I recently gained enough confidence to start investing. Also, I was constantly scratching my head with the idea. I knew the best time to invest was NOW, not later or next month. I guess I just wasn’t used to pulling the trigger.
But when I got used to it, I found myself in a confusing place. Over 5,000 companies to choose from! Which should I invest in? Should I invest in one or more?
I also knew I wasn’t alone in this confusion. With 32% year-over-year growth in retail investors in 2022, choosing stocks will be a daunting start for many.
So to help some of these investors, why not provide a little stock picking guide and a list of the top 5 low-debt, high-earnings companies? Read on and find out… How to choose good stocks?
Have you ever been to a food delivery website to order food? Of course you do! I often look through different restaurants and cuisines before ordering. You don’t always follow your game plan. Sometimes your heart is hungrier than your stomach.
overview
As you look for these prospects, apply filters to your search to make it easier to find what you’re looking for. What if you had Zomato in your portfolio and could filter stocks based on what you wanted from a company?That’s where you would use his Ticker by Finology’s Screener feature.
Here’s a small screen shot of the website I ran to find some companies I could work with. Let’s understand the parameters you entered.
- Debt on Equity Y1 < 0.2: This parameter is intended to exclude stocks that had a debt-to-equity ratio of less than 0.2 in the previous fiscal year. This means that the debt owed by the company is 1/5 of the paid-up capital and 16.67% of the total funds raised by the company.
- ROE Y1 > 20: ROE stands for Return on Equity and shows the relationship between shareholders’ equity and profits earned by the company. ROE of 20% or higher is required for screeners. This means that the screening officer will look for companies that use her INR 100 of a shareholder’s money to generate a profit of his INR 20 or more.
- ROCE Y1 > 20: While ROE is an effective measure of a company’s ability to generate revenue, ROCE provides deeper insight into how efficiently a company uses its funds. ROCE is the ratio of two sides. these are:
- Operating income: This figure is obtained by adding interest and taxes back to net income or by subtracting depreciation and amortization from EBITDA. Since assets are the denominator, depreciation expense is removed and depreciation expense is the expense associated with the organization’s assets.
- Capital used: The capital used is derived using two formulas. One formula adds fixed assets and working capital to arrive at a figure that represents the use of shareholders’ funds. This figure represents the money spent in the production process through purchased assets and their maintenance costs.
Another approach is to take the difference between total assets and current liabilities to derive a figure that represents an organization’s capacity. Current liabilities are removed to represent the portion of assets that are actively used in production and not included in debt settlement.
Now that we’ve seen these metrics, let’s take a look at five blue chip stocks that meet these criteria.
Top 5 – Low Debt High Profit Companies
Here is a list of stocks you can consider if you want to start your investment journey or if these stocks meet your investment requirements.
Mariko
Marico Limited, one of India’s top consumer goods companies, specializes in the global beauty and wellness industry. Available in over 25 countries in developing markets in Asia and Africa. Develop top brands in the fields of hair care, skin care, edible oils, nutritional foods, men’s grooming, and fabric care.
- The debt-to-equity ratio is as low as 0.1. Mariko’s market cap is Rs 650 crore and total debt is only Rs 950 crore.
- The company’s annual revenue increased by 18% compared to the industry standard of 19.7%.
- The company’s annual net profit increased by 4.5% compared to the industry standard of 4.9%.
- The company’s P/E ratio is 52.3% and the sector’s P/E is 63.5%.
colgate palmolive
Colgate-Palmolive India Ltd. manufactures and trades toothpaste, toothpaste, toothbrush, mouthwash and other personal care products.
- The company is debt free. Therefore, the debt-to-equity ratio is zero.
- The company’s annual sales increased by 5.2%.
- Annual net income increased 4.1%, just below the industry standard of 4.9%.
- The company’s P/E ratio is 37.4, compared to the industry standard of 63.5%.
Jubilant Foodworks Limited
Jubilant Bhartia Group includes Jubilant FoodWorks Limited (JFL/Company), one of India’s largest food service companies. The company is the master franchisee of Dunkin’ Donuts and Domino’s Pizza, two international trademarks serving a niche segment of the culinary industry. In the Chinese food market, the company also introduced its first own brand, Hong’s Kitchen.
- Debt-to-equity ratio of 0.1 is less than 1, which is healthy. This means that its assets are primarily funded through equity.
- Last year’s return on equity (ROE) was 21.6%, up from 20% last year, demonstrating the efficient use of shareholders’ capital to generate returns.
- The interest coverage ratio is 6.5 times more than 1.5 times. This means that you can comfortably meet your interest payments on your earnings (EBIT).
- Annual turnover increased by 31.1% last year to Rs 4,437.5 Crores.
ITC Co., Ltd.
Founded in 1910, ITC is the nation’s largest tobacco producer and retailer. The five business units currently operated by ITC are FMCG Tobacco, FMCG Other, Hotels, Paperboard, Paper and Packaging, and Agribusiness.
- The company is debt-free, so its debt-to-equity ratio is zero.
- The interest coverage ratio is 571.5 times, more than 1.5 times. This means that you can comfortably meet your interest payments on your earnings (EBIT).
- The P/E ratio of 25.9 is lower than the sector’s PE ratio of 35.5.
- Return on Equity (ROE) was 24.4% last year, up from 20% last year, making efficient use of shareholders’ capital to generate returns.
Dabur India Ltd
With a portfolio of over 250 herbal and Ayurvedic products, Dabur India Limited is India’s fourth largest FMCG company and the world’s largest Ayurvedic and natural healthcare company.
- Last year’s return on equity (ROE) was 20.8%, up from 20% last year, demonstrating our efficient use of shareholders’ capital to generate returns.
- The P/E ratio of 55.7 is lower than the sector’s PE ratio of 63.8.
- Debt-to-equity ratio of 0.1 is less than 1, which is healthy. This means that its assets are primarily funded through equity.
- The company’s ROCE is well above 20%
Conclusion
This is just one example of how a custom screen can be used to search for stocks. But for those who don’t want to work hard with custom screens but still need a plan, better, or should I say easier. Recipe recommendationanother bundle offering below Finology OneIt simplifies your financial goals and helps you plan accordingly based on your risk profile. It provides insight and is much better than your monthly credit score.
It’s important to remember that there is no “one size fits all” solution. Therefore, you are responsible for your investment and we recommend that you always conduct your own due diligence. Remember, it’s better to stay safe than sorry.