Stock Analysis Template

Answer every question and fill all the details before moving to Annual Report Analysis and Discounted Cash Flow-based Intrinsic Value calculation

About the Company:

STAGE-1

Question	Rational behind the question	Answer	Judgment based on Answer
What does the company do?	To get a basic understanding of the business
Who are its promoters? What are their backgrounds?	To know the people behind the business. Sanity check to eliminate criminal background, intense political affiliation, etc.
What do they manufacture (in case it is a manufacturing company)?	To know their products better, helps us get a sense of the product’s demand supply dynamics
How many plants do they have and where are they located?	To get a sense of their geographic presence. Also at times, their plants could be located in a  prime location, and  the value of such location could go off-balance sheet, making the company highly undervalued
Are they running the plant in full capacity?	Gives us an idea on their operational abilities, demand for their products, and their positioning for future demand
What kind of raw material is required?	Helps us understand the dependency of the company. For example, the raw material could be regulated by Govt (like Coal) or the raw material needs to be imported either of which needs further investigation
Who are the company’s clients or end-users?	By knowing the client base we can get a sense of the sales cycle and efforts required to sell the company’s products
Who are their competitors?	Helps in knowing the competitors. Too many competing companies mean margin pressure. In such a case the company has to do something innovative. Margins are higher if the company operates in – monopoly, duopoly, or oligopoly market structure
Who are the major shareholders of the company?	Besides the promoter and promoter group, it helps to know who else owns the shares of the company. If a highly successful investor holds the shares in the company then it could be a good sign
Do they plan to launch any new products?	Gives a sense of how ambitious and innovative the company is. While at the same time a company launching products outside their domain raises some red flags – is the company losing focus?
Do they plan to expand to different countries?	Same rationale as above
What is the revenue mix? Which product sells the most?	Helps us understand which segment (and therefore the product) is contributing the most to revenue. This in turns helps us understand the drivers for future revenue growth
Do they operate under a heavy regulatory environment?	This is both good and bad – Good because it acts a natural barrier from new competition to enter the market, bad because they are limited with choices when it comes to being innovative in the industry
Who are their bankers, auditors?	Good to know, and to rule out the possibility of the companies associated with scandalous agencies
How many employees do they have? Does the company have labor issues?	Gives us a sense of how labor-intensive the company’s operations are. Also, if the company requires a lot of people with a niche skillset then this could be another red flag
What are the entry barriers for new participants to enter the industry?	Helps us understand how easy or difficult it is for new companies to enter the market and eat away the margins
Is the company manufacturing products that can be easily replicated in a country with cheap labor?	If yes, the company may be sitting on a time bomb – think about companies manufacturing computer hardware, mobile handsets, garments, etc.
Does the company have too many subsidiaries?	If yes, you need to question why? Is it a way for the company to siphon off funds?

             Basic Checklist

Variable	Comment	Significance	Answer	Judgment based on Answer
Gross Profit Margin (GPM)	> 20%	Higher the margin, higher is the evidence of a sustainable moat
Revenue Growth	Inline with the gross profit growth	Revenue growth should be in line with the profit growth
EPS	EPS should be consistent with the Net Profits	If a company is diluting its equity then it is not good for its shareholders
Debt Level	Company should not be highly leveraged	High debt means the company is operating on high leverage. Plus the finance cost eats away the earnings
Inventory	Applicable for manufacturing companies	A growing inventory along with a growing PAT margin is a good sign. Always check the inventory number of days
Sales vs Receivables	Sales backed by receivables is not a great sign	This signifies that the company is just pushing its products to show revenue growth
Cash flow from operations	Has to be positive	If the company is not generating cash from operations then it indicates operating stress
Return on Equity	>25%	Higher the ROE, better it is for the investor, however, make sure you check the debt levels along with this
Business Diversity	1 or 2 simple business lines	Avoid companies that have multiple business interests. Stick to companies that operate in 1 or 2 segments
Subsidiary	Not many	If there are too many subsidiaries then it could be a sign of the company siphoning off money. Be cautious while investing in such companies.

Ratios Analysis

Ratios	Value	Interpretation/Judgement	Any other comment/observation
Quick ratio
Current ratio
P/E Ratio
ROCE (%)
Return on Assets(%)
ROE (%)
Dividend Yield (%)
Debt to Equity
Interest Coverage Ratio
Price to Book Value Ratio
Price to Sales

Disclaimer: I am NOT a SEBI registered advisor. All my blog posts are written for educational purposes only and do not constitute specific financial, trading, or investment advice. The blog is intended to provide educational information only and does not attempt to give you advice that relates to your specific circumstances. You should discuss your specific requirements and situation with a qualified financial adviser.