I am writing about Companies in the Indian Capital Market, and then I realized the points I have always wanted to check. What checks and balances have I been trying to search for in a company? Let’s see

  1. RoCE is the most crucial thing which I care about. Suppose the Company is Having ROCE above 15. It can be different for your country if you read from other than India. The formula is RFR ( which is mostly govt security ) + Equity Risk Premium for your country. This rule does not apply to Bank and Financial sector.
  2. Is Topline Growing? And at what rate? For how many years? Big sign to see if the Company is growing and so is it good to keep it in your portfolio or not.
  3. New Equity infusion? Banks always need it. But if other Companies are infusing Capital, then why?
  4. Operating Profit : Revenue – COGS = Gross Profit. Gross Profit – Selling General and other administration Expenses = Operating Profit. Operating Profit/ Revenue * 100. What is the number? Important.
  5. Promoters Stake. : This is a double edge sword. I saw some companies Without Promoters running Good like HDFC and Then Some Companies Running good under Charismatic personalities like JSW Steel. Your Choice.
  6. What is a Sector: Does it need continue Capital like Bank and Financial? Or is it like Negative working capital? What are trends? Is it Telecom where Reliance Jio is dumping cheap money, and others can’t see it wise to be alive? Or is it Steel where it was worst but suddenly started looking great?
  7. The trend of Dividends? : You know Dividend don’t lie. Here, when Company has Many subsidiaries or one subsidiary has a good dividend, is it Passing its Dividend to its shareholders? Like Vedanta Limited is holding Hindustan Zinc. Hindustan Zinc always gives good dividends. So is Vedanta Limited Passing dividend of Hindustan Zinc? More important is whether the Company makes any cash or the growth is Fraud.
  8. Institutional holding in the Company. : At least in India, institutions always make stocks move. They have their research which is better than yours. They can talk to Company management. If it is increasing, then just good.
  9. What is business? I mean, how is the Company making money? Are they selling Millions of products to the public at large like Unilever? Low profitability per sold item. Or are they the ones who Customize the machine or product and make it turn-key? Is it Apple or Amazon Or Netflix, Uber, or simply Flipkart? Or most simple. Fertilizer Business. No new research is needed.
  10. What is the story? Like it is all due to the management? Like Jack Welch from GE? Is it due to some Patent or right? Like Page Industries? Or an asset play? Like Marvel? You know that A Company like Marvel has a considerable value of rights. So even if it went to the wrong time, it doesn’t go out of business. And that’s what happened when Disney bought them. So when you understand it, it makes me easier to keep them In Place.
  11. Is there backing from Govt? Go and buy. In India, stocks like L&T and ITC though not looking PSU, are because LIc GIC and other government entities hold them.
  12. What are promoters doing? Simple If they are opening ten other businesses, it is the wrong time for the Industry.
  13. Is it too big to fail? In India, do we have SBI, ICICI, and HDFC? If they failed, we went all worse.
  14. Debt level. Important. You can’t see Banks are making money with the use of your Capital.
  15. What is Valuation? It could be anything. PEG, Price to book, P-E Price to sale. But at what valuation Company is trading, and What is the benchmark of the Industry. Then is the Company having something different from the Industry?
  16. What type of Investor are you? A Person who doesn’t care about day-to-day moves or Who thinks that It doesn’t matter and then sells it with just one bad News. Or are you just a trader? That also makes a big deal as The investors thinking about Valuation will never think to buy Avenue Supermarket, and Those who think about Gross Value added will hardly touch Capital Goods Stock. Investor loving Cyclical Stock is different than Investor loving Unilever Stock.