{"id":8746,"date":"2013-09-05T13:49:18","date_gmt":"2013-09-05T08:19:18","guid":{"rendered":"https:\/\/www.moneyworks4me.com\/investmentshastra\/?p=8746"},"modified":"2020-09-02T17:11:54","modified_gmt":"2020-09-02T11:41:54","slug":"stock-investing-for-beginners-learn-how-to-invest-in-share-market","status":"publish","type":"post","link":"https:\/\/www.moneyworks4me.com\/investmentshastra\/stock-investing-for-beginners-learn-how-to-invest-in-share-market\/","title":{"rendered":"The Second Secret Is Out: How to detect a Right Stock"},"content":{"rendered":"

In the first part<\/span><\/span><\/a> of the series, \u2018How to identify a right stock\u2019, we spoke about the \u2018Value Creation Index\u2019, how it is calculated and why it holds so much importance in identifying the right stock, consequently leading to a good investment decision. Apart from VCI, there are various financial parameters, which come handy in gauging the financial strength of the company. This part of the series deals with a set of financial parameters that you must evaluate to know whether a stock is really \u2018Right\u2019 or not.<\/p>\n

Why are Financials so important?<\/span><\/h3>\n

But, before we proceed, let\u2019s try to find out why we need to look at financials at all.<\/p>\n

Financials have been and will continue to form the biggest chunk of a company\u2019s evaluation as, all said and done, what makes or breaks any business is the bottom-line. That, in the end, is truly indicative of the company\u2019s ability to do business and sustain itself.<\/p>\n

A consistent historical financial performance over the past 5-10 years indicates a company\u2019s ability to do business in both – an up-cycle and a down-cycle. Needless to say, a good business will also be impacted during a down cycle, however, its inherent financial strength as measured by the key financial parameters in the down cycle will make it better equipped to sail through difficult times, when compared with other businesses.<\/p>\n

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

Key Financial Parameters<\/span><\/h3>\n

But surely, not all the numbers that companies release need to be analysed to check the company\u2019s performance, isn\u2019t it?<\/p>\n

Absolutely not! In fact there are only a few selected numbers that can give you a good understanding on whether the company is fundamentally strong or not. These key financial parameters<\/span><\/span><\/a> and their rationale are listed below:<\/p>\n