A measure of the volatility of a stock relative to the overall market. A beta of less than one indicates lower volatility than the market; a beta of more than one indicates higher volatility than the market.Generally Consumer and utility stocks have low beta compared to cyclicals and industrials.

It shows the historic cost of the assets as reduced by the depreciation. It is significant for evaluating Banking company stocks. Stocks of companies holding large blocks of land and other hidden assets are evaluated on this basis. It does not make sense to look at book value for companies in high growth businesses.

Cost of Capital

This is the cost of borrowing funds from the market. The ROE and the ROCE should be more then the cost of capital or else it would make little sense for the company to borrow funds. For stocks in the emerging markets the cost of capital should be 300 to 400 basis points above the risk free rate of return .

This is the net income divided by the number of shares outstanding however; both the numerator and denominator can change depending on how you define earnings and shares outstanding. The E.PS as an absolute figure means nothing and is significant only when viewed in relation to the price of the stock.

Enterprise Value

The sum total of market cap and debt. Enterprise value for cash rich companies is market cap as reduced by cash. During bear markets smart Investors are able to spot a number of companies that are available at zero or negative enterprise value. In 2002 Trent was available at Rs 60 when it had Rs 100 as cash on its balance sheet. The stock has been a multibagger since.

TEconomic Value added is the excess of ROCE over the cost of capital. Companies with higher EVA’s are able to generate higher PE’s and are generally wealth creators compared to companies that have a low or negative EVA.

A dangerous signal is generated when the stock price of a company increases faster than its earnings. Invariabily this wleads to a higher PE multiple and makes the stocks liable for decline. Generally it is better to ivest into businesses their earnings growing at an equal pace to their stock prices.

Inventory Growth vs. Sales

Inventories that are piling up and are not sold signal poor business. If the growth in inventories is greater than the growth in sales, then the company’s products are piling up, leading to a potential decline in the price as this information spreads.

Market Capitalization

The market cap is the amount of money that the acquirer would need to buy back all the outstanding shares. In case of absurd valuations the market cap reaches stupid levels. During the 2000 tech boom Himachal Futuristic sold at a market cap of Rs 20,000 crores .Multibaggers (stocks that go up a number of times) generally have a very small market cap to start with. Companies with a market cap of more then US $ 1 billion are classified as large caps, between US $ 250 million to 1 $billion as mid caps and less then 250 million as small caps. Read the section on market cap argument

Generally the weighted average of all the 30 stocks in the BSE Sensitive Index is termed as the market PE. The Market PE is inversely related with interest rates. This means that if interest rates go up the market PE contracts and vice versa. Falling interest is a rate is bullish for markets while rising interest rates are a bearish signal.

It is the number of times the sales exceeds the market cap. For companies in growth businesses the market cap to sales could be about 3 times whereas for companies in low growth businesses it should be equal to 1. The sales number are the most difficult to fudge and therefore the market cap to sales is a more reliable indicator in corporate analysis. In the 2000 technology bubble Infosys traded at a market cap to sales of more then 100!

Overpriced stock

There are many ways to indicate an overpriced stock but generally a stock will be categorized as overpriced when its PE would exceed the sustainable growth rate . For instance if Hindustan Lever Ltd (HLL) trades at a PE of 25 and investors expect the company to show an earnings growth of 10% over the next few years the stock would be considered over priced. Companies in a turnaround mode merit investment even while they have an indefinite PE For small market cap companies and companies that have a lot of inherent value the PE could be less then the growth rate.