Every professional analyst asks 7 questions before investing in a stock. Most retail investors check 1-2. The difference is not intelligence — it's a framework. This is the framework. We'll apply it live to TCS.

The Problem With How Most Investors Analyse Stocks

The typical retail investor approach:

  1. See someone recommend a stock on Twitter/Zerodha/YouTube
  2. Check today's stock price
  3. Look at the PE ratio (maybe)
  4. Check last quarter's revenue growth
  5. Buy

This is not analysis. It's social proof dressed up as research. It's also why most retail investors underperform long-term.

Professional analysts don't use fewer data points — they use more. But they organise those data points into a structured framework: seven questions that together paint a complete picture of any business.

This article gives you that framework, walks you through applying it to a real Indian company (TCS), and shows you how to replicate it for any stock on your watchlist.

The 7 Questions Framework

Question 1 (Profitability)       → Is this a profitable business?
Question 2 (Growth)              → Is it growing — and growing well?
Question 3 (Valuation)           → Am I paying a fair price?
Question 4 (Efficiency)          → Is management genuinely good at the job?
Question 5 (Financial Safety)    → Could this company get into trouble?
Question 6 (Cash Quality)        → Is the profit real money?
Question 7 (Shareholder Returns) → Does the company reward me for owning it?

None of these questions stands alone. The art is in understanding how they interact — where they confirm each other and where they create tension.

Let's apply each question to Tata Consultancy Services (TCS).

Note: Approximate figures used for illustration. Always verify current data before investment decisions.

Question 1 — Profitability: Is This a Profitable Business?

Metrics: Revenue, Gross Margin, EBITDA Margin, PAT Margin, EPS trend

What to look for: Consistent profitability. Margins that are stable or expanding. EPS growing year over year.

TCS FY2024 (approx):

  • Revenue: ~₹2,40,000 crore
  • EBITDA Margin: ~24.6%
  • PAT: ~₹46,000 crore
  • PAT Margin: ~19.2%
  • EPS: ~₹125 per share (approx)
  • EPS growth YoY: ~9%

Verdict: TCS is consistently one of the most profitable large companies in India. A PAT Margin of ~19% means for every ₹100 of revenue, ~₹19 reaches shareholders. The EBITDA Margin has been remarkably stable at 24-26% for over a decade — testament to pricing power and operational discipline.

One concern: EPS growth of 9% is decent but slightly below historical norms. This reflects a broader IT sector slowdown in FY2024 due to reduced tech spending by Western clients.

Profitability score: Strong ✓

Question 2 — Growth: Is It Growing — and Growing Well?

Metrics: 3-year/5-year Revenue CAGR, PAT CAGR, EPS CAGR, Margin trend

What to look for: Revenue and profit growing together (or profit growing faster). Margins stable or expanding.

TCS approximate track record:

  • 5-year Revenue CAGR: ~10-12%
  • 5-year EPS CAGR: ~12-14%
  • Margin trajectory: Stable with minor fluctuations
  • Current growth: Moderating (tech sector spending slowdown in FY2024)

Verdict: EPS CAGR slightly exceeding Revenue CAGR signals that TCS has been gaining operational efficiency over time. However, the recent slowdown in revenue growth is real — FY2024 saw tepid growth as global tech spending contracted. Management commentary expects recovery in FY2025-26 as enterprises resume delayed transformation projects.

Growth score: Moderate, with forward improvement expected ✓

Question 3 — Valuation: Am I Paying a Fair Price?

Metrics: PE Ratio, PEG Ratio, EV/EBITDA, comparison to sector peers and historical range

What to look for: Valuation that's reasonable relative to growth rate, sector, and company's own history.

TCS approximate FY2024 valuation:

  • PE: ~28-32x (varies with market conditions)
  • Historical PE range: 20-35x
  • Sector average PE: 22-30x (IT large-caps)
  • EV/EBITDA: ~20-24x
  • PEG Ratio: ~2.0-2.5x (depending on growth assumption)

Verdict: TCS typically commands a premium PE for its consistency, dividend track record, and blue-chip status. A PE of 28-32x for a business growing EPS at 10-12% with 19% PAT margins is defensible — but not cheap.

If EPS growth accelerates back to 15%+ as the IT sector recovers, the current valuation would look very reasonable in retrospect. If growth stays at 8-9%, the premium PE makes the stock roughly fairly valued.

Valuation score: Fairly valued to slight premium — monitor growth recovery ✓

Question 4 — Efficiency: Is Management Genuinely Good?

Metrics: ROE, ROCE, ROA, DuPont analysis

What to look for: ROE and ROCE both high, close to each other (genuine efficiency, not debt-driven ROE). Consistent over multiple years.

TCS approximate FY2024:

  • ROE: ~55-60%
  • ROCE: ~50-55%
  • Debt: Near zero (negligible)

Verdict: This is the gold standard. ROE and ROCE are both exceptional AND roughly equal — confirming that there is no debt artificially inflating ROE. TCS generates ₹55 of profit for every ₹100 of shareholder equity — without any debt. This reflects high margins, efficient asset turnover, and disciplined capital allocation.

