some basic fundamental parameters filter

KoI will explain the basic process that I use (For All companies except Banks and NBFCs) Step 1 : Out of 5000 listed stocks, I need good businesses to analyze further. So I have created a filter of some basic fundamental parameters which are given below. Average 3 years Return on Equity > 12 Average 3 years Return on Capital Employed > 15 Debt Equity ratio < 1 Last 3 years YoY Sales growth > 10% PEG Ratio < 2 Price to Book Value < 4 Only 100 or 200 companies pass through step 1 and I do my further research on these 100 - 200 stocks. Step 2 : I prepare an excel sheet where I calculate other fundamental factors for the filtered businesses (from step 1) for last 3–5 years. The factors that I calculate are EBITDA Margin Profit margin Asset turnover ratio Financial leverage EBIT Interest coverage ratio Debt Asset Ratio Fixed Assets turnover ratio Working Capital turnover ratio Cost of Goods Sold Inventory Turnover Ratio AND Inventory no of days Accounts receivable turnover ratio Days Sales Outstanding Ratio Sales per share Book value AND Book value per share Price to Book Value Ratio EPS (Earnings per share) PE Ratio CFO EBITDA Ratio Companies that pass through step 2 are those businesses which have improving fundamentals as per the above fundamental factors Step 3 : I do a DCF or Discounted Cash flow Analysis of the filtered businesses from step 2. I find out the intrinsic value per share through this step. Step 4 : I filter those businesses from the above step whose current trading price is 70 - 90% less than the calculated intrinsic value. Step 5 : Finally I have a few stocks to invest in. I study their product portfolio, market penetration, supply chain management and every available info. Step 6 : I invest in companies that pass through step 4. The allocation of capital depends on the data collected from step 5. (Note : The above analysis process is only for companies other than Banks and NBFCs. If you want to know how to do fundamental analysis for Banks and NBFCs, then you can ask another question, I will be happy to answer.)

by Hiren