How to analyse a stock before investing 🧐 ?


Some of the highly net worthy people tell that , we have to invest our money in stocks and give us an example of               ' Warren Buffet ' how he is one the richest man in the world just by investing  money in stocks . So , today I would tell you some of the best way to analyse a stock .

Ways to analyse a stock :- 


1). Market Capitalisation




Define :- Basically market Capitalisation
                 represent the market value of
the company / size of a company .
             
Market Capitalisation = No of share ×                                                    Price of a share

#tip1 :- Always choose a company with high maker capitalisation

2). Enterprise value



Definition :- it is one of the most                                      important tool in analysis a stock because it represent the actual value of  a company

Enterprise Value = Market Capitalisation                                     - Cash + Debt

Example a) :- if you buy a company
                         worth Rs 100 with not any debt and cash , in that case
Enterprise Value = Market Capitalisation

b) :- let take above example , but in this     case the company have a debt of Rs 20 . So , now the Enterprise value of a company = Rs 120 ( according to above formula )

c) :- in this case that company have a cash of Rs 10 with no debt , in that case Enterprise value of a company = Rs 90

d) :- in this case company have a debt of Rs 20 with cash of Rs 10 , now the Enterprise value of a company = Rs 110

#tip 2 :- always choose a company with enterprise value < Market capitalisation

3). EPS ( Earning Per Share ) 



Define :- It is the second most important 
                 tool while in investing because it show how much a share makes money for you 

EPS = Net profit ÷ No of shares

Example :- If a company earn a net profit
                     of Rs 100 and no of shares is 10 , then the money earn per share is Rs 10 

#tip3 :- always choose a company with high EPS

4). P/E ( Price to earning )



Define :- it represents how much money 
                you pay for a share with respect to its net profit

P/E = Price of share ÷ EPS

Example :- If price of a share of a 
                     company is Rs 100 and it's EPS is Rs 10 , then the P/E is 10.00 . It represents you would pay 10 times higher amount to own a share of Rs 100

#tip4 :- always analyse P/E of last 20 years of a company 

5). Book value



Define :- Basically it refers to the minimum amount you get after a company is desolved.

#tip5 :- always check book value of a company with its competitors 

6). P/B ( Price to book value )



Define :- It represent how much times                       you pay for a share with respect to its book value

Book value = Price of share ÷ Book value

Example :- if price of a share of a                                    company is Rs 100 and it's book value is Rs 10 , it implies you have to pay 10 times higher amount for a share

#tip6 :- always check P/B of a company with it is competitors 

7). Dividend Yield



Define :- It refers to the proportion of profit you get on a share

Example :- if a company earns a profit of                      Rs 100 in which company announced a dividend of Rs 10 and it have 10 issued share , then each share holder get Re 1

#tip7 :- generally only those company  Offer high dividend with don't have any growth prospect in future and visa - versa

8). Promote Holding



Define :- It is the one of the most tool
                 while in investing because it shows the interest / believe of the promoter in the company

#tip8 :- always choose a company with high promoter holding 

9). ROE ( Return on Equity )



Define :- It refers to the profit of the business in relation with equity shares 

ROE = Net profit ÷ Equity × 100

Example a) :-
Equity capital :- 100
Debt                  :- 0
Net profit.        :- 20
Then the ROE of a company = 20%

Example b) :-
Equity capital  :- 50
Debt@12%intrest  :- 50
Net profit.         :- 14 ( 6 Cr as a interest
                                       on debt )
In this case ROE of a company = 28%

#tip9 :- we have to check ROE of a company only when there is no debt on it because debt will increase the ROE

10). Cash flow 



Define :- It is the most important factor   
                 While analysis a stock because it shows how much cash a company get from its operations

#tip10 :- avoid company with low or negative cash flow




Thank you
Follow me on Instagram ⬇️


/www.instagram.com/empire.knowledge


Comments

Popular Posts