A cousin sends a company name on WhatsApp at nine in the evening with three fire emojis and no explanation. You have about ninety minutes before you want to sleep. The useful thing to do with those ninety minutes is not to decide whether to buy. It is to decide, cheaply and with reasons, whether this company deserves a second evening — and to be able to say why either way.
The first twenty minutes: the reject test
- 11. What does it do, in your own words
One or two sentences without using the company’s marketing language. If you cannot write them after ten minutes with the annual report’s opening section, stop here. Everything downstream depends on this and nothing can substitute for it.
- 22. Can you get out again
Look at average daily traded value over the last few months, not one day. A stock you can buy but cannot sell is not an investment, it is a commitment. Set your own floor and apply it before you become interested in the story.
- 33. The shareholding pattern and any pledge
Filed quarterly with both exchanges and free to read. Who holds it, whether the promoter stake has been falling, and how much of the promoter holding is pledged with lenders. Heavy pledging ends the evening on its own.
- 44. Five years of net profit beside five years of operating cash flow
Any screener shows both on one page. In a healthy company they move together. Profit rising while operating cash flow stays flat is the single most reliable warning available, and it takes ninety seconds to check.
- 55. The auditor’s opinion in the latest annual report
You are looking for one word: unmodified. A qualified opinion, a disclaimer, or an auditor who resigned mid-term is not a detail to be weighed against the growth rate. It is the end of the first pass.
The next hour: five numbers over five years
A single year tells you almost nothing; the information is in the direction of travel. Pull each of these for five years, on one sheet, before forming any view at all. What you are building is not a valuation — it is a description of how the business has behaved.
| What to pull | Why it earns its place | What makes you stop |
|---|---|---|
| Revenue and operating margin | Shows whether growth is being bought by giving away margin | Revenue climbing steadily while margin falls just as steadily |
| Net profit against operating cash flow | The most reliable accounting warning there is | Profit rising for years while cash flow stays flat |
| ROCE — return on capital employed | Whether the business earns more than its capital costs it | Persistently in single digits with no explanation offered |
| Debt, and interest cover | Whether the owners or the lenders hold the future | Debt rising while the commentary describes profits as strong |
| Promoter holding and pledge, quarter by quarter | What the people with the most information are doing | Stake falling and pledge rising in the same period |
The three-line verdict
End every first pass in writing, even the ones you reject. Three lines: what the business does, what would have to be true for it to be worth more than today’s price, and what you did not check. The third line is the most valuable of the three, because it is where the second evening starts — and because a rejection with a reason can be revisited in two years, while a rejection you cannot remember cannot.
The first pass turns up something awkward
Ninety minutes in, everything looks reasonable except one thing: operating cash flow has fallen short of net profit in each of the last four years, and receivable days have gone from 62 to 118. The business is understandable, the sector is growing, and it is now half past ten.
Twenty minutes into a first pass you find that the auditor issued a qualified opinion last year and that promoter pledging has gone from 12% to 48%. The company is growing revenue at 30%. What now?
Bhai ne naam bheja, saath mein teen aag wale emoji, aur koi wajah nahi. Aapke paas dedh ghanta hai. Us dedh ghante ka kaam kharidna tay karna nahi hai — sasti mein "na" bolna hai. Kya bechti hai, nikal paoge ya nahi, promoter ne shares girvi toh nahi rakhe, paanch saal ka profit aur cash flow saath chal rahe hain ya nahi, auditor ne saaf sign kiya ya nahi. Paanch mein se chaar naam yahin khatam ho jaate hain — aur yahi to chahiye.
- A first pass exists to say no cheaply, not to reach a buying decision.
- Twenty-minute reject test: what it does, whether you can exit, shareholding and pledge, profit against cash flow, the audit opinion.
- Then five numbers over five years — margins, cash conversion, ROCE, debt, promoter behaviour.
- Finish in writing, including what you did not check; that line is where the next evening starts.
- Never begin with the chart or somebody else’s target price — both supply an answer before you have a question.
Mark it done to track your progress through the curriculum.
Common questions
Short, direct answers to what people ask about this topic.
- how to quickly analyse a stock before buying
- A useful first pass is to check what the company actually does in your own words, whether you can buy and sell it easily, the shareholding pattern and any promoter pledge, several years of net profit beside operating cash flow, and the level of debt. The purpose is to say no cheaply and decide whether a company deserves more of your time — not to reach a buy decision in one evening.
- where can I find a company shareholding pattern
- Every listed Indian company files its shareholding pattern with NSE and BSE each quarter, and it is free to read on both exchange websites and carried by most screeners. It shows who holds the shares, whether the promoter stake has been falling, and how much of the promoter holding is pledged with lenders — a check worth doing early because heavy pledging can end the analysis on its own.
- what is a good debt to equity ratio
- For most non-financial Indian companies a debt-to-equity below 1 is generally considered conservative, and many quality businesses run well under that. The safe level depends heavily on the industry, because utilities and toll roads with steady cash flows carry debt that would be dangerous for a cyclical manufacturer, and the ratio does not apply to banks at all.
- ROCE meaning in fundamental analysis
- Return on capital employed measures the operating profit a business earns relative to all the capital it uses, both equity and debt. Because it is not distorted by how the company is financed, it is one of the most reliable single gauges of business quality; a company sustaining a high ROCE for years usually has some durable advantage protecting it.