Complete Stock Verification Guide

Use this guide after you finish the book, or any time you are reviewing a stock in real life.

It is the final decision framework for the book:

It forces business, financial, valuation, sector, and portfolio discipline.
It relies on primary sources first, then convenience tools.
It is designed for Indian listed equities, but the logic is portable.

Source Priority

Latest consolidated annual report.
Latest quarterly results and exchange filings.
Investor presentation and earnings call material.
Screener.in and other aggregators for convenience only.
Price, market cap, and trading data from the exchange or a trusted broker feed.

If a convenience source conflicts with a filing, the filing wins.

Quick Links

Tool	Use
Book Index	Full chapter map
CHEATSHEET.md	Ratios and formulas
CHECKLIST.md	Short action lists
Stock Verifier	Full stock review workflow
Quick Analyzer	Fast input-based verdict
Part Practice Labs	Hands-on chapter drills

How to Use This Guide

1. Write the stock name and analysis date.
2. Start with the latest annual report and quarterly filings.
3. Complete Phase 0 to Phase 8 in order.
4. Mark each check PASS / FAIL / WARN.
5. Any critical fail stops the process.
6. Write the thesis and invalidation triggers before buying.

Stock Under Review

Field	Entry
Stock name / NSE symbol
Sector
Current price
Market cap
Date of analysis
Already holding?	Yes / No
Entry price, if holding

Master Flow

flowchart TB P0[Phase 0: Investor Ready?] -->|Pass| P1[Phase 1: Business Quality] P0 -->|Fail| STOP[Stop] P1 --> P2[Phase 2: Financial Statements] P2 --> P3[Phase 3: Fundamental Ratios] P3 --> P4[Phase 4: Value vs Growth Fit] P4 --> P5[Phase 5: Quant Screens] P5 --> P6[Phase 6: Sector Checks] P6 --> P7[Phase 7: Portfolio Fit] P7 --> P8[Phase 8: Final Thesis] P8 --> V{Verdict} V --> BUY[Buy / Accumulate] V --> WATCH[Watchlist / Stagger] V --> HOLD[Hold] V --> AVOID[Avoid / Reject] V --> EXIT[Exit]

Phase 0: Investor Readiness

Parts used: Part 01, Part 08, Part 14

Before stock selection, make sure personal finance is not broken.

#	Check	Reference
0.1	Emergency fund covers 6-12 months of expenses	Ch 98
0.2	High-interest debt is cleared	Part 01 overview
0.3	Investing habit is consistent, not random	Ch 03
0.4	Asset allocation is defined	Ch 63
0.5	Emotional discipline is in place	Ch 02

Gate: If 0.1 or 0.2 fails, fix personal finance first. Do not move to stock picking.

Phase 1: Business Quality

Parts used: Part 04, Part 05, Part 07, Part 09

Circle of Competence

#	Question	Notes
1.1	Can you explain the business model in 2 sentences?
1.2	Do you know how the company makes money?
1.3	Is the industry growing, stable, or declining?
1.4	Is this inside your circle of competence?	Ch 36

Critical fail: If 1.1 or 1.2 is "No", reject the stock unless you are willing to do deeper study first.

Economic Moat

Moat source	Present?	Evidence
Brand / pricing power
Cost advantage
Switching costs
Network effects
Regulatory / license barrier		Ch 46

Interpretation: 0-1 weak, 2-3 moderate, 4-5 strong.

Management and Governance

#	Check	Red flag if
1.5	Promoter holding is stable or improving	Falling sharply for 3+ years
1.6	Promoter pledge is low	High pledge or rising pledge
1.7	Capital allocation track record is sensible	Repeated dilution or bad acquisitions
1.8	Related-party transactions look normal	Unusual or opaque RPTs
1.9	Auditor opinion is clean	Qualification, emphasis, or frequent auditor changes

Critical fail: Cannot explain the business, or governance is weak enough to damage trust.

Phase 2: Financial Statements

Part used: Part 02

Use the latest consolidated annual report and the latest quarterly filing.

Profit and Loss

Metric	Year -4	Year -3	Year -2	Year -1	Latest	Trend
Revenue
EBITDA margin
PAT
EPS

#	Check	Pass?
2.1	Revenue is growing over 3-5 years, or there is a credible turnaround
2.2	PAT is not driven mainly by one-time items
2.3	Margins are stable or expanding

Balance Sheet

Debt / Equity = Total Debt / Shareholders' Equity

Metric	Latest	Comment
Total debt
Shareholders' equity
Debt / Equity
Receivable days trend
Inventory days trend

#	Check	Pass?
2.4	Debt is manageable for the sector
2.5	Book value is growing over time
2.6	Working capital is not exploding

Cash Flow

FCF = Cash from Operations - Capex

Item	Latest FY	Comment
Cash from operations
Capex
Free cash flow
FCF vs PAT

#	Check	Pass?
2.7	FCF is positive, or there is a clear path to positive FCF
2.8	CFO broadly tracks PAT over time
2.9	FCF covers dividends, if the stock is a dividend story

Critical fail: CFO is much weaker than PAT for multiple years and management has no clean explanation.

