A company is worth investing in, if it is profitable, and is capable of increasing its profitability at a good consistent rate.
To grow its profits, a company must be able to grow its Net Sales year after year. The company can achieve it by increasing capacity in existing infrastructure; & by expanding its business in the long run.
Any kind of expansion will need funds, and company can arrange it by
This investment is reflected by an increase in the Book Value of the company.
Company should utilise its capital efficiently. An investor / shareholder can check it by monitoring the Return on Total Invested Capital.
A good Company should borrow only so much money that it can repay without any serious difficulty. The Debt to net Profit ratio tells us how many years a company will take to repay its debt. If it's very high we need to investigate closely.
Thus, we have 5 necessary and sufficient financial factors that speak about a company's performance.
| Financial Factor | Measure of | |
| 1 | Net Sales | Revenue generated from sales of products and services |
| 2 | ROCE | Efficiency of using money, shareholders' and borrowed |
| 3 | EPS | Profit per share |
| 4 | BVPS | Reinvestment done to increase its capacity |
| 5 | Net Op. Cash Flow | Cash generated from operation |
| 6 | Debt/Net Profit Ratio | Number of years a company can take to repay its debt |
To know a company's real strength, we need to study the company's performance through a full economic cycle, thro' good and bad times. So, we need to evaluate a company on above factors for a period of 10 years.
The 10 YEAR X-RAY designed by MoneyWorks4me will help to assess a company's financial track record with ease. Click on the link to know more.
This is how the 10 YEAR X-RAY of a company on MoneyWorks4me looks-
Let us understand how MoneyWorks4Me has come up with the colour coding for the following-
| Financial Factor | Assessment of Colour Coding |
| Year-On-Year growth rates of Net Sales, EPS, Net Op. Cash Flow and BVPS | In the last ten years, Inflation in India has been growing at a CAGR of around 6%. So, we put our lower limit as twice that at 12% as good consistent growth and code it green as reflected in the 10 YEAR X-RAY. If the growth rate is 8-12% which just covers the inflation the company is considered somewhat good and is coded orange. A growth rate below 8% is considered not good and is coded red. |
| ROCE | We must maintain a return on total investment more than that on other investment options. In India, return on a 10-year fixed deposit is 8-10%; so we keep our benchmark for very good ROCE as a minimum 12% every year for 10 years and code it as green as reflected in the 10 YEAR X-RAY. If it is 8-12% which is similar to returns obtained with other Investment options; the company is considered somewhat good and is coded orange. ROCE below 8% is considered not good and is coded red. |
| Debt/Net Profit ratio | A good company should borrow only so much money that it can repay without any serious difficulty. We think a company should pay all its debt within 3 years. Hence, we keep our benchmark for very good Debt/Net profit between 0-3 for the current year and code it as green. The ratio greater than 3 or less than 0 have been coded as orange; indicating that we need to study the company further. |
MoneyWorks4Me rating and ranking of funds for SIP is available to subscribers only. Moneyworks4Me is not a rating and ranking agency, however it is required that users have a way of selecting funds and building a Portfolio. The method used by it are described below to enable users to understand the logic behind the rating and ranking Subscriber will find more details on this in the various content made available from time to time. In case you need more please write to besafe@moneyworks4Me.com
MoneyWorks4Me rates and ranks mutual funds based on the following data-driven system:
Funds ranking in screeners: Performance Consistency and Quality are two parameters used for ranking funds for SIP. The ranking as follows GG, GO, GR, OG, OO, OR, RG, RO and RR.
With the same color-coded funds, the one with the higher Average 3-year rolling returns (over 5 to 10 years), the number that appears in the Performance tag, ranks higher.
Here is the summary:
The third tag Upside Potential is not relevant for SIP. It is relevant for lumpsum investments in Mutual Funds.
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