Hi Sukhbinder,

Let me and my whole team say thank you from deep of our heart to include us in list of people and books that contributed to your method and understanding of investment.(Please visit Feedback suggestion column) We all feel so proud of ourselves. I am happy to see that you are on right track of doing your research. Few things I want to comment on which you and others can do further research:

1. To gauge a debt of any company, it is better to look for Gearing ratio.

2. Watching share capital is great! Dilution of capital is of great damage. Many times you will notice that preferential stocks are issued to promoters that are convertible in securities. You won’t be able to notice that straight away in share capital structure many times so keep looking schedules to keep track of that.

 3. Dividing current asset with current liabilities is a good exercise to understand liquidity but in real world management knows how to manipulate that ratio.

 4. It is important that company should have capacity to generate cash flow. All good things happen with surplus cash.

 5. It is again important that company stay in their means. If they go out of their means then it is important to investigate that do they have capacity to generate enough in future years to pay all their debts.

 6. Always negative figure in finance section of cash flow does not mean the company is paying off debt. So be careful with that assumption.

7. Revenues should grow but company comes at one stage from where it is hard to grow revenues but still manage to create great wealth for their shareholders. Many other things need to be analyzed in regards to that.

 8. If net profit margin is below 10% then extra care has to be taken while doing research. Instead of avoiding them totally look for threats that can affect its profit margins.

 9. When company is in high growth phase and have confidence to generate great returns on their profits they don’t issue dividends (Ex: Jubilant Foodworks). So not necessary that if company does not pay dividend they are bad.

10. A very good point over here. Your interest expense should not be the biggest pie of your operating profits eaten up by financiers.

11. We want to invest in company who is producing healthy return on equity. End of the day it matters most what you getting by investing in them so that you can compare your returns with other instruments.

12. Always keep track of profit margins and compare them with last 4-6 quarter results.

I thought to talk about the ratios and exercise we take while analysing any company. More than 150 scenarios run the ratios that we have created to research. They all have domino effect. If one condition is fulfilled then it tests the other. All the ratios are run through those scenarios and then you get to know which are A1 companies.

 With all the help of these ratios you can just filter the quality companies. But the second most important thing to do is to understand those businesses. Because without understanding them it is hard to judge what is right and what are wrong actions of company. It helps you to understand the long-term prospects and judge whether the management is strong and knows what they are doing. Once you are satisfied then the final step is to invest in them when they are trading at discount.

 We all will be looking forward for your valuable contribution on our blog. Our goal is to make as many people serious investors and make them invest as professionals do. We can see one in making. Smile