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Fundamentals

The ITA 10-point fundamentals checklist

Before you trust a chart, check the business. Ten checks on Screener.in and Tijori, how to score them, and the red flags to study carefully.

A strong chart on a weak business is a trap that catches many traders. Before you trade or invest, check whether the company itself is strong. Screener.in gives you the numbers; Tijori shows you how the business makes its money.

The 10 checks

#CheckPass if
1Sales growth5-year sales growth above 10% a year
2Profit growth5-year profit growth above 10% a year
3ROEAbove 15% (3-year average)
4ROCEAbove 15%
5DebtDebt to equity below 0.5
6Interest coverOperating profit at least 3 times the interest cost
7Cash flowCash from operations positive in most years and close to net profit
8PromotersHolding above 40% and stable or rising; pledge below 10%
9ValuationP/E not far above its own 5-year median or the industry P/E
10Business qualityClear main business, growing segments, top 3 in its industry

Score one point for each pass. 8 or more is strong, 6 to 7 means keep watching, and below 6 means not ready yet.

Red flags to study carefully

  • Profit is growing but cash from operations is falling.
  • Receivables (money customers still owe) grow faster than sales.
  • Promoter pledge is rising, or promoters keep selling.
  • New shares are issued again and again.
  • The auditor resigns or qualifies the accounts.
  • Profit margins fall year after year.

Banks and NBFCs are different

Debt rules don't apply to lenders, because borrowing is their business. Check instead that gross and net NPAs are falling, the net interest margin is stable or rising, ROA is above 1%, and capital adequacy is above RBI's minimum.

Rules of thumb, not guarantees. These are common analyst checks. Adjust them for each sector, and use them together with your own judgement.

The full checklist, with a ready-made Screener.in query, is taught in Levels 2 and 3.

Education only. This article is for learning. It is not investment advice or a recommendation to buy or sell any security.
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