NISM Series 15 Research Analyst: Financial Ratio Analysis & Valuation Cheat Sheet
Financial statement analysis and equity valuation represent over 35% of the NISM Series XV Research Analyst paper. Master DuPont 3-factor ROE, ROCE, EV/EBITDA, CAPM, and Dividend Discount Models with this comprehensive formula sheet and quiz.
Quick Facts & Exam At-A-Glance
Overview & Context
To earn the SEBI-mandated NISM Series XV Research Analyst certification, candidates must clear both regulatory compliance questions (SEBI Research Analyst Regulations, 2014) and intensive financial statement analysis. Numerical problems on return ratios, enterprise value multiples, and cost of equity decide whether candidates cross the 60-mark threshold.
1. Profitability Ratios & DuPont 3-Factor ROE Analysis
Return on Equity (ROE) and Return on Capital Employed (ROCE) measure how efficiently management deploys investor funds.
ROE = Net Profit (PAT) ÷ Shareholders' EquityDuPont 3-Factor Decomposition Formula:
DuPont breaks ROE into three operational levers: Profitability, Efficiency, and Leverage.
ROE = (Net Profit Margin) × (Asset Turnover) × (Equity Multiplier)ROE = (Net Profit ÷ Sales) × (Sales ÷ Total Assets) × (Total Assets ÷ Shareholders' Equity)ROCE (Pre-Tax Capital Efficiency):
ROCE = EBIT ÷ Capital EmployedWhere Capital Employed = Total Equity + Total Debt (or Total Assets - Current Liabilities).
2. Valuation Multiples (P/E, P/B, EV/EBITDA) & Gordon Growth
Research analysts combine relative valuation multiples with discounted cash flow (DCF) models to arrive at fair intrinsic value.
| Valuation Metric | Formula | Best Used For |
|---|---|---|
| Price-to-Earnings (P/E) | Market Price per Share ÷ EPS | Profitable, mature businesses |
| PEG Ratio | P/E Ratio ÷ Annual EPS Growth Rate (%) | High-growth companies |
| Price-to-Book (P/B) | Market Price per Share ÷ Book Value per Share | Banks, NBFCs & financial services |
| Enterprise Value (EV) | Market Cap + Total Debt - Cash & Cash Equivalents | Capital-intensive & leveraged firms |
| EV / EBITDA | Enterprise Value ÷ Operating Profit before D&A | Comparing firms with different debt/tax |
Gordon Growth Model (Constant Dividend Discount Model):
Intrinsic Value (P0) = D1 ÷ (Ke - g)Where D1 = D0 × (1 + g) is next year's expected dividend, Ke is cost of equity, and g is constant perpetual growth rate (Ke > g).
3. CAPM Cost of Equity, Liquidity & Solvency Ratios
Capital Asset Pricing Model (CAPM):
Cost of Equity (Ke) = Rf + Beta × (Rm - Rf)Where Rf is the risk-free rate (e.g., 10-year G-Sec yield), Beta measures systematic market risk, and (Rm - Rf) is the Equity Risk Premium.
Essential Liquidity & Solvency Formulas:
- Current Ratio =
Current Assets ÷ Current Liabilities - Quick (Acid-Test) Ratio =
(Current Assets - Inventory - Prepaid Expenses) ÷ Current Liabilities - Interest Coverage Ratio =
EBIT ÷ Interest Expense(Measures ability to service debt interest) - Sustainable Growth Rate (g) =
ROE × (1 - Dividend Payout Ratio)=ROE × Retention Ratio
Practice Test: NISM Series 15 Research Analyst
Test your comprehension right now with high-yield multiple-choice questions. Select an answer to see instant explanations.
A company reports a Net Profit Margin of 12%, an Asset Turnover ratio of 1.5x, and a Financial Leverage (Equity Multiplier) of 2.0x. Using the DuPont 3-factor formula, what is the company's Return on Equity (ROE)?
ABC Ltd. has a market capitalization of ₹4,500 crore, total debt of ₹1,200 crore, and cash & liquid investments of ₹700 crore. If its annual EBITDA is ₹500 crore, what is its EV/EBITDA multiple?
The 10-year risk-free government bond yield is 7.0%, and the expected market return is 13.0%. If a stock has a Beta of 1.25, what is its Cost of Equity under CAPM?
A mature utility company expects to pay a dividend (D1) of ₹12 per share next year. Its cost of equity is 12% and dividends are expected to grow perpetually at 4% per annum. What is the intrinsic share price using the Gordon Growth Model?
A firm achieves an ROE of 20% and maintains a Dividend Payout Ratio of 35%. What is its Sustainable Growth Rate (g)?
Which valuation multiple is MOST appropriate when valuing Banks and Non-Banking Financial Companies (NBFCs)?
Frequently Asked Questions (FAQ)
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