Talking about stocks, investing only in a financially healthy company is advisable. But it is easier said than done. Why? Because analyzing the financial health of a company is not easy for a novice? It is a thing that must be learned. In this article, we will try to do just that. Generally speaking, investors…
Generally, for banks and lenders, the asset coverage ratio (ACR) is one way to check the loan-friendliness of the company. Investors can also use the concept of ACR to check two things about the company. First, they can check if the company is risky due to a high debt load. Second, they can also check the price…
When it comes to the use of jargon, probably the world of equity investment will be among its heavy users. Two commonly used words of this field are Alpha and Beta. The term beta is in use for a long time. But the trend of alpha is more recent. What are alpha and beta? Alpha…
People who know about value investing will be familiar with the term called “margin of safety”. Generally, people prefer to apply a rule of thumb when it comes to the margin of safety. A stock trading at two-third of its estimated intrinsic value can be said to be available at a good margin of safety….
The Capital Asset Pricing Model (CAPM) is a financial model used by experts to establish a relationship between risk and return from an asset. But a common stock investor can also utilize the CAPM model. We can use it to tune our return expectations from stocks. Generally, when we buy stocks, we do it with…
[Updated] Discounted Cash Flow (DCF) method is a better way of intrinsic value calculation. The DCF model is derived from a concept called Net Present Value (NPV). Why Intrinsic Value is required? Because based on it, one can judge if the stock is fairly priced or not. DCF method is not an easy way of doing price…
Before we can do a leverage analysis of a company, we must know the basic definition of “leverage.” What is leverage? There can be two sources of capital for a company. First, equity and second is borrowed money (loan/debt). When a company uses loans to fund its capital requirements, we can say it is leveraged. What does the…
Generally, when we analyze stocks, it is based on quantitative data. But everything about a company is not quantifiable. Judging the quality of Management based on the numbers alone is not possible. Hence, before digging into the numbers, starting stock research by just observing a company is considered good. What to watch in a company? We can look at the group of people who…
A business that operates in an industry (sector) having fierce competition cannot display a competitive advantage. But a company dwelling as a monopoly (like Microsoft) will have an exceptional advantage. So, a sector with too many competitors in it is not good for its companies. As a customer, we would like to buy products of…
Understanding a company is essential before buying its stocks. Why? Because Stocks represent proportional ownership in a company. So, what is the utility of this information about stocks/business? Let’s understand this with an example. Consider yourself looking at two companies, Nestle India and Jet Airways. Former represents a healthy business, while the latter is languishing with…
Analysis of stocks that are new in the market is not so simple. What is the problem? The analyst must make some assumptions. For the company which has 10-year records, the assumptions-list is much shorter. Recently I met a friend who enquired me about the recent IPO (in Dec’2020) of Mrs. Bector Food. Someone advised…
The cost of capital is the cost that a company must bear for the funds it has raised to do the business. Doing business calls for arranging cashflows both for short and long terms. There are two ways companies can raise money. The first is through equity. This is done by the distribution of ownership among…
