These simple yet powerful metrics are the backbone of fundamental analysis of stocks<\/strong><\/a>. Whether you\u2019re a beginner or experienced investor, understanding these ratios is essential for how to analyse stocks in India<\/strong>.<\/p>\n Let\u2019s decode the most important ones\u2014simplified, with examples from Indian companies.<\/p>\n \ud83d\udccc Formula:<\/strong> \ud83d\udccc What It Means:<\/strong> \ud83d\udcca Ideal Benchmark:<\/strong> 15% or more<\/p>\n \ud83d\udcd8 Example (Asian Paints FY24):<\/em> \u2705 High ROE = efficient management \ud83e\udde0 This is one of the top ratios used in stock analysis for beginners<\/strong>.<\/p>\n \ud83d\udccc Formula:<\/strong> \ud83d\udccc What It Means:<\/strong> \ud83d\udd0e Use for capital-heavy businesses (manufacturing, infrastructure)<\/p>\n \ud83d\udcd8 Example (Tata Steel FY24):<\/em> \u2705 Better operational efficiency indicator than ROE \ud83d\udccc Formula:<\/strong> \ud83d\udccc What It Means:<\/strong> \ud83d\udcca Ideal Benchmark:<\/strong> \ud83d\udcd8 Example (HDFC Bank):<\/em> \ud83d\udea9 D\/E > 2 is a red flag in most industries<\/p>\n If you’re hunting for the best stocks for long term investment in India<\/strong>, low debt is a strong plus.<\/p>\n \ud83d\udccc Formula:<\/strong> \ud83d\udccc What It Means:<\/strong> \ud83d\udcca Ideal:<\/strong> Between 1.2 and 2<\/strong><\/p>\n \ud83d\udcd8 Example (Marico FY24):<\/em> \ud83d\udea9 <1 = liquidity risk \ud83d\udccc Formula:<\/strong> \ud83d\udccc What It Means:<\/strong> \ud83d\udcd8 Example (Infosys):<\/em> \u2705 Consistently rising EPS = strong long-term performance<\/p>\n EPS is a core metric in how to do fundamental analysis<\/strong><\/a>.<\/p>\n \ud83d\udccc Formula:<\/strong> \ud83d\udccc What It Means:<\/strong> \ud83d\udcca Interpreting P\/E:<\/strong><\/p>\n <\/p>\n \ud83d\udcd8 Examples:<\/em><\/p>\n \ud83d\udea9 Always compare with sector average<\/p>\n \ud83d\udccc Formula:<\/strong> \ud83d\udccc What It Means:<\/strong> \ud83d\udcd8 Example (SBI):<\/em> \u2705 P\/B < 1 may signal value opportunity \ud83d\udccc Especially useful for banks and NBFCs<\/p>\n \ud83d\udccc Formula:<\/strong> \ud83d\udccc What It Means:<\/strong> \ud83d\udcca Ideal Benchmark:<\/strong> >3<\/strong><\/p>\n \ud83d\udcd8 Example (L&T):<\/em> \ud83d\udea9 <1 means earnings are not enough to cover interest\u2014high risk<\/p>\n Financial ratios are your shortcut to the truth behind the numbers. But remember:<\/p>\n Related Blogs:<\/strong><\/p>\n Stock Market Investment: Top 4 Equity Investment Tips for \u201cBeginners\u201d<\/a><\/p>\n Why Indicators Fail in Range-Bound Markets (and What to Do)<\/span><\/a><\/p>\n Why Indicators Fail in Range-Bound Markets (and What to Do)<\/span><\/a><\/p>\n What Is Fundamental Analysis? A Beginner\u2019s Guide with Indian Context<\/span><\/a><\/p>\n How to Read a Company\u2019s Balance Sheet: Step-by-Step with Indian Examples<\/span><\/a><\/p>\n Profit & Loss Statement: What Matters for Retail Investors in India<\/span><\/a><\/p>\n
\n1. Return on Equity (ROE)<\/h3>\n
\nROE<\/strong> = Net Profit \/ Shareholders\u2019 Equity \u00d7 100<\/p>\n
\nShows how efficiently a company generates profit using shareholders\u2019 capital.<\/p>\n
\nROE = 27%<\/strong> \u2192 Excellent return for shareholders<\/p>\n
\n\ud83d\udea9 Too high? Might be due to high debt\u2014always check D\/E ratio<\/p>\n
\n2. Return on Capital Employed (ROCE)<\/h3>\n
\nROCE<\/strong> = EBIT \/ Capital Employed \u00d7 100<\/p>\n
\nMeasures how efficiently both equity and debt are being used.<\/p>\n
\nROCE = 14%<\/strong> \u2192 Decent, but should be compared with peers<\/p>\n
\n\u2705 Not distorted by capital structure<\/p>\n
\n3. Debt-to-Equity Ratio (D\/E)<\/h3>\n
\nD\/E<\/strong> = Total Debt \/ Shareholders\u2019 Equity<\/p>\n
\nReveals how leveraged a company is.<\/p>\n
\n<0.5 for stable firms
\n<1 for growth companies<\/p>\n
\nD\/E = 0.1<\/strong> \u2192 Very low debt = financially sound<\/p>\n
\n4. Current Ratio<\/h3>\n
\nCurrent Ratio<\/strong> = Current Assets \/ Current Liabilities<\/p>\n
\nChecks if a company can meet short-term obligations.<\/p>\n
\nCurrent Ratio = 1.6<\/strong> \u2192 Healthy liquidity<\/p>\n
\n\ud83d\udea9 >3 = inefficient capital use<\/p>\n
\n5. Earnings Per Share (EPS)<\/h3>\n
\nEPS<\/strong> = Net Profit \/ Total No. of Shares<\/p>\n
\nTells you how much profit is attributed to each share.<\/p>\n
\nEPS = \u20b955<\/strong> per share<\/p>\n
\n6. Price-to-Earnings Ratio (P\/E)<\/h3>\n
\nP\/E<\/strong> = Share Price \/ EPS<\/p>\n
\nTells you how expensive or cheap a stock is relative to its earnings.<\/p>\n\n
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\n7. Price-to-Book Ratio (P\/B)<\/h3>\n
\nP\/B<\/strong> = Share Price \/ Book Value per Share<\/p>\n
\nCompares market value with net asset value.<\/p>\n
\nP\/B ~1.3<\/strong> \u2192 Fairly valued based on assets<\/p>\n
\n\ud83d\udea9 Could also mean weak business\u2014check ROE and earnings trend<\/p>\n
\n8. Interest Coverage Ratio<\/h3>\n
\nInterest Coverage<\/strong> = EBIT \/ Interest Expense<\/p>\n
\nAssesses whether a company can comfortably pay interest on its debt.<\/p>\n
\nInterest Coverage = 4.2<\/strong> \u2192 Healthy buffer<\/p>\n
\nSummary Table<\/strong><\/h3>\n
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<\/p>\n
\nSector-Wise Focus: Which Ratios Matter Most?<\/strong><\/h3>\n
![\"\"](\"https:\/\/www.gwcindia.in\/blog\/wp-content\/uploads\/sites\/2\/2025\/07\/Screenshot-2025-07-07-130611.png\")
<\/p>\n
\nFinal Thoughts<\/strong><\/h3>\n
\nThey reveal profitability<\/strong>, valuation<\/strong>, leverage<\/strong>, and operational efficiency<\/strong>\u2014without needing to decode 200-page annual reports.<\/p>\n\n
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