EQUIP YOURSELF TO MAKE INVESTMENTS DECISIONS YOURSELF

To equip yourself for an effective investment plan you should research about :

Financial Strength 

Financial Leverage
Debt to Equity (D/E)
Interest Coverage
Current Ratio

Quick ratio

Valuation Ratios

Price to Earnings (P/E)
Price to Sale (P/S)
Price to Book (P/B)
Earning Yield
Dividend Yield
Cash Return

Management Side Effectiveness 

Return on Assets (ROA)
Return on Equity (ROE)
Return to Investment Capital (ROC)

Effectiveness

Free Cash Flow (FCF)
Discounted Cash Flow (DCF)
Intrinsic value

Practice Explanation based on Figure 1-2 below

Lets see Opto Circuits India Ltd - Stock Research & Analysis (15 Dec 2008)
The Annual report shows the company grown has grown so fast.Lets Analysis step by step

Reasons

Strong foundation
Stents-the growth engine
Strategic acquisitions
Strong Distribution Network

How sustainable is this growth likely to be in future?

Quality of this growth

Competitive advantage in Core non-invasive business
Sensors: Opto has now emerged as the largest supplier of SpO2 sensors
Patient monitors: New launches to fuel growth
Acquisition of Criticare Systems to widen product portfolio
Invasive Business – future growth engine
Opto’s stents are of superior quality
DIOR: a revolutionary product –launched Feb 2007
Huge Domestic market potential
Growing Innovation focus - R&D, licenses, trials and Patents protection
Niche Segments -Competitive barriers work to Opto’s favour

Profitability

There are these 3 levers that can boost Return on Equity (ROE) - net margins, asset turnover, and financial leverage. (Because ROE = Net Margin x Asset Turnover x Financial Leverage).




Sources of Profitability

Sales
Cost of goods sold

Gross margin
Selling and operating expenses
Operating margin

Fiscal year 07 shows negative free cash flow. The cash flow was negative because the Operating level and is a cause of concern.

Analysis 

Investors should watch this negative cash flow closely. It could be the is catching early signs of improvement and/or worsening of its business operations.

But Opto Circuits has solid ROEs and ROICs margins so we can analysis that Opto Circuits is still in sound financial health

So, what does these negative cash flows indicates?
It's might be an indication that Opto Circuits is re-investing the cash wisely.

After the financial health check, we should check for a solid foundation.

Financial leverage

Debt to Equity(D/E)
Interest Coverage
Current Ratio
Quick ratio

The next step is to analysis the Risks factors as follows

Risks/Bear Case

Litigation Risk
Technological obsolescence
Debtor days on the higher side
Foreign Exchange Risks    

Management

Compensation
Character
Running the Business
Performance
Self-Confidence

                                                                                    The End.