Fundamental Analysis & Valuation — 70 Terms Defined

Operating Margin Fundamental Analysis & Valuation % Operating profit as a percentage of revenue, showing what the core business keeps before interest and tax. Operating Margin = Operating Profit (EBIT) / Revenue x 100

PEG Ratio Fundamental Analysis & Valuation ratio (x, times) The price-to-earnings ratio divided by the expected annual earnings growth rate, used to judge whether growth justifies the multiple. PEG = Price-to-Earnings Ratio / Expected Annual Earnings Growth Rate (in percent)

Piotroski F-Score Fundamental Analysis & Valuation ratio (x, times) A nine-point checklist of year-on-year improvements in profitability, leverage and efficiency, scoring financial strength from 0 to 9. F-Score = sum of nine binary tests across profitability (4), leverage and liquidity (3), and operating efficiency (2)

Price-to-Book Ratio Fundamental Analysis & Valuation ratio (x, times) The market price of a share divided by its book value per share. P/B = Market Price per Share / Book Value per Share

Price-to-Cash-Flow Ratio Fundamental Analysis & Valuation ratio (x, times) Market capitalisation divided by operating cash flow, valuing the company against cash generated rather than accounting profit. P/CF = Market Capitalisation / Operating Cash Flow

Price-to-Earnings Ratio Fundamental Analysis & Valuation ratio (x, times) The price of one share divided by the earnings attributable to it, showing how many rupees are paid per rupee of annual profit. P/E = Market Price per Share / Earnings per Share

Price-to-Sales Ratio Fundamental Analysis & Valuation ratio (x, times) Market capitalisation divided by annual revenue, showing how much is paid per rupee of sales. P/S = Market Capitalisation / Annual Revenue

Pricing Power Fundamental Analysis & Valuation qualitative The ability to raise prices without losing enough volume to reduce profit. Test: gross margin is stable or rising through a period of input-cost inflation, with volumes broadly maintained

Quality Investing Fundamental Analysis & Valuation qualitative An approach that prioritises businesses with durable high returns on capital, strong balance sheets and consistent cash generation. Test: sustained high return on capital employed, low leverage, cash conversion near or above reported profit, and a nameable competitive barrier

Quick Ratio Fundamental Analysis & Valuation ratio (x, times) Current assets excluding inventory, divided by current liabilities — a stricter test of short-term solvency. Quick Ratio = (Current Assets - Inventory) / Current Liabilities

Relative Valuation Fundamental Analysis & Valuation ₹ crore Valuing a company by comparing its multiples with those of similar companies or with its own history. Implied Value = Peer Group Median Multiple x Company's Corresponding Financial Metric

Return on Assets Fundamental Analysis & Valuation % Net profit as a percentage of total assets, measuring how much profit the asset base generates regardless of funding. ROA = Net Profit / Average Total Assets x 100

Return on Capital Employed Fundamental Analysis & Valuation % Operating profit as a percentage of the total capital, both equity and debt, used to generate it. ROCE = Operating Profit (EBIT) / (Shareholders' Equity + Total Debt) x 100

Return on Equity Fundamental Analysis & Valuation % Net profit expressed as a percentage of shareholders' equity, measuring what the business earns on the owners' capital. ROE = Net Profit Attributable to Shareholders / Average Shareholders' Equity x 100

Return on Invested Capital Fundamental Analysis & Valuation % After-tax operating profit as a percentage of the capital actually invested in operations, excluding surplus cash. ROIC = Net Operating Profit After Tax / (Total Debt + Equity - Cash) x 100

Revenue Growth Fundamental Analysis & Valuation % The rate at which a company's sales increase from one period to the next. Revenue Growth = (Current Period Revenue - Prior Period Revenue) / Prior Period Revenue x 100

Shares Outstanding Fundamental Analysis & Valuation shares The total number of a company's shares currently held by all shareholders, including promoters and institutions. Shares Outstanding = Issued Shares - Treasury Shares; also equals Paid-Up Share Capital / Face Value

Sum-of-the-Parts Valuation Fundamental Analysis & Valuation ₹ crore Valuing a diversified company by valuing each business separately and adding the results, less net debt and holding-company costs. Value = Sum of (Value of Each Segment) + Value of Investments - Net Debt - Holding Company Discount

Terminal Value Fundamental Analysis & Valuation ₹ crore The estimated value of a business beyond the explicit forecast period in a discounted cash flow model. Terminal Value = Final Year Cash Flow x (1 + Terminal Growth Rate) / (Discount Rate - Terminal Growth Rate)

Trailing Price-to-Earnings Fundamental Analysis & Valuation ratio (x, times) The price-to-earnings ratio computed using earnings actually reported over the last twelve months. Trailing P/E = Current Market Price / Earnings per Share over the Trailing Twelve Months

Value Trap Fundamental Analysis & Valuation qualitative A share that looks cheap on backward-looking multiples but is cheap because its business is deteriorating. Test: the low multiple is explained by declining earnings power rather than by temporary pessimism, so the multiple stays low as earnings fall

Weighted Average Cost of Capital Fundamental Analysis & Valuation % The blended after-tax cost of a company's debt and equity funding, weighted by their market values. WACC = (E/V) x Cost of Equity + (D/V) x Cost of Debt x (1 - Tax Rate), where V = E + D