According to Dipen Shah, Head, Private Client Group Research, Kotak Securities, the most important historical financials to look at are:
Growth rates: Growth rates of the past few years, essentially over a business cycle, depict how the company has performed during good and bad times for the industry. Profitability: If it has sustained growth at decent margins over that period, it gives a good account of its competitive positioning.
Balance sheet leverage: Whether the company is dependent on borrowed money or is generating enough cash itself.
Current ratio: This gives an idea if the company is able to grow and earn margins only by giving better terms to clients and borrowers or is able to do business on its own terms. ROCE and ROE: The returns generated by the company for its owners and lenders. Apart from historical financials, one should work out the future prospects based on the study of the industry and the company. These will provide an insight on what the future looks like for the company and whether the stock is still investment worthy.
