Chapter 8: Fundamental Analysis
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Day 46: ROE, Debt aur Free Cash Flow
Company achi hai ya buri — teen sवाल!
2 min read
📖 Pappu Ki Dukan Ka Audit
Pappu ki dukan ₹5 lakh lagake kholi. Saal mein ₹1.5 lakh profit hua.
ROE = 1.5/5 = 30%! Bahut achi efficiency!
Par Pappu ka ₹3 lakh ka loan bhi hai bank mein. Agar interest ₹30,000/year hai, toh actually "safe" profit = ₹1.2 lakh only.
Aur Pappu bolta hai "₹1 lakh profit hai" — par cash withdrawal karta hai sirf ₹60,000. Baaki ₹40,000 stock mein phansa hua hai jo sell nahi ho raha!
Yahi hai ROE, Debt, aur Free Cash Flow ki real duniya! 💼
Pappu ki dukan ₹5 lakh lagake kholi. Saal mein ₹1.5 lakh profit hua.
ROE = 1.5/5 = 30%! Bahut achi efficiency!
Par Pappu ka ₹3 lakh ka loan bhi hai bank mein. Agar interest ₹30,000/year hai, toh actually "safe" profit = ₹1.2 lakh only.
Aur Pappu bolta hai "₹1 lakh profit hai" — par cash withdrawal karta hai sirf ₹60,000. Baaki ₹40,000 stock mein phansa hua hai jo sell nahi ho raha!
Yahi hai ROE, Debt, aur Free Cash Flow ki real duniya! 💼
ROE — Return on Equity
ROE = Net Profit / Shareholders' Equity × 100
Example: Net Profit = ₹500 crore, Equity = ₹2,000 crore → ROE = 25%
Matlab: Company ne apne shareholders ke investment pe 25% return generate kiya!
Good ROE: 15%+ consistently → Management is efficient!
Excellent ROE: 20%+ → Elite companies (HDFC Bank, Asian Paints, Pidilite)
Example: Net Profit = ₹500 crore, Equity = ₹2,000 crore → ROE = 25%
Matlab: Company ne apne shareholders ke investment pe 25% return generate kiya!
Good ROE: 15%+ consistently → Management is efficient!
Excellent ROE: 20%+ → Elite companies (HDFC Bank, Asian Paints, Pidilite)
Debt-to-Equity Ratio
D/E = Total Debt / Shareholders' Equity
D/E = 0.5 → ₹50 debt per ₹100 equity → Comfortable!
D/E = 1.0 → ₹100 debt per ₹100 equity → Manageable
D/E = 3.0+ → ₹300 debt per ₹100 equity → Risky! Interest burden high!
Capital intensive industries (steel, infra, real estate) mein high D/E normal hai.
IT, FMCG mein near-zero debt = excellent!
D/E = 0.5 → ₹50 debt per ₹100 equity → Comfortable!
D/E = 1.0 → ₹100 debt per ₹100 equity → Manageable
D/E = 3.0+ → ₹300 debt per ₹100 equity → Risky! Interest burden high!
Capital intensive industries (steel, infra, real estate) mein high D/E normal hai.
IT, FMCG mein near-zero debt = excellent!
Free Cash Flow (FCF)
FCF = Operating Cash Flow − Capital Expenditure
Profits book kiye ja sakte hain accounting tricks se — par cash nahi jhooth bol sakta!
FCF Positive + Growing → Company actually paise kama rahi hai → Sustainable business
FCF Negative for years → Company consume kar rahi hai cash, shareholder value dilute
Buffett ka rule: "Companies with strong FCF are often the best investments!"
Profits book kiye ja sakte hain accounting tricks se — par cash nahi jhooth bol sakta!
FCF Positive + Growing → Company actually paise kama rahi hai → Sustainable business
FCF Negative for years → Company consume kar rahi hai cash, shareholder value dilute
Buffett ka rule: "Companies with strong FCF are often the best investments!"
Quick Screening — Is Company Good?
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Revenue growing 10%+ YoY for last 3 years
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Net profit margin consistent or improving
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ROE 15%+ for last 3 years
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D/E below 1 (or justified by sector)
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Positive Free Cash Flow consistently
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Promoter holding stable or increasing (not selling!)
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P/E reasonable vs sector average
🎯 Takeaway:
ROE 15%+ = efficient management. D/E low = safe company. Free Cash Flow positive = real earnings. Use Screener.in or Tickertape for quick fundamental screening — free tools available! Kal — Investment Strategies — Value vs Growth vs Index investing!
ROE 15%+ = efficient management. D/E low = safe company. Free Cash Flow positive = real earnings. Use Screener.in or Tickertape for quick fundamental screening — free tools available! Kal — Investment Strategies — Value vs Growth vs Index investing!