Annual Report Scan

Section	What to check
Chairman's letter	Honest tone, matches numbers
MD&A	Risks are acknowledged, not hidden
Auditor report	Clean opinion, no worrying emphasis
Contingent liabilities	Material items explained clearly
Accounting policy changes	Reasonable and disclosed

For banks and other financials, replace debt focus with capital adequacy, asset quality, NIM, CASA, and ROA.

Phase 3: Fundamental Ratios

Part used: Part 03

Ratio	Formula	Strong	Caution
ROE	PAT / Equity	> 15%	< 10%
ROCE	EBIT / Capital employed	> 15%	< 12%
Debt / Equity	Debt / Equity	< 0.5 for non-financials	> 1.5
Interest coverage	EBIT / Interest	> 3x	< 1.5x
P/E	Price / EPS	Reasonable vs peers	Extreme vs peers
P/B	Price / BVPS	Justified by ROE	High without support
PEG	P/E / growth	< 1.5	> 2
FCF yield	FCF / Market cap	Positive and healthy	Negative
Dividend yield	DPS / Price	Sustainable	FCF cannot fund dividend

DuPont Check

#	Question	Pass?
3.1	ROE is high for 3+ years
3.2	ROCE is not far below ROE unless the business model justifies it
3.3	High ROE comes from operations, not only leverage

Critical fail: High ROE is mostly leverage-driven and the balance sheet is stretched.

Banking note: For banks and NBFCs, P/B, ROA, NIM, CASA, GNPA, NNPA, PCR, and CAR matter more than plain D/E.

Phase 4: Value vs Growth Fit

Parts used: Part 04, Part 05

Intrinsic Value and Margin of Safety

MOS = (Intrinsic Value - Market Price) / Intrinsic Value * 100

Method	Estimate	Notes
Graham Number		Ch 30
Sector-adjusted fair P/E
Conservative DCF		Ch 33
Average intrinsic value
Current price
Margin of safety

MOS	Zone	Typical action
25%+	Deep value	Strong buy candidate if quality is intact
15-25%	Buy zone	Accumulate in tranches
0-15%	Fair	Hold, wait, or SIP only
< 0%	Expensive	Watchlist or avoid

Value Trap Filter

Reject if 3 or more are true:

#	Value trap signal	Yes?
4.1	Low P/E but revenue is declining for 3+ years
4.2	High dividend but FCF cannot fund it
4.3	Industry is structurally disrupted
4.4	High debt plus falling margins
4.5	The market is pricing a permanent decline

Critical fail: Three or more value-trap signals are present.

Growth Quality

#	Check	Pass?
4.6	Revenue growth is above 15% over a sensible base period
4.7	EPS growth is keeping pace with revenue growth
4.8	PEG is 1.5 or lower
4.9	Scalability is visible as scale rises	Ch 45
4.10	There is a clear 5-year runway

Mr. Market Check

Question	Answer
Why is the price moving recently?
Did the business change, or only sentiment?
Would you own 100% of the business for 10 years?

Phase 5: Quant Screens

Part used: Part 10

Quant screens are support tools, not a substitute for the thesis.

Screen	Value	Pass?	Guide
Piotroski F-Score	/9	7+	Ch 72
Altman Z-Score		Above distress zone	Ch 71
PEG ratio		1.5 or lower	Ch 73
DCF sanity check		Intrinsic value supports the price	Ch 74

Important: Altman Z-Score is most useful for manufacturing and asset-heavy businesses. Do not force it onto banks or other financials.

#	Check	Pass?
5.1	F-Score is strong, or the quality story is manually clear
5.2	No meaningful distress signal is visible
5.3	The price is not assuming perfection

Phase 6: Sector Checks

Parts used: Part 11, Part 13

Use only the sector block that matches the company.

Banking

Metric	Pass guide
NIM	Healthy and stable
CASA	Strong and improving
GNPA	Low or improving
NNPA	Low
PCR	Comfortable
ROA	Above 1% is often a useful guide
CAR	Adequate buffer

Core idea: Banking is an asset-quality business, not just an earnings-growth story.

Defence / PSU Industrial

Metric	Pass guide
Order book	Visible multi-year runway
Order book to revenue	Strong enough to support future growth
Execution	Delivery history is credible
Margin trend	Stable or improving
Working capital	Not getting out of hand

IT / Services

Metric	Pass guide
Revenue growth	Stable
Attrition	Not spiking
Dollar revenue mix	Understand currency exposure
Client concentration	No dangerous dependence
Deal pipeline	Visible

Power / Infrastructure / NBFC

Metric	Pass guide
Sector KPI	PLF, spread, or NIM as applicable
Regulatory risk	Understood
Asset quality / project delays	Acceptable
Receivables	Under control

General / Other Sectors

#	Check	Pass?
6.1	You identified the correct sector KPI
6.2	You compared the company with at least 2 peers
6.3	You noted the macro or policy tailwind or headwind

Phase 7: Portfolio Fit

Parts used: Part 06, Part 12

Even a good stock can become a bad decision if the portfolio is wrong.

