Fundamental Analysis

Hello everyone, This is the weekend post for technical analyst who briefly wanna skim through fundamental analysis #dj How to do fundamental analysis for technical analysts to find clean stocks? Net profit, EBITDA, operating profit - should be consistent or growing with a good gross/operating/net profit margin. A good gross profit margin (GPM) is approximately more than 60%(just a rough idea) Growth rates like net profit growth, ebitda growth, sales growth, eps growth should be consistent or growing ROCE, ROE should be above 15%, between 10 to 15% is also ok. Debt to equity ratio can be below 0.5 or debt should be decreasing (also depends on the industry too, be flexible with the concept of debt) Sales should be consistent or growing. Look out for decreasing inventory days. Increasing payables days. Decreasing receivables days. Asset Turnover ratio should be good according to their respective sectors and business. Share capital should be consistent or should not be highly diluted. Reserves & surplus should be consistent or growing. Shareholding patterns (my preffered parameters) >50% promoter holding (consistent or growing) >15 to 20% of cumulative fii/dii holdings Shares pledging should be strictly 0 Look out for Moats , what is their market dominance, like britannia or parle, asian paints having some good competitive benefits and market dominance and thats why entry to new players is difficult in that segment. So these are few points that are really useful and can be easily analysed by any technical analyst as well to find clean stocks. For positional grade trades or investments you can briefly go through this process and then continue with your technical analysis, no need to do valuation as its a hectic process and highly subjective to different analysts and them assumption rates. Check out for Consistent and high delivery volumes for some good positional stocks Possible Red flags(manipulation in financial): Company should highly earn from its main operations and not from other factors like investing and financing, other income should be really small compared to the operating income. Same for other expenses too, it should not be as much high as operating expenses. Company should not have big portion of intangible assets as compared to their fixed Assets or current assets. Company should not keep high portion of Depreciation and amortization. Remarks: These are my personal observation and tried and tested methods which have worked pretty well for me, you can change or tweak the process as per your convenience no issues. These are few of the easily usable methods for technical analysts who wish to do some fundamentals. Regards, Some terminologies that Technical Analysts would say are hard to grasp but are really not. EBITDA - Earnings before interests, tax, depreciation and amortization. Operating profits/expenses/income - Company earning or having expenses from their main business is called operating. Depreciation and amortization - the action or process of gradually writing off the initial cost of an Asset. Depreciation is for fixed assets and amortization is for intangible assets. Current assets - Current assets are all the assets of a company that are expected to be sold or used as a result of standard business operations over the next year. (eg. Cash and cash equivalents, inventory, cash receivables) Current liabilities - Current liabilities are a company's short-term financial obligations that are due within one year or within a normal operating cycle, wichever period is longer. (eg. Short term debts, accounts payables) Non current assets - Noncurrent assets are a company's long-term investments for which the full value will not be realized within the accounting year. (eg. Investments, plant property and equipments, intellectual property) Non current liabilities - Long term liabilities which are due and obligated to be paid off and have a time span of more than a year. (eg. Long term loans, debentures, bonds) Inventory - , any item of property held in stock by a firm, including finished goods ready for sale, goods in the process of production, raw materials, and goods that will be consumed in the process of producing goods to be sold. And is included jn the current asset Account(cash) receivable - this is a current asset, which mean that company has yet to collect the money from their debtors. Debtors - customers of the company Accounts payables - this is a current liability, which mean that the company has yet to pay of their creditors. Creditors - a person of company to whom the firm owes money. Net profit/PAT(profit After tax) - profits that company makes after paying off all the expenses including interests, taxes and every other expenses. Gross profit - earnings that company make before paying interests and taxes. Profit margin(net/gross/operating) - the amount by which revenue from sales exceeds the cost of the business. Ps: Financial Ratios in some other weekend or time, coz its kind of a lengthy topic, although very easy but still legnthy. For time being this is enough to grasp 💙

by Prashant