Introduction:
Let’s be real… buying a stock just because someone on Instagram said “yeh stock toh rocket banega ” is not investing — that’s gambling, bhai!
If you really wanna build long-term wealth, you gotta check some solid fundamentals before putting your hard-earned money into any company.
And if you’re seriously learning at a good stock market training institute in pune, they’ll probably drill these metrics into your brain — and for a good reason. They’re the backbone of smart investing.
So now let’s break it all down, easy style — with no jargon overload.
Why Metrics Matter Before Buying Stocks
Before you buy a phone, you check camera, RAM, battery, processor — right?
Same logic with stocks. You don’t just buy ‘coz someone said it’s “trending”.
You check:
- How much profit company makes
- Is the price justified?
- How much debt they have
- Is growth real or just hype?
A few simple ratios can protect you from major blunders.
PE Ratio – Are You Overpaying?
Formula:
P/E = Market Price / Earnings per Share (EPS)
This tells you whether the stock is cheap or expensive compared to its earnings.
Example:
- TCS has a PE of 28
- Infosys has a PE of 24
- Industry average = 25
If TCS is higher, you’re paying a premium. Is it worth it? Depends on growth.
Ideal Range: Depends on sector. For IT, 20–30 is normal. For banking, lower is better.
EPS – The True Profit Indicator
EPS = Net Profit / Total Number of Shares
This is the profit per share — more EPS = more profitable the company is.
Look at year-on-year EPS growth. That tells you if the business is improving.
ROE – How Efficient is the Company?
ROE = Net Income / Shareholder Equity
This tells you how efficiently the company is using investor money to generate profit.
Ideal ROE:
15%+ is considered strong in most sectors.
Debt-to-Equity – Danger Alert!
D/E = Total Liabilities / Shareholder Equity
A high D/E means the company is running on loans. That’s risky, especially in economic slowdown.
Ideal Range:
Below 1 is generally safe. For financials, higher D/E is acceptable.
Current Ratio – Is the Company Liquid Enough?
Current Ratio = Current Assets / Current Liabilities
This shows whether the company can pay its short-term dues. If it’s <1, red flag!
Ideal:
Between 1.2 – 2.0 is considered safe.
Market Cap – Size Does Matter
Market Capitalization = Price per share × Total outstanding shares
Categories:
- Large Cap (₹20,000 Cr+)
- Mid Cap (₹5,000 – ₹20,000 Cr)
- Small Cap (< ₹5,000 Cr)
Bigger companies = more stability
Smaller ones = more risk & reward
Dividend Yield – Free Bonus Money
Dividend Yield = Dividend per Share / Market Price × 100
If you’re looking for passive income, check this metric.
But beware — high yield with weak business = trap!
Promoter Holding – Who’s In & Who’s Out
- Promoters are the people who started or run the company.
- High holding (>50%) = they believe in it
- Falling promoter stake = warning!
Profit Growth – Is the Business Really Growing?
- Consistent net profit growth is a major green flag.
- Check past 3–5 years’ profit CAGR (Compound Annual Growth Rate).
- It should be stable and ideally improving.
Price-to-Book Ratio – Undervalued or Overhyped?
P/B = Price / Book Value per share
- If P/B < 1 → Stock is undervalued (but check why)
- If P/B > 3 → Stock may be overpriced
Ideal for checking financial & PSU stocks.
PEG Ratio – Is the Growth Worth the Price?
PEG = PE / Earnings Growth Rate
- PEG < 1 → Stock is undervalued
- PEG > 1 → Stock may be overpriced
It adds growth into the equation — very useful!
Red Flags to Watch in Financials
- Sudden drop in profit
- High debt with falling sales
- Promoter pledging shares
- Auditor resignation
- Too many “Other Income” components
These are like warning signs — don’t ignore them!
Conclusion
Honestly, most retail investors in India still buy based on WhatsApp tips, Twitter threads, or “bhaiya ne bola le lo”
But if you wanna invest smart, not just gamble — these metrics are your real friends.
And if you’re learning properly from a good stock market training institute in deccan, they’ll teach you how to apply all these in real-time — using Screener, annual reports, and practical case studies.
End of day, money hard earned hota hai… invest with brains, not just hype!
FAQs
Q1: Is one metric enough to decide a stock?
- Nope. Use a combo of at least 4–5 metrics for a full picture.
Q2: Which metric is best for beginners?
- Start with PE ratio, EPS, and debt-to-equity. These give solid base insights.
Q3: Can low PE stocks be bad too?
- Yes. Sometimes low PE = market doesn’t trust the company. Always check fundamentals.
Q4: Are these metrics same for every sector?
- Not exactly. Each sector has different average benchmarks. Compare within same industry.