Efficiency score: Exceptional ✓✓

Question 5 — Financial Safety: Could This Company Get Into Trouble?

Metrics: D/E Ratio, Interest Coverage Ratio, Current Ratio, Cash on balance sheet

What to look for: Low debt, high interest coverage, comfortable current ratio. No red flags.

TCS FY2024:

  • Total debt: Negligible / near zero
  • D/E: ~0.0-0.1x
  • Interest Coverage: Not meaningful (essentially infinite — no interest to pay)
  • Cash & investments: ₹55,000-60,000 crore+
  • Current Ratio: >2.5

Verdict: TCS is arguably the most financially safe large company in India. It holds more cash than debt. There is zero financial distress risk. No matter what happens to credit markets, interest rates, or the economy, TCS's balance sheet is a fortress.

Financial safety score: Exceptional ✓✓

Question 6 — Cash Quality: Is the Profit Real Money?

Metrics: Operating Cash Flow vs Net Profit, Free Cash Flow, FCF Margin, FCF Yield

What to look for: OCF close to or above Net Profit. Positive, growing FCF. High FCF Margin.

TCS approximate FY2024:

  • Net Profit: ~₹46,000 crore
  • Operating Cash Flow: ~₹50,000-55,000 crore
  • CapEx: ~₹4,000-5,000 crore
  • Free Cash Flow: ~₹45,000-50,000 crore
  • FCF Margin: ~18-20%

Verdict: OCF is higher than Net Profit — meaning TCS is collecting cash faster than it recognises revenue. FCF is roughly equal to Net Profit, confirming that reported profits are not an accounting illusion. They represent real money landing in the bank.

Cash quality score: Excellent ✓✓

Question 7 — Shareholder Returns: Does the Company Reward You?

Metrics: Dividend Yield, Payout Ratio, Buyback history, Total Shareholder Return

What to look for: Consistent dividends, sustainable payout ratio, history of buybacks, evidence that management returns capital efficiently.

TCS approximate FY2024:

  • Annual DPS: ~₹73-75/share (including special dividend)
  • Dividend Yield: ~1.8-2.0% at current prices
  • Payout Ratio: ~40-45%
  • Buybacks: Multiple mega-buybacks (₹16,000 cr, ₹18,000 cr in recent years)
  • 10-year total return: Among the best for large-cap India stocks

Verdict: TCS has one of India's finest capital allocation track records. Payout ratio is conservative, dividend grows steadily, AND large buybacks enhance EPS and shareholder returns. The management knows when to grow and when to return cash.

Shareholder returns score: Excellent ✓✓

Putting It Together — The Full Verdict for TCS

Question Score Key Finding
1. Profitability ✓✓ Strong ~19% PAT Margin, stable EBITDA margins
2. Growth ✓ Moderate Revenue CAGR 10-12%, slowing in FY2024
3. Valuation ✓ Fair PE 28-32x — premium but justified
4. Efficiency ✓✓ Exceptional ROEROCE55%+ with zero debt
5. Safety ✓✓ Exceptional Net cash position, zero financial risk
6. Cash quality ✓✓ Excellent FCF ≈ Net Profit, no accounting games
7. Shareholder returns ✓✓ Excellent Consistent dividends + mega buybacks

Overall: 6.5/7 — High quality business, watch growth trajectory for price entry

The one area that warrants monitoring: growth. TCS's 7-question scorecard is near-perfect on quality. The primary investment risk is paying a premium PE for a business that's temporarily growing slower than historical norms. If the IT sector recovery accelerates, today's entry looks sensible. If growth stays tepid, patience may be required.

How to Run This Analysis for Any Stock

Step 1 (2 min): Open the company's earnings page on StockMirror Go to stockmirror.in/[ticker]/earnings or use the screener. You'll see quarterly P&L, EBITDA margin, PAT growth, and Revenue growth YoY/QoQ immediately at the top — the same numbers from Questions 1 and 2.

Step 2 (3 min): Check the AI signals The Quarterly Snapshot on every earnings page shows at a glance: overall sentiment, management confidence, margin direction, earnings quality, and revenue category. These are the signals that tell you whether the numbers are trustworthy — the qualitative layer that the 7 ratios cannot provide.

Step 3 (3 min): Run Questions 3-5 (Valuation, Efficiency, Safety) Look at PE vs sector average. Check ROE vs ROCE gap. Check D/E and ICR. Are there any red flags?

Step 4 (2 min): Run Questions 6-7 (Cash and Shareholder Returns) Compare OCF to Net Profit. Check dividend history and payout ratio.

Step 5 (3 min): Form a view Where is this stock strong? Where is it weak? What's the one thing that could make this thesis wrong?

