Stop guessing and start investing with confidence. Learn how to analyse stocks step-by-step using our proprietary fundamental checklist based on Buffett and Graham principles.
Below is a transparent breakdown of every metric we use, why it matters, and what the benchmarks are.
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How to Use This Checklist (Beginner's Guide)
To effectively analyse a stock, you should approach it in three simple steps:
1. Filter Out the Noise: Use the Financial Health and Cash Flow pillars first to eliminate companies with high debt, promoter pledging, or negative cash flows (Junk Stocks).
2. Assess the Quality: Use the Profitability pillar (ROE, ROCE, Margins) to find businesses that generate high returns on their capital.
3. Determine the Price: Finally, use the Valuation pillar — starting with the P/E ratio and our discounted cash flow (DCF) model — to ensure you're buying at a fair price with a margin of safety.
Is the stock priced fairly, or is the market overcharging you? These metrics tell you the true worth of a business versus what you're being asked to pay.
01
Price-to-Earnings (P/E) Ratio
FormulaStock Price ÷ Earnings Per Share (EPS)
Definition
What is P/E Ratio? The P/E ratio measures how much investors are willing to pay for each rupee of a company's earnings. A P/E of 20 means investors pay ₹20 for every ₹1 of profit the company earns.
Why It Matters
It's the single most-used valuation tool. A very high P/E means the market expects massive future growth — which may or may not materialise. A low P/E could mean the stock is a hidden gem or a sinking ship. Context (industry, growth) is everything.
GemFilter Benchmark
✅ 10–15 = Fair value | ✅ 15–25 = Acceptable if industry average is 25 | ❌ Above 25 = Potentially overvalued
02
Price-to-Book (P/B) Ratio
FormulaMarket Capitalisation ÷ Total Book Value of Equity
Definition
Compares what investors pay for a stock versus the net value of all the company's physical and financial assets (after subtracting debts). Book value is essentially what shareholders would receive if the company was liquidated today.
Why It Matters
Warren Buffett's mentor Benjamin Graham made this metric famous. Stocks trading below book value can be deep value opportunities. However, this metric is less meaningful for asset-light businesses like software companies.
FormulaP/E Ratio ÷ Expected Annual Earnings Growth Rate (%)
Definition
The PEG ratio improves on the P/E by factoring in the company's expected growth rate. It tells you whether you're paying a fair price for the growth on offer. A PEG below 1.0 is traditionally considered undervalued.
Why It Matters
A stock can have a P/E of 40 and still be cheap if it's growing at 50% per year. PEG cuts through that noise. It helps avoid 'value traps' — companies that look cheap on P/E but have zero growth prospects.
Formula(Total Shareholder Equity - Preferred Equity) ÷ Total Outstanding Shares
Definition
The per-share value of a company's net assets (assets minus liabilities). It represents the minimum floor value of the company — what each share would theoretically be worth if the business was wound up.
Why It Matters
When the stock price is below BVPS, you're buying assets for less than their stated worth — a cornerstone of Graham-style value investing. Consistent growth in BVPS over 5–10 years also signals genuine wealth creation for shareholders.
GemFilter Benchmark
✅ Stock price < BVPS = Potential deep value | ✅ BVPS growing consistently over 5+ years = Positive signal
05
Intrinsic Value vs. Market Price (Margin of Safety)
FormulaIntrinsic Value (via DCF) vs. Current Market Price
Definition
Intrinsic value is the 'true' calculated worth of a stock based on its future expected cash flows, discounted back to today's money. The Margin of Safety is how much cheaper the market price is compared to this calculated value.
Why It Matters
Buying with a margin of safety is the single most important concept in value investing. If your calculation is wrong (and it sometimes will be), the buffer protects you from serious losses. It's the difference between investing and speculating.
GemFilter Benchmark
✅ Market price is 20–30%+ below intrinsic value = Strong margin of safety | ❌ Market price above intrinsic value = No margin of safety, avoid
📈
Profitability & Growth
A great business doesn't just survive — it grows and compounds wealth efficiently year after year. These metrics reveal whether a company has the operational muscle and discipline to generate strong, sustainable profits.