#	Check	Pass?
7.1	The stock fits the current asset allocation
7.2	Single-stock exposure is reasonable for your risk profile
7.3	Sector exposure is not already too concentrated
7.4	Correlation with existing holdings is acceptable
7.5	Entry plan is defined: lump sum, 2-3 tranches, or SIP
7.6	Total number of holdings stays manageable

Exit Rules

Exit or reduce if any of these are true:

#	Exit trigger	Yes?
E.1	The investment thesis is broken
E.2	Governance or accounting risk has emerged
E.3	Financial quality is deteriorating for 2+ quarters
E.4	Price is far above intrinsic value and re-rating is complete
E.5	The portfolio risk budget is broken

Do not exit only because the price is down 10-20% while the thesis is intact.

Phase 8: Final Thesis

Part used: Part 09

Write the thesis before buying, not after.

Thesis Template

Why is this a good business?
Which 3 metrics prove the quality?
Why is the price attractive now?

Invalidation Triggers

What would make you wrong on the business?
What would make you wrong on the valuation?

Review Date

Set the next review date here: ____________________

Master Scorecard

Phase	Max points	Your score	Critical fail
0 - Investor ready	5	/5	Emergency fund or debt problem
1 - Business quality	10	/10	Cannot explain the business or governance is weak
2 - Financial statements	9	/9	CFO quality or audit concern
3 - Fundamental ratios	10	/10	Leverage trap or broken quality
4 - Valuation and traps	10	/10	3+ value traps
5 - Quant screens	3	/3	Distress signal
6 - Sector checks	3	/3	Wrong KPI or sector risk ignored
7 - Portfolio fit	6	/6	Position sizing or concentration problem
Total	56	/56

Scoring guide

Total score	Quality grade	Typical verdict
45-56	A	Buy / Accumulate, if MOS is also acceptable
35-44	B	Staggered Buy / Hold
25-34	C	Watchlist
15-24	D	Avoid
< 15 or any critical fail	F	Reject / Exit

Verdict Matrix

Use both the score and the margin of safety.

Score	MOS >= 20%	MOS 10-20%	MOS 0-10%	MOS < 0%
45+	Strong Buy	Buy / SIP	Hold / Small add	Wait
35-44	Buy staggered	Watchlist	Hold only	Avoid new
25-34	Watchlist	Avoid	Avoid	Reject
< 25	Reject	Reject	Reject	Reject

Final Decision

Choose one:

BUY / STAGGERED BUY / HOLD / WATCHLIST / AVOID / EXIT / REJECT

Position Size Guide

Conviction	MOS	Suggested size
High	25%+	Up to 8-10%
Medium	15-25%	5-7%
Low or first entry	10-15%	2-3%

For most retail portfolios, do not exceed 10% in a single stock.

Quick Reject Scan

If any two of these are true and there is no strong counter-thesis, stop:

Revenue is falling for 2+ years.
FCF is negative while dividends are being paid aggressively.
Promoter pledge is high or rising.
Auditor is qualified, or auditor changes keep happening.
D/E is high for a non-financial company and ROCE is falling.
PEG is above 2 while growth is slowing.
CFO is much weaker than PAT for 2+ years.
The stock is up 100%+ in 12 months and MOS is negative.
You cannot explain the business model in simple words.
You bought only because of a tip, a chat group, or hype.

Book Part Map

Phase	Book parts	Key chapters
0	01, 08, 14	01-03, 63-66, 98
1	04, 05, 07, 09	28-41, 42-51, 61-62, 67-70
2	02	06-15
3	03	16-27
4	04, 05	28-41, 42-51
5	10	71-76
6	11, 13	77-84, 93-97
7	06, 12	52-60, 85-92
8	09	67-70

After You Decide

Action	Tool
Log the decision	Investment journal with date, thesis, price, and review date
Re-check numbers	Stock Verifier and Quick Analyzer
Practice the framework	Part Practice Labs
Print the guide	Ctrl+P, then save as PDF
Re-verify yearly	Re-run the guide after each annual report or major quarterly change

Final Reminders

Principle	What it means here
Margin of Safety	Do not skip Phase 4
Circle of Competence	Reject what you do not understand
Mr. Market	Use price swings, do not follow them
Quality at Fair Price	Great business matters more than a cheap headline multiple
Sell discipline	Thesis broken means exit

Tax treatment can change. Check the current Finance Act and official guidance before you rely on any tax assumption.

Disclaimer: Educational content only. Not SEBI-registered investment advice. Verify the latest filings, current tax law, and your own risk profile before investing.