Financial Health – Definition, Determinants, How to calculate

  1. Fundamental Analysis
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    2. What is compound interest in investment with examples
    3. Long term investment Tips for qualitative and quantitative analysis
    4. “Annual Report Explained Understanding Company Financials and Insights “
    5. Financial Statements Guide to Understanding Profit and Loss, Balance Sheets, and Cash Flow
    6. Understanding financial statements from two different angles
    7. Profit and Loss Statement How to understand Revenue Figures and Other Key Metrics for smart Investment Decisions
    8. Understanding Profit and Loss Statement Statement Profit before tax Net Profit after tax with examples
    9. Balance Sheet Definition and Examples
    10. liability Understanding 3 types of liabilities with examples
    11. Asset Understanding types of Assets in Balance Sheet
    12. Cash Flow Statement How to Read and Understand with examples
    13. Everything about Cash Flow Statement and Financial Statement
    14. Financial Ratio An analysis of the 4 types of ratios
    15. EBITDA understanding margin formula with examples
    16. Leverage Ratio 4 types of ratios and how to calculate with formula
    17. “Operating Ratio 7 types of ratios and how to calculate with the formula and examples “
    18. 3 valuation ratios Price to Sales (P/S), Price to Book Value (P/BV) and Price to Earnings (P/E) analysis with formula
    19. How to Pick a Share Basic Best Practices for New Investors with checklist
    20. Equity Research Guide to Evaluating Share Investment Potential with checklist
    21. Discounted Cash Flow technique The Key to Evaluating Share Prices and Maximizing Investment Returns
    22. DCF Analysis A Step-by-Step Guide to Valuing Shares like a Pro with examples
    23. NPV Net Present Value What does it mean with examples
    24. When to Sell a Share A Guide to Maximizing Profits and Protecting Your Portfolio
    25. Current Assets and Noncurrent Assets: What id the Difference with examples
    26. Return on Equity ROE What It Means and How to Calculate
    27. ROE, ROA, and ROCE How to calculate with examples
    28. asset turnover ratio Definition and Understanding the Impact
    29. Inventory Turnover Ratio What It Is, How It Works and how to calculate
    30. pe ratio Understanding Price Earning Ratio to Assess a Shares
    31. economic moat Advantage  in business
    32. Equity Research Step-by-Step Checklist for Analysing Company Performance
    33. Financial Health – Definition, Determinants, How to calculate
    34. Time Value of Money Understanding and Calculating Future and Present Value
    35. Sell Shares: Factors to Consider for Profit Booking
Marketopedia / Fundamental Analysis / Financial Health – Definition, Determinants, How to calculate

Having gone through the Profit & Loss statement, we now move to the Balance Sheet. Here, an important line item to look at is Debt. Any significant growth in this can be a sign of financial leverage and should be viewed cautiously, as it can have a costly impact on the company’s retained earnings.

And, what is the debt for ARBL? 

Debt( INR Crs) Evaluation –

The debt has been hovering around 85Crs, and it’s encouraging to see this figure decrease compared to FY 09-10. We have already looked into the interest coverage ratio. Still, I also like to see the debt relative to Earnings before Interest and Taxes (EBIT) as an indication of how well the company deals with its finances. It is pleasing to observe that the Debt/EBIT ratio has consistently decreased.

ARBL has done a commendable job in handling its debt effectively.

How to analyse inventory 

Verifying the inventory data can be beneficial to a manufacturing company. Analysing it can help us to make the necessary decisions regarding production and supply.

  1. Growing companies often have signs that include both increasing inventory and PAT.
  2. The number of days a company holds inventory indicates management’s operational effectiveness to an extent.

The inventory number of days appears to be steady, although it may be experiencing a slight drop. We have already covered the topic of computing this figure in a previous chapter. The inventory and PAT are concurrently exhibiting signs of growth – an encouraging development.

What’s the difference between Sales & Receivables

We now examine the link between sales and receivables of the enterprise. Credit sales are a concern since they may indicate that the company is pushing products by offering unsustainable lines of credit or perhaps attractive terms to shoppers.

The company has displayed remarkable firmness. According to the table, a large part of their sales is not really backed by receivables, which is quite offsetting. Simultaneously, inventory days and the receivables as % of net sales have decreased perceptibly, demonstrating its success.


What is the cash flow from operations? 

Before investing in a company, it is essential to make sure they’re generating cash flows from operations, as this is the ultimate proof of their success. If they’re losing money, then it could be considered a red flag.

The cash flow from operations has been relatively volatile. However, it has retained a positive outlook over the last 5 years. This indicates that ARBL’s core business activities adequately produce cash and can be deemed prosperous.

What is Return on Equity (ROE)?

ROE measures, as a percentage, the return generated relative to shareholders’ equity, essentially demonstrating how successful the company’s promoters are with investing their funds in the business.

To illustrate ARBL’s ROE over the preceding 5 years:

The numbers surrounding ARBL are undoubtedly remarkable. I believe in investing in companies with an ROE of over 20%, which this company has, without relying on a heavy debt load, thus making it an especially appealing option.

However, I would strongly advice that you do your own research too and take wise investment decisions according to what suits your personal situation the best.