.82 39.19 30.89 24.28
B

21.65
3 8K Miles Software Services Ltd 1.30 3.31 32.99 75.53 80.05
B

155.8
4 Ajanta Pharma Ltd 7.93 2.81 39.01 28.43 51.96
9B

Tata Consultancy Services

5 4.69T 4.30 4.06 38.82 23.82 21.8
Limited

200.0
6 Divi's Laboratories Ltd 0.99 5.96 27.5 23.46 20.97
6B

Procter & Gamble Hygiene & 225.7

7 0.00 2.51 30.75 18.48 22.86
Health Care 1B

44.21
8 Tata Elxsi Limited 0.00 2.32 44.35 20.92 36.63
B

9 Infosys Ltd 2.28T 0.00 3.9 23.04 17.82 14.61

1 145.6
Vakrangee Ltd 20.36 4.04 27.28 29.1 52.48
0 2B

1 64.38
Hexaware Technologies Limited 0.00 2.07 27.97 24.26 29.59
1 B

1 23.84
Just Dial Ltd 0.00 2.69 20.96 30.3 42.07
2 B

1 26.31
La Opala RG Limited 2.63 4.15 26.76 20.93 44.49
3 B

1 22.21
Avanti Feeds Ltd 2.79 1.81 47.1 57.58 113.69
4 B

1 114.2
Alembic Pharmaceuticals Ltd 7.09 2 54.58 21.39 53.17
5 0B

1 54.83
Bajaj Corp Limited 2.08 4.91 40.46 19.56 18.48
6 B

1 183.3
Kansai Nerolac Paints Limited 2.04 2.55 42.84 12.57 34.1
7 6B

1
Vardhman Holdings Limited 5.27B 0.00 98.01 18.9 43.77 46.81
8

1
SQS India BFSI Ltd 7.94B 0.00 2.14 33.82 26.08 81.52
9

2 28.66
Kaveri Seed Company Ltd 0.18 2.71 20.53 30.74 32.38
0 B

2 154.6
Page Industries Limited 18.78 2.2 40.58 29.4 31.78
1 0B

2 487.2
Tech Mahindra Ltd 9.09 2.67 19.9 38.81 23.17
2 2B

2 88.65
MindTree Ltd 14.95 2.35 26.52 25.46 42.8
3 B

2 153.6
Amara Raja Batteries Ltd 3.53 2.24 23.68 21.64 27.01
4 0B

2 Cupid Ltd 3.41B 2.44 2.78 49.46 26.19 110.23

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