{"id":8678,"date":"2013-08-22T16:18:39","date_gmt":"2013-08-22T10:48:39","guid":{"rendered":"https:\/\/www.moneyworks4me.com\/investmentshastra\/?p=8678"},"modified":"2026-06-01T15:08:28","modified_gmt":"2026-06-01T09:38:28","slug":"the-first-secret-how-to-identify-the-right-stock","status":"publish","type":"post","link":"https:\/\/www.moneyworks4me.com\/investmentshastra\/the-first-secret-how-to-identify-the-right-stock\/","title":{"rendered":"The First Secret Is Out: How to detect a Right Stock"},"content":{"rendered":"

For most investors, the first secret, the ‘Right Stock\u2019<\/span><\/a><\/span><\/em> remains an elusive mystery. We hear about it once in a while but are almost always unable to find it! What truly constitutes a \u2018Right Stock\u2019 and how do we find one amongst the thousands available in the Stock Market? Starting this week, we will be focusing on a series; the first being \u2018How to Identify a Right Stock\u2019.<\/p>\n

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Value Creation:<\/span><\/h3>\n

The first and foremost question to ask of a company you\u2019re looking to invest in is – does it create value for me?
\nFrom the investor\u2019s perspective, \u2018Value\u2019 is created when the returns generated on the capital employed are higher than the cost of capital itself. After all, that\u2019s what you want your investment to do. You want the returns from it to be higher than the costs you have incurred in investing in it. Likewise, you want the company, you invest in, to be generating returns higher than the cost incurred, on the capital employed.<\/p>\n

Formally put, \u2018Value Creation\u2019 can be calculated using the following formula.<\/p>\n

Return on Capital Employed-Weighted Average Cost of Capital)\/Weighted Average Cost of Capital.<\/p>\n

\"Avoid<\/a><\/p>\n

Explanation of the Formula:<\/span><\/h3>\n

Why do we take these factors into account? Let\u2019s examine the formula in more detail and how it benefits you as an investor.<\/p>\n

Weighted Average Cost of Capital (WACC)<\/span><\/h3>\n

The capital that the company raises is not free; there is a cost attached to it.<\/p>\n

This cost, primarily, comprises of two factors:<\/p>\n

1.Cost of Equity, which is further calculated using:<\/p>\n