Complete overview on Ratio analysis as part of fundamental analysis.....

Ratio analysis

What is Fundamental Analysis?
Fundamental analysis is a method of Evaluating security in an attempt to assess its
- Intrinsic value
- Economic Value
- Enterprise Value
- Wealth Creation
Moreover, Studying Various Factor of a Qualitative & Quantitative Study with inclusion of SWOT analysis. In Short It state of the economy factors including GDP, Production, Manufacturing and Interest rate.

What is Ratio Analysis?
Ratio is combination of Two parameter to Check whether Producing result is Worth holding or not.
Analysis Of Ratio needs.....

Profit and loss account
balance Sheet
Cash Flow statement
Income & Exp Statement


Is Ratio analysis is useful for investor to take investment decision?

Yes, Most of paid report include the analysis of company through such Ratio. Even various peer comparison is used through ratio analysis only. For taking any conceit decision some number is required while ratio is only option with investor to derive from above mention statement. 

What are type of various Ratio?

1) Profitability Ratio
2) Coverage Ratio
3) Turnover Ratio
4) Financial Ratio
5) Control Ratio

Full Break up of main ratio table.....

Most common ratio used by investors to analyse stock?

Price to Cash Flow Ratio:
Current Share Price / Total cash Flow From operating From cash Flow Statement 

Price to Earning Ratio:
Price Per Share / Earning Per Share

Earning per share comes by Net profit / Total No of Equity shares 

PEG Ratio: Price to Earning Ratio / Growth
This ratio is useful due to involvement of Growth in terms of industry, Lower the PEG, Cheaper the stock.

Asset Turnover :
Total Revenue / Average Asset For period

Interest Coverage Ratio:
EBIT( Earning Before Interest & Taxes) / Interest Expense

Let's Talk for practical analysis.....


Is price to equity ratio is 10 and 15 which is good?

PE 10 is good lower PE , attractive stock

Market cap to sales ratio is depend on industry and sector of business

For retail business where profit margin use to thin with huge volume then market cap to sales should be less than 5.

For pharma business where sales use to less but stock use to trade at good PE level than market cap to sales might be 10.

For auto business market cap to sales should be near 3 or less.

As per experience of expert market cap to sale ratio plays a vital role to decide where company is over price or under price. As market cap is calculated by total no of equity sales * price of shares.  For more on market cap read.....

https://www.derivativelearn.com/2019/03/must-read-list-of-top-22-company-having.html

Operating margin ratio is useful to check whether company is functioning at industry standard or not. Let's say pharma industry margin seems at 20% and sun pharma is reporting 25% of operating profit margin it is good for investor to choose company trading above industry rate.

What is top line growth?

Co reporting sales growth on quarter or quarter like in dec 2018 company reported 100 cr sales and co report 110 cr by March 2019. So 10% top line growth on qoq basis. While many report shows year on year growth by taking previous years number. So, being an investor one must looks growth in sales. Such growth will definitely sooner or later reflect in price of stock.

What is bottom line growth?

Comparison of profit reported last year and current year should be higher. Example: SBIN reported 2500 cr profit in March 18 year while 2800 cr profit seen in March 19 shows bottom line growth of 11%. Being an investor such co should ideally add In portfolio.


Dividend payout ratio is useful to investor to decide the dividend yield. Asian paint declare 10 rs. Dividend at face value of 1 rs. Shows 1000% dividend issue based on face value. But for dividend yield one has to divide by current market price here, 10/1430 comes around 0.7%.

What is turnaround story?

Many times company passes in tuff situation and due to somehow got opportunity to report big number by receiving order or settlement of loan, take over or merger etc in such cases many company reach at good level. Like venky's , lancer container , Avanti feeds, cupid , Refex ind, and many more stock turn 5-10-20 times in very short period of times.

Summery: My intention of giving this brief introduction is to learn basic idea behind any Ratio. I don't want to make you manual calculation for all ratio but being an investor we should understand logic and analysis behind particular ratio. Like top line growth is 15% and industry growth is 9% is it good or bad. 

In next post will learn how to operate Screener.in and how to create best unique combination by setting various logic. Entire analysis will be available by just one click.

For any query kindly mail me at derivativelearn@gmail.com

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Derivaitve learn