Fundamentals

Ten numbers that describe a company. None of them tells you what the stock does next week, and that is not what they are for.

Size, price and earnings

Market capitalisation — share price times shares outstanding — is what the market says the whole company is worth. It is also how the Indian market is segmented for regulatory purposes: SEBI defines large, mid and small cap by rank, and that definition governs what mutual funds are allowed to hold, which in turn drives real flows when a stock crosses a boundary.

EPS is profit divided by shares. The P/E ratio is price divided by EPS — how many rupees the market pays for one rupee of annual profit. A high P/E is not expensive and a low one is not cheap; it is a statement about expected growth, and the only useful comparisons are against the same company's history and against direct competitors. Comparing an IT company's P/E to a bank's tells you about the two industries and nothing about either stock.

Book value is assets minus liabilities, and P/B compares price to it. This matters far more for banks and financials, where the balance sheet is the business, than for a services company whose value is mostly in people and contracts that appear nowhere on it.

Quality, which is where the signal is

ROE and ROCE measure how much profit a company generates from the capital it employs. They are the closest thing in this list to a quality score: a business that has earned high returns on capital for a decade is doing something structurally, and a business that hasn't usually isn't about to start.

Debt-to-equity is how much of the business is funded by borrowing. Leverage magnifies both directions, and a highly levered company is not merely riskier — it has less room to survive a bad year, which is when the difference is decided. What counts as high is entirely sector-dependent; a ratio that would be alarming for a software firm is normal for infrastructure.

Free cash flow is cash from operations minus capital expenditure — the money actually left over. It is harder to manipulate than reported profit, which is why the gap between a company's earnings and its free cash flow is one of the more informative things on a financial statement.

Dividend yield is dividend per share over price. A high yield is sometimes a stable business returning cash and sometimes a falling share price that hasn't cut its dividend yet. The two look identical in a screener.

Fundamental versus technical, without the argument

They answer different questions. Fundamental analysis asks what a business is worth. Technical analysis asks what its price is doing. Neither answer is a substitute for the other, and the horizon decides which one is relevant: a position held for years is dominated by the business, a position held for a day is dominated by flow and positioning.

The practical version most people converge on is to use fundamentals to decide what to own and technicals to decide when — and to be honest about which of the two is actually driving any given trade.

All 10 terms in Fundamentals

Alphabetical, each with a worked example. Every one of these is searchable from the glossary index.

Book Value

A company's net worth on its balance sheet — assets minus liabilities. Per-share book value anchors the P/B ratio.

e.g. Assets ₹5,000 cr − liabilities ₹3,000 cr = ₹2,000 cr book value; ÷ 20 cr shares = ₹100 book value/share.

Debt-to-Equity

Total debt ÷ shareholders' equity — how leveraged a company is. High D/E means more risk if earnings or rates turn against it.

e.g. Debt ₹1,500 cr, equity ₹1,000 cr → D/E = 1.5 (fairly leveraged; risky if rates rise).

Dividend Yield

Annual dividend ÷ share price, as a %. The cash income you earn just for holding the stock, separate from price gains.

e.g. ₹12 annual dividend on a ₹400 share → 3% dividend yield.

EPS (Earnings Per Share)

A company's net profit divided by its number of shares — the per-share profitability that drives the P/E ratio.

e.g. Net profit ₹500 cr ÷ 50 cr shares = EPS of ₹10.

Free Cash Flow

Cash left after a company pays for operations and capital investment — the real cash available for dividends, buybacks and debt repayment.

e.g. Operating cash ₹500 cr − capex ₹200 cr = ₹300 cr free cash flow to reward shareholders or cut debt.

Fundamental vs Technical Analysis

Fundamental analysis values a business from its financials and outlook (the 'what to buy'). Technical analysis reads price and volume charts to time trades (the 'when').

e.g. Fundamentals say 'this bank is cheap and growing'; technicals say 'wait for it to reclaim its 50-DMA before buying'.

Market Capitalisation

Share price × total shares — a company's total market value. Buckets: large-cap (stable), mid-cap and small-cap (higher growth and risk).

e.g. ₹800/share × 100 crore shares = ₹80,000 cr market cap.

P/B Ratio

Price ÷ Book Value per share — compares market price to net asset value. Useful for banks and asset-heavy businesses.

e.g. Price ₹300, book value ₹150/share → P/B = 2 (trading at twice its net worth).

P/E Ratio

Price ÷ Earnings per share — how many rupees investors pay per rupee of profit. A high P/E implies high growth expectations (or overvaluation).

e.g. Price ₹500, EPS ₹25 → P/E = 20 (you pay ₹20 for every ₹1 of annual profit).

ROE / ROCE

Profitability ratios. ROE = profit ÷ shareholders' equity; ROCE = operating profit ÷ capital employed. Higher and consistent = an efficient, quality business.

e.g. Profit ₹200 cr on equity of ₹1,000 cr → ROE = 20% (a strong, capital-efficient return).

Definitions are written for people learning to read a market screen, not as legal or regulatory definitions, and nothing on this page is investment advice — see the disclaimer. Spotted something wrong or unclear? Tell us.