Понравилась презентация – покажи это...
Financial ratios to analyze stocks 4
Every day, you see the Sensex rise or fall hundreds of points. This fluctuation may worry many investors. In such turbulent times, it is important to select quality stocks. That way, you can be rest assured through the temporary ups and downs; your stock’s future is secure. So how do you select quality stocks? Simple – choose a company that is expected to grow over the next decade or so. This can be done by looking at four key financial ratios.
Profitability Ratios: Nothing matters more to an investor than a company’s profits. But you often need to go beyond the final profit numbers to gauge the actual profitability. It can so happen that a company posts great profits for a short term, but is unable to do so consistently. This means its business model is not profitable. Some common profitability ratios are Profit Margins, Return on Equity (RoE), Return on Investments (RoI), Return on Assets (RoA), and so on. #1
Operational Efficiency Ratios: A company’s profit depends on two factors – revenue and cost. It is important that companies minimize cost as much as possible to maximize profits. When a company does this, it is being efficient. There are many financial ratios which gauge this operational efficiency by comparing various costs with revenue and profits or understanding the time taken to produce goods or sell ready products. Some even measure the time taken by clients to pay money or the payment cycle for suppliers. These need to be looked at together. One single ratio cannot give the whole picture. Efficiency ratios include the Operating Expense Ratio, Inventory Turnover, Accounts Receivable Turnover, Total Asset Turnover and Accounts Payable Turnover. #2
Liquidity Ratios: Companies buy supplies, use them to produce goods, distribute it in the market, and sell to customers. This process often takes long. So, the company does not pay suppliers immediately. Similar, revenue too does not stream in immediately after sales. If the two payment cycles do not match, the company could have a cash crunch. It may then have to borrow unnecessarily, eating profits. Moreover, such a business model may not be sustainable in the long run. Liquidity Ratios like Working Capital, Quick and Current Ratios, etc, help in this regard—they measure how much cash the company has on a regular basis. #3
Leverage Ratios: A certain amount of debt is necessary for every company—it can often signify growth and expansion. However, too much debt is bad news. It can be the death of a company. This is why it is important to understand debt. Leverage Ratios helps measure how much a company is borrowing and if it will be able to repay it. Inability to repay means high risk. Some common ratios are the Debt to Equity and the Interest Coverage ratio. #4
Simple Investing Ratios You Need To Know Return ratios continue to fall for Indian firms, shrinking gap with rest of the world IMPORTANT LINKS:
33.86% Another important metric is the Return on Capital Employed. It indicates the efficient use of funds for operations. In the last decade, RoCE for the 319 non-finance companies out of the BSE 500 hit a peak of 33.86% in FY07, according to a Livemint report. Since then, it has continually fallen. This year, it is expected to stand at 14.81%. This shows companies are unable to use capital funds efficiently as demand remains poor, and cost of funds is high.
Get eBooks Website Thank You! Don’t forget to follow Kotak Securities on SlideShare to get regular updates! DEMAT Account
Disclaimer: Kotak Securities Limited. Registered Office: 27 BKC, C 27, G Block, Bandra Kurla Complex, Bandra (E), Mumbai 400051. CIN: U99999MH1994PLC134051, Telephone No.: +22 43360000, Fax No.: +22 67132430. Website: www.kotak.com. Correspondence Address: Infinity IT Park, Bldg. No 21, Opp. Film City Road, A K Vaidya Marg, Malad (East), Mumbai 400097. Telephone No: 42856825. SEBI Registration No: NSE INB/INF/INE 230808130, BSE INB 010808153/INF 011133230, MSEI INE 260808130/INB 260808135/INF 260808135, AMFI ARN 0164, PMS INP000000258 and Research Analyst INH000000586. NSDL: IN-DP-NSDL- 23-97. CDSL: IN-DP-CDSL-158-2001. Compliance Officer Details:Mr. Manoj Agarwal. Call: 022 - 4285 6825, or Email: email@example.com . In case you require any clarification or have any concern, kindly write to us at below email ids: Level 1: For Trading related queries, contact our customer service at ‘firstname.lastname@example.org’ and for demat account related queries contact us at email@example.com or call us on: Online Customers – 30305757 (by using your city STD code as a prefix) or Toll free numbers 18002099191 / 1800222299, Offline Customers – 18002099292 Level 2: If you do not receive a satisfactory response at Level 1 within 3 working days, you may write to us at firstname.lastname@example.org or call us on 022 – 4285 8445 and if you feel you are still unheard, write to our customer service HOD at email@example.com or call us on 022-4285 8208 Level 3: If you still have not received a satisfactory response at Level 2 within 3 working days, you may contact our Compliance Officer (Name:Mr. Manoj Agarwal) at firstname.lastname@example.org or call on 91- (022) 4285 6825. Level 4: If you have not received a satisfactory response at Level 3 within 7 working days, you may also approach CEO (Mr. Kamlesh Rao) at email@example.com or call on 91-(022) 6652 9160. Investments in securities are subject to market risk; please read the SEBI prescribed Combined Risk Disclosure Document prior to investing. Derivatives are a sophisticated investment device. The investor is requested to take into consideration all the risk factors before actually trading in derivative contracts. Mutual Fund Investments are subject to market risks, please read the offer document carefully prior to investing. Kotak Securities Limited is a distributor of Mutual Funds. Kindly note that investments in Mutual Funds are made on the basis of the POA executed at the time of registration. Kotak Securities Limited is a distributor of IPO. Kotak Securities Limited is a distributor of Bonds and Debentures. The Bank account will be opened with Kotak Mahindra Bank Limited and Trading and Demat account with Kotak Securities Limited. This is an editorial content, our research should not be considered as an advertisement or advice, professional or otherwise. The investor is requested to take into consideration all the risk factors including their financial condition, suitability to risk return profile, and the like and take professional advice before investing.