The Framework as a Checklist

□ PAT Margin > sector average? (Profitability)
□ EPS CAGR 3-year/5-year positive? (Growth)
□ PAT CAGR ≥ Revenue CAGR? (Growth quality)
□ PE < or ≈ sector average, or justified by PEG? (Valuation)
□ ROE and ROCE both healthy, close to each other? (Efficiency)
□ D/E reasonable for sector, ICR > 3? (Safety)
□ OCF ≥ 80% of Net Profit? (Cash quality)
□ Dividend payout sustainable (ratio < 60%)? (Shareholder returns)

If you check 6 or more boxes: the fundamentals suggest a quality business. If 4-5 boxes: investigate the specific weaknesses before investing. If fewer than 4: proceed with significant caution.

Common Tensions — When Metrics Disagree

High ROE, low ROCE: Debt is inflating equity returns. Quality concern.

Strong revenue growth, declining PAT Margin: Costs rising faster than revenue. Investigate before buying.

Low PE, declining EPS: Cheap for a reason. "Value trap" risk.

High FCF, low dividend: Management retaining cash. Ask: are they reinvesting well, or just hoarding? Check ROCE to see if reinvestment is productive.

High dividend yield, high payout ratio: Yield trap risk. Dividend may be cut if profits don't grow.

Strong fundamentals, very high PE: Great company, potential overprice. Quality doesn't mean value.

Using StockMirror to Run This Analysis

The 7 questions give you the metrics frame. But metrics alone tell you what happened — not whether to trust it.

Every company's earnings page on StockMirror shows the numbers from Questions 1 and 2 immediately at the top (Revenue Growth YoY/QoQ, EBITDA Growth, EBITDA Margin, PAT Growth). The AI signals — Earnings Quality, Management Confidence, Margin Direction, Revenue Category — tell you whether those numbers are clean and likely to repeat, or inflated by one-time items and optimistic management framing.

If you're tracking multiple companies across your watchlist, StockMirror's AI Analyst lets you ask across all of them in plain language: "which of my watchlist companies passed the 7-question framework this quarter?" — and get a synthesised answer without opening a single filing.

Apply the framework to any Indian company → stockmirror.in/screener

Series Complete — What You Now Know

Blog What You Learned
Blog 1: PE & PEG The foundation of valuation
Blog 2: P&L Story Revenue → EBITDA → PAT → EPS
Blog 3: Growth Story CAGR, margin expansion, operating leverage
Blog 4: Price Story 2 P/B Ratio, EV/EBITDA for different sectors
Blog 5: Efficiency Story ROE, ROCE, ROA, DuPont
Blog 6: Debt Story D/E, ICR, Current Ratio
Blog 7: Cash Story FCF vs Net Profit
Blog 8: Shareholder Story Dividends, buybacks, total return
Blog 9: Full Picture 7-question framework applied

You now have the vocabulary, the framework, and the Indian context to read any quarterly result, evaluate any company, and make informed investment decisions.

The next step: apply it.

Frequently Asked Questions

How do you analyse a stock before buying?

Ask seven questions: Is the company profitable (ROE, ROCE above 15%)? Is it growing (revenue and EPS CAGR above 12%)? Is it fairly valued (PE vs sector average, PEG below 1.5)? Is management efficient (improving asset turnover and working capital cycle)? Is debt manageable (D/E below 1, interest coverage above 3)? Is the profit real (free cash flow close to net profit)? Does it reward shareholders (dividends or buybacks)? These seven cover the full picture.

What are the most important financial ratios for stock analysis?

Six ratios cover the fundamentals: ROCE (are returns above cost of capital?), revenue CAGR (is the business growing?), PE or PEG (is the price fair for the growth?), D/E and interest coverage (is the debt safe?), and FCF margin (is the profit real cash?). No single ratio is enough — they must be read as a system.

How long does it take to properly analyse a stock?

A ratio-based screen takes 5–10 minutes with a good screener. A thorough analysis — reading 2–3 recent earnings call transcripts, checking 5-year trends in margins and cash flow, comparing to sector peers — takes 1–2 hours. The 15-minute framework in this article is designed to answer 80% of what matters before a decision.

What is the first thing to check when evaluating a stock?

Profitability — specifically ROCE. Before asking whether a stock is cheap, ask whether the business earns returns above its cost of capital. A cheap stock in a business that destroys capital is still a bad investment. Start with ROCE, then growth, then valuation. Order matters.

Which financial statements do I need to analyse a stock?

Three: the Income Statement (revenue, EBITDA, PAT, EPS), the Balance Sheet (debt, equity, assets), and the Cash Flow Statement (operating cash flow, capex, free cash flow). Most retail investors skip the Cash Flow Statement — that is where earnings quality is revealed. Read all three for 3–5 years to identify whether trends are improving or deteriorating.

Disclaimer: This article is for educational purposes only and does not constitute investment advice. Always do your own research before making investment decisions.