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
| # | Check | Pass if |
|---|---|---|
| 1 | Sales growth | 5-year sales growth above 10% a year |
| 2 | Profit growth | 5-year profit growth above 10% a year |
| 3 | ROE | Above 15% (3-year average) |
| 4 | ROCE | Above 15% |
| 5 | Debt | Debt to equity below 0.5 |
| 6 | Interest cover | Operating profit at least 3 times the interest cost |
| 7 | Cash flow | Cash from operations positive in most years and close to net profit |
| 8 | Promoters | Holding above 40% and stable or rising; pledge below 10% |
| 9 | Valuation | P/E not far above its own 5-year median or the industry P/E |
| 10 | Business quality | Clear 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.
The full checklist, with a ready-made Screener.in query, is taught in Levels 2 and 3.
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