Dr. Vikas V Gupta, Executive Vice President, Traded Markets and Investment Research, ArthVeda Fund Management Pvt. Ltd, lists out screening process by which investors can create a pool of better companies:
Step 1: Filter out all companies with sales less than INR 250 crore. Companies with sales lower than this are very small companies and might not have the business stability and access to finance that is required for a safe investment. So we will select companies with sales equal to or greater than INR 250 crore.
Step 2: Filter out all companies with debt to equity greater than 30%. Companies with low leverage are safer.
Step 3: Filter out all companies with interest coverage ratio of less than 4. Companies with high interest coverage ratio are good.
Step 4: Filter out all companies with ROE less than 15% since they are earning less than their cost of capital.
Step 5: Filter out all companies with PE ratio greater than 25 since they are too expensive even for a high-quality company.
Step 1: Filter out all companies with sales less than INR 250 crore. Companies with sales lower than this are very small companies and might not have the business stability and access to finance that is required for a safe investment. So we will select companies with sales equal to or greater than INR 250 crore.
Step 2: Filter out all companies with debt to equity greater than 30%. Companies with low leverage are safer.
Step 3: Filter out all companies with interest coverage ratio of less than 4. Companies with high interest coverage ratio are good.
Step 4: Filter out all companies with ROE less than 15% since they are earning less than their cost of capital.
Step 5: Filter out all companies with PE ratio greater than 25 since they are too expensive even for a high-quality company.
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