01
Return on Equity (ROE)
FormulaNet Income ÷ Total Shareholder Equity × 100
Definition
What is ROE in the stock market? Return on Equity measures how efficiently a company uses the money shareholders have invested to generate profits. If a company has ₹100 Cr of shareholder equity and earns ₹20 Cr in net profit, its ROE is 20%.
Why It Matters
Warren Buffett famously looks for companies with consistently high ROE. It signals that management is excellent at allocating capital. A company with ROE above 15% for 5+ consecutive years often has a genuine, durable competitive advantage (moat).
FormulaEBIT ÷ Capital Employed × 100 (Capital Employed = Total Assets − Current Liabilities)
Definition
Measures the profitability and efficiency of a company's total capital — both equity AND debt. Unlike ROE, ROCE cannot be gamed by excessive borrowing, making it a more robust measure of true business quality.
Why It Matters
This is the metric hedge fund managers prioritise. A company that earns ROCE consistently above its cost of capital (WACC) is genuinely creating wealth. If ROCE < WACC, the business is actually destroying shareholder value even if it shows a profit.
GemFilter Benchmark
✅ Above 15% = Good | ✅ Above 20% = Excellent | ❌ Below cost of capital = Value destroyer
The percentage of revenue left over after paying all operating costs (salaries, rent, raw materials) but before paying interest and taxes. It represents the core earning power of the actual business operations.
Why It Matters
OPM reveals pricing power and cost discipline. A company that can maintain or grow its OPM over years — despite inflation and competition — is a sign of a durable moat. Declining OPM is one of the earliest warning signs of competitive pressure.
GemFilter Benchmark
✅ Above 15% and stable = Strong operations | ✅ Consistently expanding OPM = Excellent | ❌ Declining OPM year-over-year = Red flag
04
Revenue vs. Profit Growth Alignment
FormulaCompare Revenue CAGR vs. Net Profit CAGR over 3–5 years
Definition
Checks whether a company's revenue growth and profit growth are moving in the same direction at similar rates. Healthy businesses grow both revenue and profit together. Misalignment is a warning sign.
Why It Matters
A company with rising revenue but falling profits is spending more than it earns — unsustainable. Conversely, profit growing much faster than revenue might suggest cost-cutting that will eventually hurt quality. Aligned, proportional growth is the gold standard.
GemFilter Benchmark
✅ Revenue and profit growing at similar rates = Healthy | ❌ Revenue up, profit flat or down = Margin squeeze, investigate | ❌ Profit up, revenue down = Unsustainable cost-cutting
05
Earnings Growth (EPS CAGR)
Formula[(EPS in final year ÷ EPS in starting year) ^ (1 ÷ Number of years)] − 1 × 100
Definition
The compound annual growth rate of Earnings Per Share (EPS) over a multi-year period. It shows how fast the company is growing the profit that belongs to each share you hold.
Why It Matters
In the long run, stock prices follow earnings. A company consistently compounding earnings at 15–20% per year will likely be worth significantly more in 10 years. Slow or negative earnings growth makes it very difficult for a stock to deliver strong returns.
GemFilter Benchmark
✅ 8–10%+ per year = Good for most sectors | ✅ 15–20%+ per year = Excellent | ❌ Below 5% consistently = Slow compounder, re-evaluate
06
Consistent Earnings History
FormulaTrack Net Income (or EPS) for the last 5–10 years
Definition
A qualitative-quantitative check of whether a company has produced positive, stable, and ideally growing net income over the last 5 to 10 years — without major unexplained losses or erratic swings.
Why It Matters
Erratic earnings are a red flag. Companies with lumpy, unpredictable profits are harder to value and often carry hidden operational or competitive risks. Consistent earnings signal a resilient, predictable business model — exactly what Buffett seeks.
