How to Select Shares to Buy in India?

Does the company has Good Fundamentals?

To find the answer to this question, there is a 2-minute drill to find a fundamentally strong company. Using this drill, you can filter the financially healthy companies so that you can proceed to investigate further. If the company is not fundamentally strong, there is no need to learn more about its products/services, competitors, future prospects, etc.

You can move to the next steps only once you confirm that the company has given good past performance and is worth investing in. For this 2-minute drill, you need to look into the financials of the company. Here are 8 financial ratios and their trend that should be carefully noted in this step.

1.Earnings Per Share (EPS) – Increasing for the last 5 years

2.Price to Earnings Ratio (PE) – Lower compared to competitors and industry average

3.Price to Book Ratio (PBV) – Lower compared to competitors and industry average

4.Debt to Equity Ratio – Should be less than 1 (Preferably debt<0.5 or Zero)

5.Return on Equity (ROE) – Should be greater than 15% (Last 3 Yrs Avg)

6.Price to Sales Ratio (P/S) – Smaller value is preferred

7.Current Ratio – Should be greater than 1

8.Dividend– Increasing for the last 5 years

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