Dear Friends,

Here is a simple step by step formula/method to analyze Small and Micro-Cap Companies

The market capitalization of these companies is generally ₹3,000 Crores ( 30 billion Indian Rupees- 31.8 million to 31.9 million USD) or less.

So, what exactly should you look for?

Step 1: Dividend Yield

First, check the Dividend Yield.
Verify whether the company has been consistently paying dividends (profit distribution).
If it has, you may proceed to the next stage.
If it hasn't, then look at ROE and ROCE next.

Step 2: ROE & ROCE

Examine both ROE (Return on Equity) and ROCE (Return on Capital Employed).
If both figures are above 15%, it is a positive sign, and you may proceed to the next stage.
If both figures are below 15%, check the CAPEX.

Step 3: CAPEX (Capital Expenditure)

Check whether the company has recently undertaken any CAPEX (Capital Expenditure).
If CAPEX has been undertaken, it is normal for ROE and ROCE to appear lower over the next few years.
If ROE and ROCE are low *without* any corresponding CAPEX, you may choose to avoid that company.

Final Filter Flow:

Dividend → ROE/ROCE → CAPEX → Decision

This serves merely as a basic filtering strategy.

It is not the final decision, but rather the initial stage of analysis.

Key factors that must be examined in the subsequent stages include:

• Debt Level
• Cash Flow
• Promoter Holding
• Valuation Ratios (such as P/E, P/B, etc.)

Most importantly, do not just blindly trust what anyone tells you.

Get, filter, Analyse the data independently and make your own informed decision to act!

Happy Investing!