ANALYSISM23

Ratio Analysis and Quality Metrics

Use advanced ratios like ROCE, EV/EBITDA, and free cash flow yield to compare Indian companies across sectors.

Learning Goals

  • Learn the most reliable valuation and efficiency ratios.
  • Interpret ROE, ROCE, EV/EBITDA, and return on capital.
  • Detect companies with accounting leverage or poor cash conversion.

Core Concepts

ROCE and ROE
Beginner

ROCE measures profit per unit of capital employed. ROE measures return on shareholders’ equity. High and stable ratios indicate efficient capital use.

EV/EBITDA
Beginner

Enterprise value to EBITDA compares value across capital structures. It is useful for companies with different debt levels.

Free Cash Flow Yield
Beginner

Free cash flow divided by enterprise value shows how much cash the business produces relative to its valuation.

Indian Market Context

Indian manufacturing and financial services companies often have very different capital intensities, making EV/EBITDA and ROCE especially useful.

Hands-On Calculators

Future Value Calculator
Future Value₹3,10,585

Gain: ₹2,10,585

Behavioral Insight

🧠 METRIC BLINDNESS: Investors focus on popular ratios like PE and ignore more meaningful measures of business quality.

From History

Ratio Analysis and Quality Metrics

Companies with high ROCE and low leverage, like Asian Paints, have often delivered consistent long-term returns in India.

Take the Quiz

Module Quiz
EV/EBITDA is useful because it:
Free cash flow is always higher than net income.
A high ROCE means the business: