Fundamental Analysis

Learn Fundamental Analysis

Understand a company's financial health before investing. Learn the 12 key metrics that determine whether a stock is worth buying.

Sample Company Metrics
P/E Ratio 22.4x
EPS (TTM) ₹78.60
ROE 19.8%
ROCE 22.1%
Debt / Equity 0.32
Net Profit Margin 21.3%
Revenue CAGR (3Y) 14.6%
Dividend Yield 1.8%

12 Key Financial Metrics

Each metric tells a different part of a company's financial story. Together, they reveal the full picture.

Revenue

Total income a company earns from its core business operations before any expenses are deducted.

Why it matters Revenue growth indicates business expansion and increasing market share. Consistent revenue growth is a hallmark of quality NSE stocks.
YoY Revenue Growth > 15% is strong
Example: RELIANCE reported ₹9.74 lakh crore revenue in FY24 — sustained growth across retail, telecom, and energy divisions.
AI FinSight analyzes 3-year revenue CAGR and compares it to sector peers to score revenue quality.
Net Profit

The actual profit remaining after deducting all expenses, taxes, and interest from revenue — also called the bottom line.

Why it matters Net profit shows whether a company is truly profitable. Revenue without profit is unsustainable. Profit growth drives share price appreciation.
Net Profit Margin > 10% is healthy across most sectors
Example: TCS maintained ~25% net profit margin, reflecting high-quality earnings and efficient cost management.
AI FinSight checks if profit growth tracks revenue growth. Divergence (revenue grows but profit falls) is flagged as a risk.
EPS — Earnings Per Share

Net profit divided by total number of outstanding shares. Shows how much profit is attributable to each share.

Why it matters EPS is the most direct measure of shareholder value. Growing EPS is what drives long-term stock price appreciation.
EPS growing > 15% YoY indicates strong earnings quality
Example: INFY's EPS grew from ₹54 to ₹63 in two years, directly rewarding shareholders.
AI FinSight tracks EPS trend across 4 quarters. Declining EPS despite rising revenue is a warning sign analyzed in the Fundamental section.
P/E Ratio — Price to Earnings

Current stock price divided by EPS. Measures how much investors pay for each rupee of earnings.

Why it matters P/E ratio helps assess whether a stock is cheap or expensive relative to earnings. Comparing to sector P/E reveals relative valuation.
Compare to sector average. Nifty 50 historical P/E: 20–25x
Example: HDFCBANK at P/E of 18x vs sector average of 22x may indicate undervaluation relative to peers.
AI FinSight compares P/E to industry average and 5-year historical range to determine if valuation is stretched or attractive.
Book Value Per Share

Net assets (total assets minus liabilities) divided by total shares. Represents the intrinsic value of each share if the company were liquidated.

Why it matters Price-to-Book (P/B) ratio compares market price to book value. P/B below 1 may indicate undervaluation, especially for banking stocks.
P/B < 2 is considered reasonable for most sectors; < 1 may signal deep value
Example: PSU banks often trade at P/B of 0.7–1.2, making them potential value plays when improving NPAs.
AI FinSight calculates P/B ratio and flags stocks trading significantly above or below their 3-year P/B range.
Debt-to-Equity Ratio

Total financial debt divided by shareholders' equity. Measures financial leverage and the company's ability to repay obligations.

Why it matters High debt increases financial risk, especially in rising interest rate environments. Low debt companies have financial flexibility during economic downturns.
D/E < 1 is conservative; < 0.5 is very safe; > 2 requires scrutiny
Example: BAJFINANCE maintains D/E of ~3.5 — acceptable for NBFCs but requires strong earnings to service debt.
AI FinSight adjusts D/E benchmarks by sector (capital-intensive industries have higher acceptable leverage) and flags deteriorating trends.
ROE — Return on Equity

Net profit divided by shareholders' equity. Measures how efficiently management uses equity capital to generate profit.

Why it matters ROE measures management quality. A consistently high ROE indicates a company that compounds wealth for shareholders over time.
ROE > 15% is good; > 20% is excellent; < 10% is poor
Example: ASIANPAINT has maintained ROE above 25% for 10+ years, demonstrating exceptional capital efficiency.
AI FinSight checks if ROE is driven by genuine profitability or artificially boosted by high debt (DuPont decomposition).
ROCE — Return on Capital Employed

Earnings Before Interest and Tax (EBIT) divided by total capital employed (equity + debt). A more complete measure of capital efficiency than ROE.

Why it matters ROCE considers both debt and equity, making it ideal for capital-intensive businesses. ROCE above cost of capital creates shareholder value.
ROCE > 15% is good; should exceed WACC (weighted average cost of capital)
Example: TITAN maintains ROCE of 35%+ while being capital-light, indicating superior business quality.
AI FinSight uses ROCE as a quality filter — stocks with ROCE below 10% are penalized in the fundamental score regardless of P/E.
Dividend Yield

Annual dividend per share divided by current stock price, expressed as a percentage.

Why it matters Dividend yield provides income while waiting for capital appreciation. High dividend payers tend to be financially stable, mature businesses.
Yield > 2% is attractive; > 4% is high and may signal undervaluation or distress
Example: Coal India consistently yields 6–8%, providing attractive income returns for conservative investors.
AI FinSight checks dividend consistency (payout history) and sustainability (payout ratio relative to free cash flow).
Operating Profit Margin

Operating profit (EBIT) divided by revenue. Measures operational efficiency before interest and taxes.

Why it matters Operating margin reveals how efficiently a company converts revenue into profit from core operations, excluding financial structure effects.
Margin > 20% is excellent for non-commodity sectors; 10–15% is acceptable
Example: INFY maintains ~22–25% operating margin, reflecting strong pricing power and lean operations.
AI FinSight tracks margin trends. A company with declining margins despite revenue growth signals increasing cost pressure — a key risk factor.
Cash Flow from Operations

Cash generated from core business activities — the purest measure of a company's ability to generate real cash.

Why it matters Profits can be manipulated; cash flow is harder to fake. Companies with strong operating cash flow are financially healthy and self-funding.
Operating Cash Flow should consistently exceed reported net profit
Example: WIPRO's operating cash flow of ₹15,000+ crore exceeding reported profit confirms high earnings quality.
AI FinSight checks Cash Conversion Ratio (OCF/Net Profit). Ratio < 0.8 consistently is flagged as an earnings quality concern.
Market Capitalization

Total market value of all outstanding shares (stock price × number of shares). Determines the company's size category.

Why it matters Market cap determines risk profile and growth potential. Large-caps are more stable; mid and small caps offer higher growth but more volatility.
Large-Cap: > ₹20,000 Cr | Mid-Cap: ₹5,000–20,000 Cr | Small-Cap: < ₹5,000 Cr
Example: RELIANCE at ~₹19 lakh crore is India's largest company; NIFTY 100 covers the 100 largest NSE companies by market cap.
AI FinSight tags each stock with its market cap category and adjusts valuation benchmarks accordingly — small caps deserve higher P/E for growth.
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