GemFilter Benchmark
✅ Positive and growing net income for 5+ consecutive years = Strong | ⚠️ One or two down years in 10 = Acceptable if recovered | ❌ Multiple loss-making years = High risk
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Financial Health & Quality
Even the most profitable company can go bankrupt if it's drowning in debt or can't pay its bills. These metrics are your early-warning radar for financial distress and governance red flags.
01
Debt-to-Equity (D/E) Ratio
FormulaTotal Liabilities ÷ Total Shareholder Equity
Definition
What is a good Debt-to-Equity Ratio? The D/E ratio compares how much debt the company uses versus the equity invested by shareholders to finance its assets. A D/E of 1.0 means the company uses equal amounts of debt and equity. Above 1.0 means debt-heavy.
Why It Matters
Debt is a multiplier — it amplifies both gains and losses. Companies with high debt loads face severe strain during economic downturns, interest rate hikes, or revenue shocks. Low-debt companies can survive recessions and opportunistically acquire weakened competitors.
GemFilter Benchmark
✅ Below 0.5 = Excellent, very safe | ⚠️ 0.5–1.0 = Acceptable | ❌ Above 1.0 = Risky, especially in cyclical sectors
02
Current Ratio
FormulaCurrent Assets ÷ Current Liabilities
Definition
A liquidity ratio that measures a company's ability to pay off its short-term obligations (due within 12 months) using its short-term assets (cash, receivables, inventory). It's a snapshot of near-term financial health.
Why It Matters
A current ratio below 1.0 means the company cannot cover its immediate debts with available assets — a serious liquidity warning sign. Too high a ratio (above 3) can indicate the company is hoarding cash inefficiently instead of investing in growth.
FormulaPromoter Stake % and % of Promoter Shares Pledged (for Indian stocks)
Definition
What is promoter pledging in stocks? It means founders are using their shares as collateral for loans. Promoter holding shows what percentage of the company is owned by its founders. In India, pledging is a major governance red flag.
Why It Matters
High promoter holding (above 40–50%) means the founders have 'skin in the game' and are aligned with minority shareholders. Pledging is dangerous: if the stock falls, lenders sell the pledged shares in the open market, which can trigger a vicious downward spiral.
GemFilter Benchmark
✅ High promoter holding (40%+) with zero or minimal pledging = Positive | ⚠️ Pledging above 20% = Caution | ❌ Pledging above 40% = High risk, avoid
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Cash Flow & Dividends
Profits can be manipulated through accounting tricks. Cash cannot. These metrics cut through the noise to reveal whether the business is generating real, usable money — and whether it shares that wealth with you.
01
Free Cash Flow (FCF)
FormulaOperating Cash Flow − Capital Expenditures (CapEx)
Definition
The actual cash a business generates from its core operations after spending what's needed to maintain and grow its physical assets (factories, equipment, technology). It is the 'real' profit of a business, after all necessities are paid.
Why It Matters
Unlike net income, FCF cannot be easily manipulated through accounting policies like depreciation or revenue recognition. Companies with strong FCF can self-fund growth, pay dividends, buy back shares, or make acquisitions without needing to raise expensive debt or equity.
GemFilter Benchmark
✅ Positive and growing FCF for 3+ years = Excellent | ✅ FCF growing faster than Net Income = Very healthy | ❌ Negative or declining FCF = Investigate why — could signal a cash burn crisis
02
Dividend History & Consistency
FormulaTrack Dividend Per Share (DPS) and Dividend Yield over 5–10 years
Definition
A review of whether the company has paid regular dividends, whether those dividends have been maintained or grown over time, and what percentage of earnings are paid out (payout ratio).
Why It Matters
A consistent dividend history is a powerful signal of management confidence — they would not pay out cash if they weren't confident in future earnings. For long-term investors, dividends also provide a real, tangible return independent of stock price movements. Note: Not all great companies pay dividends (Berkshire Hathaway doesn't), so its absence alone is not disqualifying.
GemFilter Benchmark
✅ Consistent dividends for 5+ years = Positive bonus signal | ✅ Growing dividends each year = Strong confidence signal | ⚠️ Dividend cut = Serious warning, investigate | ❌ Not applicable to high-growth companies that reinvest all earnings
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