Fundamental Analysis Formulas

Master the key formulas used in fundamental analysis for stock valuation, ratio analysis, and investment decision making.

📊 Valuation Ratios

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Earnings Per Share (EPS)

EPS = (Net Profit - Preferred Dividends) ÷ Total Outstanding Shares

Measures a company's profit per outstanding share of common stock. Higher EPS indicates better profitability per share.

Example: If net profit is ₹100 Cr and 10 Cr shares outstanding, EPS = ₹10

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Price to Earnings (P/E) Ratio

P/E Ratio = Market Price per Share ÷ EPS

Indicates how much investors are willing to pay for each rupee of earnings. Lower P/E may indicate undervaluation.

Example: If stock price is ₹500 and EPS is ₹25, P/E = 20x

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Price to Book (P/B) Ratio

P/B Ratio = Market Price per Share ÷ Book Value per Share

Compares market value to accounting value. P/B < 1 may indicate the stock is undervalued relative to its assets.

Example: If stock price is ₹200 and book value per share is ₹150, P/B = 1.33x

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Price to Earnings Growth (PEG) Ratio

PEG Ratio = P/E Ratio ÷ Expected EPS Growth Rate (%)

Adjusts P/E ratio for growth. PEG < 1 may indicate the stock is undervalued considering its growth prospects.

Example: If P/E is 20x and expected growth is 15%, PEG = 1.33x

💎 Dividend Metrics

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Dividend Yield

Dividend Yield = (Annual Dividend per Share ÷ Current Market Price) × 100

Shows the percentage return from dividends. Higher yield indicates better income generation potential.

Example: If dividend is ₹10 per share and stock price is ₹200, yield = 5%

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Dividend Payout Ratio

Payout Ratio = (Total Dividends ÷ Net Income) × 100

Percentage of earnings paid as dividends. Lower ratio indicates more retained earnings for growth.

Example: If dividends are ₹50 Cr and net income is ₹200 Cr, payout = 25%

📈 Profitability Ratios

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Return on Equity (ROE)

ROE = (Net Income ÷ Shareholder's Equity) × 100

Measures how effectively a company uses equity to generate profits. Higher ROE indicates better performance.

Example: If net income is ₹100 Cr and equity is ₹500 Cr, ROE = 20%

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Return on Assets (ROA)

ROA = (Net Income ÷ Total Assets) × 100

Shows how efficiently a company uses its assets to generate profits. Higher ROA indicates better asset utilization.

Example: If net income is ₹100 Cr and assets are ₹800 Cr, ROA = 12.5%

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Net Profit Margin

Net Margin = (Net Profit ÷ Revenue) × 100

Shows what percentage of revenue becomes profit. Higher margins indicate better profitability efficiency.

Example: If net profit is ₹50 Cr and revenue is ₹500 Cr, margin = 10%

🏥 Financial Health Ratios

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Current Ratio

Current Ratio = Current Assets ÷ Current Liabilities

Measures short-term liquidity. Ratio > 1 indicates company can meet short-term obligations.

Example: If current assets are ₹200 Cr and liabilities are ₹100 Cr, ratio = 2.0x

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Debt to Equity Ratio

D/E Ratio = Total Debt ÷ Shareholder's Equity

Shows financial leverage. Lower ratio indicates less reliance on debt financing.

Example: If debt is ₹300 Cr and equity is ₹500 Cr, D/E = 0.6x

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Quick Ratio (Acid Test)

Quick Ratio = (Cash + Marketable Securities + Receivables) ÷ Current Liabilities

Measures immediate liquidity excluding inventory. More conservative than current ratio.

Example: If quick assets are ₹150 Cr and liabilities are ₹100 Cr, ratio = 1.5x

📊 Growth Metrics

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Revenue Growth Rate

Growth Rate = [(Current Year Revenue - Previous Year Revenue) ÷ Previous Year Revenue] × 100

Measures top-line growth. Consistent high growth indicates business expansion and market demand.

Example: If revenue grows from ₹400 Cr to ₹500 Cr, growth = 25%

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EPS Growth Rate

EPS Growth = [(Current EPS - Previous EPS) ÷ Previous EPS] × 100

Measures bottom-line growth per share. Important for valuation multiples like PEG ratio.

Example: If EPS grows from ₹15 to ₹20, growth = 33.3%

Apply These Formulas to Real IPOs

Use these fundamental analysis formulas to evaluate upcoming IPOs and make informed investment decisions. Compare brokers and analyze IPO valuations with confidence.

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