Our equity investment research process at Purnartha comprises of the following steps
- We look for companies with Volume Growth in sales. It’s the most basic criteria. Additionally, we do check the pricing power of these companies.
- A company must operate with stable EBITDA margins. Fluctuations in margins are signs of poorly run businesses where the external factors have more influence over the company’s operations.
- Investors very often ignore the Cash from operations as a not so important parameter. Their simple focus is on Net Profit /(Loss). BUT Cash from operations is an utmost important number which summarizes the way business has been done by the company. It shows the level of cash generated from operations by taking into account the WORKING CAPITAL requirements. A mere scrutiny of the same can clear several doubts on business operations.
- Company with high leverage finds it difficult to service their Loans in worst times. They fail to generate enough cash to pay off their Loans. Hence, we focus on the companies which have NET CASH balance in their balance sheet as they can easily survive the ups and downs of normal business cycle.
- A promoter frequently diluting his stake in the company is the one who’s losing the interest in his own business. We always look for the companies with high promoter stake and that too, not declining.